McCafe breaching coffee market

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McDonald’s: Breaching the Luxury Coffee Market

Daryl Coleman
Connie Gao
Heejae Kim

McDonald’s Corporation, the world’s largest fast food restaurant chain, owns and franchises more than 31,000 restaurants in 120 countries.1 McDonald’s owes much of its success to the standardization of its fast food products, which include the Big Mac and the Happy Meal.
McDonald’s has had a reputation of serving cheap, quick, and unhealthful foods. Recently, documentaries such as Super Size Me has tested that reputation and induced the corporation to adopt a more health-conscious stance by introducing healthier items such as salads and wraps to the menu. Nonetheless, McDonald’s revenues are steadily increasing,
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One aims to start an in-store line of espresso drinks fully integrated with the current menu, while the other calls for the creation of a completely different restaurant. Note: although McCafe is the name of the McDonald’s coffee and espresso line, here we will only refer to McCafe as the store.

Why Should McDonald’s Enter the Specialty Coffee Market?
There are still profits to be made. Starbucks’ revenue is growing, though its growth has declined in 2008. Due to the economic downturn, people are less willing to pay $4 for a drink at
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http://money.cnn.com/news/newsfeeds/articles/djf500/200903051645DOWJONESDJONLINE001045_FORTUNE5.htm http://findarticles.com/p/articles/mi_m3190/is_20_35/ai_74700848 5 http://seekingalpha.com/article/73378-mcdonald-s-q1-2008-earnings-call-transcript?source=homepage_transcripts_sidebar&page=-1 6 http://findarticles.com/p/articles/mi_m3190/is_23_39/ai_n13808203 4

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Starbucks than in previous years. Consumers are reevaluating the value of the product they are purchasing and are looking for substitutes. Due to the weakening of Starbucks’ grasp on the market, it is a prime time for McDonald’s to step in and offer a more affordable, mid-range quality substitute. Although most of Starbucks’ customers are highly loyal to the brand and are likely to dismiss McCafe products due to McDonald’s reputation as a fast-food restaurant, there will be a fraction of Starbucks’

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