Fast Food Opportunities
BY TIMOTHY J. CASTLE
When you think of fast food you don’t necessarily think of a great cup of coffee. The interesting thing is, however, you don’t necessarily think of the worst cup of coffee you’ve ever had, either. This is because fast food establishments, many of them at least, are so busy that their coffee is usually two things it isn’t when you drink it at the archetypal greasy spoon or diner - hot and fresh. In fact, fast food establishments often serve a better cup of coffee than is served in many fancy restaurants - because those places simply aren’t turning around their coffee as quickly, and are also not going out of their way to serve coffee that is of similar quality to their food and other beverages. Fast food outlets, therefore, can (ironically) provide roasters with an outlet capable of showcasing their coffee under potentially excellent circumstances given proper employee training, good equipment maintenance and inventory management. Further, fast food outlets are finding that roasters can help them through co-branding, increasing the credibility and sales of a particular fast food restaurant’s coffee. Green Mountain Coffee Co. has made a name for itself supplying all of Exxon/Mobil’s locations nationwide and doing a fairly credible job of it. The key to their success, according to press interviews with industry observers is the trouble they took to train employees at as many outlets as possible. Reportedly, the Exxon/Mobil account represents a little over 15% of Green Mountain’s sales. When another, very large fast food outlet in the Pacific Northwest co-branded their coffee with a local well-known roaster the chain’s coffee sales reportedly doubled.
Separate unto themselves are the doughnut chains. These companies have found that coffee is such a big part of their sales that they feel compelled to roast it themselves, or imply that they do so by having their coffee private labeled with their brand. Dunkin’ Donuts, which is very involved with private label roasters, is famous for its better-than-average cup of coffee. Krispy Kreme announced that it purchased a small roasting company this past winter and subsequently has recently re-emphasized its commitment to expanding its coffee-related offerings. In a press release dated October 10, Krispy Kreme stated that their “…expanded beverage program will feature three drip coffees ranging from light and smooth to deeper, more intense blends. It will also include espresso beverages, frozen coffee beverages and other frozen beverages prepared with a variety of proprietary flavors. In addition, there will be a line of flavored milks.” Upon its initial introduction into one market it was interesting to note that certain Starbucks stores were selling Krispy Kreme doughnuts - and Krispy Kreme, to this day, sells Starbucks’ Frappuccino. The doughnuts, however, have not been spotted lately in Starbucks.
Doughnut chains that do not offer great coffee are probably looking at upgrading, given the increasingly competitive market in the U.S. and the announced expansion to the U.S. of Canadian doughnut giant, Tim Horton’s. Tim Horton’s (now owned by Wendy’s) is known for offering a high quality cup of coffee in the Canadian market and is rumored to be further upgrading their coffee line further still. (Of concern to everyone in the U.S. market should be the credible lunch and early dinner business that Tim Horton’s does with a limited but high quality menu that includes soup and other savory items.)
There is another opportunity for the fast food and doughnut industry because of the record lows that the coffee market has reached over the past several months. They can upgrade their coffee at very little cost, and offer quality similar to many of the specialty coffee outlets. Most specialty coffee outlets have not lowered their prices, acknowledging market lows but citing increased cost of labor, rent, energy and other overhead and supply items.
Further, with the economy in disarray, at best, the fast food restaurant industry could be in store for windfall sales increases as American diners cutback on restaurant spending by choosing fast food over more expensive options.
Greg Pittler, a franchise consultant with long experience in the foodservice industry made some general observations about the overall momentum of the industry, “The QSR (Quick Service Restaurant) industry will continue to increase focus on higher-quality coffees. With Starbucks expanding their menu to offer convenient meals, fast-food restaurants will need to focus on offering a high-quality cup of java to offer their customers “one stop shopping, along with being quick and convenient.” With the focus on customer service higher than ever before, for chain restaurants, good coffee versus bad coffee can define the entire dining experience.”
“Additionally, with stores like Starbucks, Peet’s, and Coffee Bean & Tea Leaf considered highly desirable ‘destinations’ among the urban set for meeting, socializing, even reading, expanding chains such as Krispy Kreme, with their purchase of Digital Java now have the opportunity to make their establishments highly desirable destinations as well.”
There is a closer link between the business done at a specialty coffeehouse and a fast food outlet. Upon entering a coffeehouse chain store, consumers expect a unique, pleasant and adult environment. They expect more sophistication and better quality-baked goods, snacks and sandwiches. Obviously, they expect better coffee. Yet, when these same consumers get in line the clock starts ticking and they expect, without compromise, fast food service.
The fast food industry is concerned about two fronts: protecting what’s theirs (lunch, especially) and going after the new category - specialty coffee. The natural process of mainstreaming a product formerly consumed by early adopters is already well underway. What remains to be seen is whether the fast food industry can become a credible source of specialty coffee to the consumer
McDonald’s is respected by U.S. roasters for having surprisingly strict standards for their coffee. The coffee served there, given their market positioning, is of consistently good quality and may in fact, be one of the best values they offer. They have stuck to a fairly light roast in most markets, however, and this has limited their appeal to aging Yuppies weaned on Starbucks.
McCafe, is essentially a coffeehouse similar in appearance to many specialty coffee cafés throughout the country. Although already well tested in the Far East, including Australia, the first location in the U.S. opened just last spring in the heart of downtown Chicago. What makes McCafe different is not what is in the store but where the store is - adjacent to and contiguous with a very busy McDonald’s. The intent, obviously, is to create some synergy between the two concepts. Parents can take their kids to McDonald’s and look forward to getting an adult cup of coffee after the meal. Afternoon coffee drinkers may yield to temptation and get a Big Mac for dinner after their coffee, before leaving for home. Morning coffee addicts can get their morning latte and an Egg McMuffin, making just one stop. McDonald’s is hoping, it seems, to recapture clients for breakfast that have left for Starbucks but may not be happy with a biscotti or scone for breakfast.
Because of McDonald’s resources, influence and competitive strength it is important to review the menu selection in detail. Other than not offering the upscale sandwich items that Starbucks offers, since these might cannibalize the adjoining McDonald’s menu, their offering list takes on all comers, with a vengeance. Their “Coffee” menu includes espresso, americano, cappuccino, latte, brewed coffee and flavored coffee. Their “Specialty Coffee” menu includes Caramel Creamer, French Vanilla, Milky Delights, Mocha and Nutty Buddy. Their “Hot Specialty Beverages” include gourmet teas, chai tea latte and hot chocolate. “Cold Specialty Beverages” feature smoothies, Nantucket Nectars and Evian bottled water. Accompanying the coffee and other drinks are “Gourmet Desserts” such as Viva Tiramisu, Chocolate Raspberry Rumble, NY Style Cheesecake, World’s Greatest Carrot Cake, Chocolate Caramel Peanut Pie, Bistro Hot Fudge Cake, and Bistro Rustic Apple Tart. Their less rarefied selection of Pastries/Snacks includes muffins, scones, fruit sticks, strudel, cookies, biscotti, Danish pastries, cinnamon rolls, pretzels and croissants. The coffee, according to McCafe staff, is Lavazza.
McDonald’s locations throughout the nation have experimented with coffee in a number of ways. In the Pacific Northwest they have co-branded their coffee with a local specialty roaster and found that it increased their sales dramatically. In southern California they have introduced fully automatic machines in some stores. The drinks delivered are better than many served by independent retailers claiming to specialize in coffee.
Many chains, however, have not made the same sort of commitment to coffee that McDonald’s has. Neither Burger King nor Carl’s Jr., for example, offers anything but basic brewed coffee in the stores surveyed for this article. And no other fast food burger chain has made the effort, thus far, that McDonald’s has by going so far as to test an entirely new kind of store to serve coffee. In some stores, however, Burger King proudly notes that their coffee is 100% Colombian. In other stores the coffee makers display “Farmer Brothers.” Other than that, there does not seem to be much evident activity.
One thing to keep in mind, however, is that most of the fast food outlets in the nation are owned by franchisees with varying degrees of latitude written into their operating agreements. Often, one franchisee will own several stores in a given area. The lesson is that one cannot generalize about a given chain’s coffee program by visits made to several stores in the same vicinity. In another area, especially with coffee, an entirely different set of standards and product offerings may exist. Further, oftentimes the franchiser is not in a position to describe the coffee programs extant within the entire chain system. For wholesale roasters then, grassroots research, often on a store-by-store basis is necessary before it can be determine whether or not a particular set of stores offers an opportunity.
Prices for coffee at most fast food outlets surveyed for this article tend to be under a dollar for an 8- to 12-ounce cup. Doughnut stores usually offer larger sizes, and prices are generally a little over a dollar - high for fast food but low compared to Starbucks and others. Quality, always a subjective determination, is all over the map. The challenge fast food outlets and even doughnut shops face is that, as they improve the quality of their coffee products in order to attract new customers they risk turning away their existing clientele. This is perhaps why new coffee products are generally added to the coffee traditionally carried. Even the image of better quality coffee can be a turn-off to some fast food and doughnut patrons looking for what they perceive to be a basic, unintimidating dining or snacking experience. They want a “cup of Joe,” and any attempt at an upsell from there is viewed by them as nothing short of charlatanism. Understandably, then, many fast food chains are very conservative in their approach to changing their coffee offerings.
Decaf, as is the case most everywhere else, gets short shrift in the fast food sector with many menu boards not mentioning it at all. It is, perhaps, a well-kept secret in the specialty coffee industry that decaf sales often increase proportionately with an increase in variety and quality of coffee drinks. These attributes attract more female drinkers and older drinkers, with both groups consuming much more decaf than younger drinkers.
As the specialty coffee category matures, its products will appear with greater frequency and profusion in more and more fast food outlets. It will become increasingly difficult for the specialty coffeehouse to differentiate itself from all the other fast food and doughnut outlets in the marketplace. Each will increasingly offer more of what the other is offering while at the same time struggling to remain unique and appealing. The good news for wholesale roasters is that they will find an increasingly receptive audience among fast food operators and an increasingly appealing venue for their brand. In the past, many roasters would not want to see their higher end brands in the likes of a fast food outlet but as these outlets make it known that they’re getting serious about coffee, that attitude will probably change. Finally, the sheer volume combined with well-honed excecutional expertise may make many fast food outlets ideally positioned to prepare and serve a great cup of coffee.
Timothy J. Castle is the president of Castle Communications, a company specializing in marketing and public relations for the coffee and tea industries. He is also the co-author (with Joan Nielsen) of The Great Coffee Book, recently published by Ten Speed Press, and the author of The Perfect Cup (Perseus Books). He may be reached at: (310) 479-7370 or via e-mail at: email@example.com
Tea & Coffee - December/January 2002
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