Is Burger King's SBC coffee a contender in the coffee war?

Is Burger King's SBC coffee a contender in the coffee war?
Tags: Burger/Steak/BBQ, Coffee/Bakery/Donut, Equipment & Supplies, Food & Beverage, Operations Management, Trends / Statistics
February 22, 2010 - Mark Crawford

* Mark Crawford is director of business development for Mont Blanc Gourmet.

My, how quickly things change. For years, Starbucks' SBC (Seattle's Best Coffee) brand maintained its upscale image by limiting its exposure to Borders bookstores and other higher-end locations. Now, the brand is going to be in thousands of quick-service stores across the country, including in 9,000 Subway restaurants that offer breakfast.

Then last week, SBC announced its marriage with giant Burger King, a move that may help the coffee emperor withstand the onslaught from McDonald's McCafÃ©. By fall, Burger King will be selling the new coffee drinks, with optional flavorings and whipped topping, for $1 to $2.79.

It makes sense. Starbucks' attempts at flavored ice cream, furniture stores, fizzy coffee colas and music did not take hold as the company expected. But they still had an underutilized coffee brand that the public was not tired of. So why not move into QSR? Starbucks knows how to do coffee. And there are tens of thousands of fast food locations needing their own coffee identity lift. It looks like a match.

Well, mostly a match. The backwash may be a likely change in the success of the recent push to franchise new SBC stores. No doubt, it does alter the specialty cafÃ© experience when the brand is available in the second-largest burger joint in the world, not to mention the most proliferate sandwich shop.

The big challenge for the SBC and BKC marriage is offering a complete and compelling specialty coffee offering. Starbucks, Dunkin' and McDonald's all have arguably compelling offers in three categories:

Drip coffee. Grinding beans on site before brewing takes more time and equipment but offers more flavor.
Espresso. Expensive espresso machines with automated processes builds espresso sales for these brands. The attempts by others so far for an 'almost latte' without making the equipment investment into espresso machines has not been successful.
Blended frozen. The last of the specialty coffee trifecta has been an important high margin part of the equation. This is often the entry point for new coffee drinkers and therefore important to have. Many Gen Y-ers and Millennials meet to drink their Frappuccinos, replacing the milkshake from decades past. This often gives them a taste for coffee and hot lattes and mochas later.

Starbucks gets credit for creating the category. It all started with the first Seattle Il Giornale Italian style coffee bar. This was Howard Shultz's vision of becoming upscale America's favorite place — the one place you stopped daily besides work and home. It certainly succeeded.

Then Dunkin' Donuts came along and took the risk of infusing specialty coffee into its everyman's coffee and donut houses. Dunkin' performed handsomely, making the first espresso investment of any large QSR chain. McDonald's followed next, taking a withdrawal from its large savings account and winning franchisee support to initiate the largest single rollout of espresso in the world.

McDonald's McCafÃ© strategy

Who expected a decade ago that a failing McDonald's would rise to national attention with specialty coffee? And rise they have. Morgan Stanley released a study in June 2009 of 2,500 coffee drinking consumers, and found half of Starbucks' heavy users said they also buy coffee at McDonald's at least once a week, while 56 percent of these heavy users said they buy at McDonald's "regularly."

But more importantly for their coffee success, McDonald's introduced lattes and mochas to those intimidated by the specialty coffee shop — a much wider audience. McDonald's has illustrated that lattes and mochas are viable in every demographic in the country. This signals a fundamental shift in the way Americans are consuming coffee. And the really big prize they are vying for is the future customer: My kids and yours.

Consumers of lattes and mochas are continually more discerning about the quality of what's served to them. The 30-year history of lattes in the Pacific Northwest illustrates that with time, the more particular the customers become and the higher the bar is raised for drink quality. Many of the top-drawer players in the Northwest didn't exist 10 years ago. Yet it's not a value category. There are a lot of inexpensive ways to get caffeine, and the latte has not proved to be one.

McDonald's positioned its latte pricing well above drip coffee and tucked comfortably under Starbucks. The great value of $1.99 for the 12-ounce McDonald's latte is double the price of the McDouble and gives the operator strong margin while still keeping the product as a premium position in the eyes of the consumer.

McDonald's also pulled out the powdered cappuccino "bubbaccino" machines found in many convenience stores before their launch of specialty coffee, indicating they didn't want a confused message on the product they were serving. The successful latte has clearly been fresh milk and something that tastes like espresso, usually with some chocolate or vanilla syrup.

A masterful move by McDonald's was the free Mocha Mondays that ran this past summer. It was a great way to introduce the drink to two large groups of people — those who wouldn't buy a mocha because they hadn't before and those who wouldn't (previously) buy one from McDonald's. It accomplished getting the latte in millions of mouths without setting a pattern of discounting.

The McDonald's stores continue to improve in quality along with the menu improvement. The enormous U.S. systemwide 'reimaging' at the counter and lobby over the last three years with natural colors, seating and lighting improvement is just a click below Panera Bread. And they're pressing on now with free Wi-Fi. Both are spectacular moves to get Latte Credibility, for friends to meet at a McDonald's over coffee and for individuals to hit a McDonald's for a mocha and WiFi for downtime. (Click here to take a peek at McDonald's new 'Simply Modern' look.)

How Burger King stacks up

Can Burger King repeat that same level of Latte Credibility by utilizing the SBC brand? Time will tell as success in pushing quality and price lower than McDonald's has yet to be proven.

Let's look at how the major players make their specialty coffees and see how Burger King might fare:

Starbucks:

DRIP COFFEE: Grinds fresh coffee beans at the store and brews in top-of-the-line brewers. Successful iced coffee.

ESPRESSO: Two-step superautomatic espresso machine (about $10,000 estimated street price, but exclusive to Starbucks in the United States): Espresso shot is made automatically by push-button, and milk is steamed via pour-into-pitcher push-button. Multiple milk options; flavor choices of chocolate, vanilla, hazelnut, caramel, peppermint and cinnamon dolce; with sugar free options for all but chocolate.

BLENDED FROZEN: Starbucks has overwhelmingly succeeded in this category with its Frappuccino and product extensions.

McDonald's:

DRIP COFFEE: Upgraded quality drip coffee is made by quality brewers with coffee ground fresh at each store.

ESPRESSO: One-step superautomatic espresso machine (about $20,000 street price). Milk is steamed by push button, pumping fresh milk automatically from adjacent refrigerator, with two milk options. Flavor choices of chocolate, vanilla, caramel and sugar-free vanilla.

BLENDED FROZEN: Just debuting its smoothies with the Olympics, McDonald's has made an enormous investment to do this category properly, with good-tasting drinks. Frappes are in test mode and expected to launch nationwide with smoothies this summer.

Dunkin' Donuts:

DRIP COFFEE: Fresh ground coffee beans at each store. Milk, cream and sugar dispensed by operator with portion control. New introduction is Mocha Coffee: coffee, chocolate sauce and cream or milk. This appears to be a "poor man's mocha."

ESPRESSO: Two-step superautomatic (about $10,000 street price). Two milk choices plus flavor choices of caramel swirl and mocha swirl and limited-time-offer flavors. Marketing push on iced coffees this quarter.

BLENDED FROZEN: A successful cornerstone of the Dunkin' menu, with two different frozen drink types: the Coolatta, ready in a frozen beverage machine, and the Dunkaccino, blended in a commercial blender.

Burger King:

DRIP COFFEE: Moving from "BK Joe," a pre-bagged coffee concentrate dispensed from an automatic dosing dispenser — not fresh coffee. Presumably being replaced by fresh-ground, whole bean SBC Coffee with quality coffee brewers. Should improve its brewed offering.

ESPRESSO: Likely none. The announced "coffee drinks and flavorings" of vanilla and chocolate are unlikely to be dispensed via espresso machine. The cost to install real espresso machines, like at McDonald's and Dunkin', is likely prohibitive for Burger King. If the 'optional flavors' are pumped into drip coffee with milk, as a substitute for a latte or mocha, it will be fascinating to see if Burger King is able to successfully market this.

BLENDED FROZEN: In development.

It's a fascinating time in the coffee business, especially with the strong shift in the United States to espresso-based drinks. This fall, we can see what comes of the Burger King-SBC coffee launch. Can they convince their core BK Joe customers to shift drinks? And even if they do, will Gen Y-ers and Millennials want to hang out there for flavored coffee? At the end of the day, the customer decides. They have a wallet, and they know how it use it.

Mark Crawford is director of business development for Mont Blanc Gourmet, formulator of custom beverages for national chains. He has 20 years of experience in the specialty coffee industry and has been involved in starting espresso coffee programs in many venues across the country. He can be reached at mark@montblancgourmet.com.