McDonald's debut of premium coffee stirs up rivals

Coffeehouse marketers gave drinkers a free jolt of java Wednesday, marking the start of an all-out war in the $8.3 billion business of beans and ready-to-drink caffeine concoctions.

Starbucks (SBUX) and Dunkin' Donuts are brewing for a battle over McDonald's (MCD) national rollout of its premium roast coffee, the fast-food giant's much-anticipated entry into the premium coffee business.

"This is the cola wars of the 2000s," says John Gilbert, vice president of marketing at Dunkin' Donuts, the 4,500-store chain based in Randolph, Mass. "It's been coming for a while."

To get consumers to wake up and smell their brands, Starbucks poured an estimated half-million 12-ounce cups of coffee at its 7,500 stores nationwide and Dunkin' Donuts provided free taxi rides in Boston and New York and sample shots of its Hot Turbo coffee, a regular cup with a shot of espresso.

The brands are vying for their fix of the premium coffee business, which is expected to reach about $19 billion in the next five years, according to sales tracker Mintel. Convenience store giant 7-Eleven boosted its coffee program last year with new flavors and resealable cups. And on April 3, beverage giant Coca-Cola (KO) will launch Coca-Cola Blak, a Coke-and-coffee combination.

McDonald's, with 13,700 U.S. locations, wants its share. "One of the primary ways people select where they buy coffee is location," says Mintel market analyst Bill Hulkower. "If it's faster and easier to get coffee at a McDonald's drive-through, then the Starbucks brand may not be as powerful."

But the Seattle-based chain behind the nation's coffee craze is ready for the battle. "It's a reflection that customers are demanding great coffee, something Starbucks has been doing for 30 years," says Brad Stevens, vice president of marketing for Starbucks, which promoted the giveaway in newspaper and radio ads in 12 cities.

At least one Starbucks fan is unlikely to make the switch. "I don't frequent McDonald's," says Stephen Lubben, 34, a law professor from Hoboken, N.J., as he sipped a grande, three-shot, non-fat latte Wednesday. "The fact they make good coffee isn't going to change that."
McDonald's will still try. Coupons in last Sunday's papers can be redeemed for a free 12-ounce serving of the 100% Arabica coffee through April 12.

"This is a great opportunity to deliver a premium cup of coffee at a great value," says Danya Proud, McDonald's spokeswoman. "It complements our existing breakfast menu lineup."

Hulkower adds that food choice will influence decisions. "It will depend on whether people want an Egg McMuffin with their coffee, or a cranberry muffin."