McCafe Helps Fuel McDonald's Earnings | Adweek
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McCafe Helps Fuel McDonald's Earnings

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While launching a premium coffee line smack in the middle of a recession may seem counterintuitive, the debut of McCafe helped drive McDonald's second quarter sales.
 
The chain announced a comparable U.S. sales increase of 3.5 percent and a 4.8 percent spike globally. CEO Jim Skinner, in a statement, gave credit to the chain's "balanced focus" on favorites like the Big Mac, beverage value offerings and the McCafe launch.
 
This growth comes as the restaurant category is suffering. Total restaurant traffic was down 2.6 percent March through May compared to the year prior, per the NPD Group/Crest. Quick service restaurants were off 2 percent while burger chains were flat.
 
"This is the weakest the restaurant in 28 years," said NPD restaurant industry analyst Bonnie Riggs. "McDonald's is one of the few that is faring well. They have a lot of marketing initiatives. It's not just the value menu. They are introducing a lot of new products."
 
None were bigger than McCafe premium coffees which debuted in May. The chain has vowed to spend $100 million behind the new product which takes aim squarely at Starbucks. Ironically, Starbucks said the attack has helped given its chain a boost due to all of the attention surrounding the category.
 
Overall, servings of specialty coffee has increased for the hamburger category by double digits, per NPD. A similar double digit increase occurred in the doughnut category.
 
The more expensive McCafe and Angus burger has helped create higher dollar register rings which has benefited McDonald's, said Ron Paul, president of the food service consultancy Technomic. "Their mix is changing...On a relative basis this has helped them to continue to do quite well while the industry is in a slump."
 
Maintaining this growth will continue to be challenging as competitors like Subway, KFC and others continue to offer high quality, low cost offerings, said Arjun Sen, president of the Restaurant Marketing Group. "There is a lot of compression. Everyone is moving their pricing down to $5, $4, $3. It's making it easier to cheat on McDonald's."
 
To keep help convince consumers to stay faithful, McDonald's has spent $370 million on media for the first five months of this year, per The Nielsen Company.
 
Skinner said that July sales look to be similar or better than June. He said, "I am pleased with McDonald's results and remain confident in our outlook for the year."