McDonald's (NYSE:MCD) said it understands how important the coffee culture is for consumers, and it's relaunching McCafe to prove it. On Wednesday, McDonald's said it is overhauling the McCafe experience with a new look, cafe-quality products, and a push into the refrigerated section at retail stores.
Here's what investors should know about the strategic move.
Betting on coffee
At its participating restaurants, the McDonald's McCafe relaunch features new offerings that the fast-food giant hopes will help drive revenue growth. These new products include a caramel macchiato, cappuccino options, and an Americano. In addition, McDonald's says it has "recrafted" its lattes and mochas.
McDonald's wants to bring its new products to market at a lower price than competitors. To clearly communicate McCafe's value, the fast-food company will initially offer all small McCafe specialty beverages, including its new offerings, for just $2 -- a fraction of the price for which Starbucks sells similar products.
Of course, McCafe's relaunch is about more than the products. The fast-food chain is doubling down on the McCafe experience, management explained in a press release about the relaunch:
In addition, the refreshed look and feel will include a new brand logo and packaging that will evolve with the seasons. McDonald's will also begin transitioning to an updated and expanded McCafe presence in-restaurant with a sleek, modern look in 2018 as part of its evolving Experience of the Future.
McDonald's vice president of culinary innovation said that crew members have been trained to "handcraft" beverages in an attempt to "elevate our coffee experience."
A growth strategy
Investors shouldn't think of this as one single move for McDonald's to invigorate its McCafe, according to management. "This is just the start of our McCafe commitment," said McDonald's USA president, Chris Kempczinski. Further, Kempczinski emphasized that the relaunch represents an integral part of the company's overall growth strategy.
McDonald's has been seeing some success recently in its new global growth plan, which it launched in March. The plan includes enhanced digital capabilities, an improved drive-through delivery experience, and more. McDonald's enhanced McCafe is a part of this growth initiative.
So far, the fast-food chain seems to be having success with the growth plan, reporting strong comparable sales growth of 6.6% in its most recent quarter.
McDonald's new ready-to-drink coffee offerings, in particular, are joining a product category that has seen strong growth during the past five years, attracting new entrants. Indeed, Dunkin' Donuts (NASDAQ:DNKN) similarly pushed further into the bottled coffee products market earlier this year, hoping to capture some of this growth opportunity.
Coca-Cola: winning behind the scenes
One interesting winner in McDonald's relaunched McCafe is Coca-Cola (NYSE:KO). The beverage giant flexed its distribution prowess as McDonald's said it is partnering with the beverage company to distribute its new ready-to-drink McCafe frappes.
Coca-Cola's involvement in McDonald's retail products is no surprise. The beverage company, which is well-known for its global manufacturing and distribution capabilities, similarly helped Dunkin' Donuts launch a new line of bottled ready-to-drink iced coffee beverages at retail stores earlier this year. Coca-Cola agreed to manufacture and distribute Dunkin' Donuts new bottled products.
There's no guarantee McDonald's renewed McCafe efforts will pay off. But the fast-food company has mitigated some risk for the aggressive move by entering a proven market and by partnering with a world-class distributor.