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Is McDonald’s Blending Into Starbucks?


Though McDonald’s continues to draw in customers with hamburgers and fries, the chain’s revenue increasingly depends on its much higher-margin coffee and blended drinks. In fact, analysts say customers who think Starbucks is too expensive might not even realize they’re paying almost as much for similar drinks at McDonald’s.

The fast-food giant reported weaker-than-expected second-quarter sales Monday,  citing a stronger dollar, and slower economic growth in China and Europe. In the U.S., same-store sales rose 3.6% during the period, helped by new additions to its beverage menu – like this summer’s “Cherry Berry Chiller” smoothie – McDonald’s said in a statement. “The margin contribution from these types of products is high, so it’s a win-win for McDonald’s,” says Jack Russo, analyst with Morningstar.

McDonald’s 2009 foray into espresso-based beverages and blended fruit drinks is starting to show big results, analysts say. The drinks now account for 10% of revenue, estimates R.J. Hottovy, an analyst with Morningstar analyst. McDonald’s doesn’t break out drinks from its sales, but coffee makes up around 4% of revenue, double the percentage five years ago, Hottovy estimates. In fact, drinks sold though the McCafé brand alone add over $125,000 in annual sales per restaurant, says McDonald’s spokeswoman Becca Hary.

And while regular items like Big Macs and Chicken McNuggets remain menu staples, McDonald’s is focusing more on these highly profitable beverages to make up for declining sales elsewhere, experts say. McDonald’s new CEO Don Thompson, was a driving force behind company’s move into high-margin specialty drinks in the McCafé, Hottovy says.

The success of these pricier drinks may be encouraging for investors but the deals aren’t necessarily good for customers. For Summer 2012, McDonald’s introduced the McCafé Cherry Berry Chiller ($2.89 for a 16-ounce cup) and McCafé Frappé Chocolate Chip  ($3.99 for a 16-ounce). Starbucks’ Frappuccino is more expensive ($5.45 for a 16-ounce cup) than McDonald’s version, but some say these iced-blended drinks are still a lot for a fast-food restaurant. “A McDonald’s drink for $4 certainly seems expensive to me, especially with whole meals going for less,” says Mike Jacobsen, executive director for the Center for Science in the Public Interest, a Washington-based non-profit think-tank.


The new drinks are not only pricier by McDonald’s standards, they are often even less nutritious than a Big Mac, experts say. McDonald’s bills the Frappé as a guilty pleasure, calling it “an indulgent combination of rich mocha, sweet caramel and a hint of coffee with added chocolate chips.” It has 630 calories for a medium 16-ounce cup, compared to the Big Mac’s 550. (McDonald’s says it offers a variety of choices and portion sizes and, earlier this month, launched “Favorites Under 400 Calories” as part of its Olympic Games sponsorship.)

The fast-food chain is taking tips from Starbucks, which should start to see McDonald’s as a major rival, analysts say. For example, the McDonalds’s Frappe is nearly identical to Starbucks’ Frappuccino – the line of drinks born in 1995. Starbucks’ version may be more expensive, but it only has 400 calories. “What’s happening at McDonald’s is no different from Starbucks,” Hottovy says. “McDonald’s is expanding its beverages. It’s a big part of the growth story going forward.”


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    • what is expensive at Starbucks is not the Frapuccino, it’s the shit they sell as “coffee”. Soon enough, they will take over Europe and we won’t be able to drink real coffee anymore over here…sadness

    • McDonald’s “specialty” coffee drinks don’t compare to Starbucks. I’d rather pay more for something that tastes better.

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