Something Hot Brewing in Here?

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Feeling low on a boring Monday night? How about making your own cup of McCafe at home? Soon, this could be possible.

The latest trademark filed by McDonald’s (NYSE: MCD) for ground and whole-bean coffee at the U.S. Patent and Trademark Office could well be its entry into the market for packaged coffee.

Already in

McDonald’s signature espresso coffee and frappes offered through its McCafe coffee chains are extremely popular across the world. In certain countries like the U.K., McCafe beverages are sold directly in the McDonald’s stores. That coffee is an important part of the fast-food specialist’s portfolio as evidenced by the fact that as much as $2 billion of Mickey D's total 2011 sales of $34.2 billion in the U.S. came from coffee alone.

But that’s more about brew at shop, and packaged coffee would be a new market altogether. McDonald’s is probably getting a little more serious about giving coffee kings a run for their money. And the ones who probably would be direct in the line of fire are Starbucks (NASDAQ: SBUX) and Dunkin’ Brands (NASDAQ: DNKN), primarily because of the way they are racing to get their packaged coffee in more homes.

How much does your cup cost?

Starbucks sees packaged coffee as huge business, and is now getting all set to stock its blends on Indian shelves. The world’s largest coffee house’s revenue from channel development surged a whopping 45% in its last quarter, driven largely by robust demand for packaged coffee. With the recently added options such as direct online ordering of coffee, Starbucks, the holder of approximately one-third of the coffee market in the U.S., has shown its urge to remain a leader in the packaged coffee market.

However, McDonald’s tradition of providing a wide range of fast food items at affordable rates that appeal to local people, across all social classes may make things a little easy. Starbucks’s main target audience is young adults aged between 18 and 24, most of them living in upscale localities in urban areas. This may give McDonald’s an opportunity to market its coffee among the masses, an audience not targeted by Starbucks in the real sense.

Big fights around

As for Dunkin’ Brands, the other coffee giant in the market for over 60 years, it already has an envious retail distribution tie-up with Procter & Gamble that markets its packaged coffee in supermarkets and department stores. Some most loved stores such as Wal-Mart and Kroger have started stocking them recently -- a move that will help Dunkin overcome the problem posed by fewer stores in the country. Not that Dunkin’ is sitting on its hands. It plans to triple the number of stores in the U.S. by the end of the decade.

I’ve got power!

Well, Mickey D’s might seem to be a pretty late entrant to the party, but its competitive advantages in some areas could work wonders. I already mentioned the mass appeal and strong brand image McDonald’s enjoys. To top that, while Starbucks and Dunkin’ Donuts have close to 7000 and 6000 stores in the U.S., respectively, McDonald's has more than double the number of stores (approximately 15000) across the country with aggressive plans to expand further.  Don’t forget that demand for high-quality packaged coffee is rising fast in emerging markets such as India, China and Brazil, where McDonald’s has strong presence. If Mickey D’s does come out with its coffee packets, it can easily get them across the globe.

Oh, and how can anyone forget the extremely interesting report that research firm CustomersDNA LLC had come up with last year, where McDonald’s customers boasted of stronger customer loyalty towards its coffee brand than either of the two coffee houses! What better incentive for McDonald’s than this to get deeper into the coffee beans!

I see Big coming

I feel this trademark filing is a clear hint of McDonald’s intentions, and I don’t really see it as a mere ‘preventive measure’. McDonald’s solid brand name, growth moves and regular launch of new products such as the recently added Frappes, Angus Snack Wraps and Real Fruit Smoothies point towards an experimental marketing strategy. Its entry into packaged coffee may indeed be a very smart move on McDonald’s part to boost revenues. To keep a track of McDonald’s as it brews better and bigger, just click here to add it to your stock watchlist.


sonamchamaria has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's and Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend McDonald's and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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