Burger King is making it cheaper for coffee lovers to get their caffeinated fixes in the morning. If you're an investor in Starbucks (NASDAQ:SBUX) or breakfast champ McDonald's (NYSE:MCD), you may want to pay attention.
Restaurant Brands International (NYSE:QSR) subsidiary Burger King introduced a coffee subscription plan on Friday. Customers agreeing to pay a recurring charge of $5 a month can have a small coffee every day at no additional cost. The subscription only covers the regular hot brewed coffee at participating locations. None of the chain's flavored iced and frappe varieties are included. Whether Burger King is devaluing the perceived value of a cup of coffee or it's stealing away potential customers from the competition, McDonald's and Starbucks investors can't afford to ignore this move.
Pouring it on
A small cup of coffee runs about $1 at Burger King, so this $5 monthly subscription can be worth as much as $30 or $31 in discounted java. Even if you're just a weekday commuter, we're talking about at least $20 in value.
It's easy to see what Restaurant Brands International is thinking with this subscription. Burger King isn't the coffee giant Starbucks is. It also isn't as successful in the mornings as McDonald's, which fares so well with its a.m. menu that its turnaround started in early 2015 with the rollout of its All-Day Breakfast offerings.
Burger King may wind up subsidizing a lot of cups of coffee, but it's highly unlikely that someone will pull into a drive-through for just a cup of coffee. The incentive for multiple visits will have them digging into Burger King's breakfast menu.
Comps rose at all three of the parent company's flagship concepts -- Burger King, Tim Hortons, and Popeyes -- in its latest quarter, although none of the chains saw store-level sales top 2% growth. So Burger King is swinging for the fences, and it knows what it's doing with this deal. Its initial promo singles out Starbucks, by comparing the price of a month of free coffee to a single large cappuccino at Starbucks, but not its more direct competitor, McDonald's. However, the new subscription plan won't appeal to the folks lining up for the fancy and pricey beverages at Starbucks, but it might be interesting to the morning regulars at McDonald's, and it's the one with more at stake here.
Pricing wars happen, but now Burger King is lowering the bar when it comes to basic coffee. It's hoping that making Burger King a larger part of coffee lovers' eating-out rotation will come at the expense of everyone else. The new subscription plan may or may not work, but as long as it's being offered, it's definitely a direct shot at McDonald's and an indirect jab at Starbucks.