The winds of change have been wafting across the breakfast tables of many Americans. This has translated to a shift towards increased quality of caffeinated beverages found in many people’s morning routines. About a decade ago, coffee options included regular or decaffeinated. Then, flavored coffees and espresso came onto the scene. And with the widespread acceptance of Starbucks (SBUX) behind us, consumer preferences have gotten a little more refined to say the least. Now, it is not uncommon for people to use five or even ten words when ordering their morning cup of Joe. However, despite the embracing of the three-to-five dollar cup of coffee by many consumers, whether it’s a Latte, Cappuccino, or Mocha whatcha-ma-call-it, there is still a large portion of the population that would like a decent cup of regular or decaffeinated coffee to start the day, at a fair cost. A backlash against higher-priced options has grown more prevalent with the recent economic downturn, for obvious reasons.
As a result, Burger King (BKC) recently announced its plan to partner with Seattle’s Best Coffee company, a wholly owned subsidiary of Starbucks Corp. This move is no doubt a defensive play against McDonald’s (MCD) relatively recent introduction of premium roast offerings, known as McCafe. It may also help the company target some of Dunkin’ Donuts customers, by reeling them in with their dollar menu and surprising them with a coffee upgrade. The recently penned agreement will make Seattle’s Best Coffee available in more than 7,000 BURGER KING restaurants across the United States. Burger King’s shift toward offering freshly-brewed premium coffee, made from 100% Arabica beans, may help it to gain market share in the ever-changing domestic market.
Burger King may be a little late to the party. Dunkin’ Donuts has been a staple in this market for as long as most can remember. And McDonald’s beat Burger King to the punch with its McCafe offerings. Nonetheless, teaming up with Seattle’s Best will surely increase the quality of BKC’s morning brew.
Meanwhile, it appears as though the morning beverage market continues to segment even further. At the top end of the spectrum are some West Coast competitors like Stumptown Coffee Roasters and Bluebottle Coffee Co., which have been raising the bar even higher. Stumptown Coffee Roasters, of Oregon, focuses on sourcing high-quality beans and roasting them in small batches. In this manner, the company can ensure that its beans are used shortly after roasting (its target is within 10 days). This is said to provide the optimal flavor profile of the beans. As for options like Bluebottle Coffee Co., based in California, it too, roasts in small batches, and even goes so far as to use Japanese halogen lamps and beakers, more likely found in a high school science lab than a coffee house, to unlock the full flavor of each cup. However, these painstaking measures come at a cost. The Bluebottle siphon coffee (the one that utilizes the halogen lamps and beakers) averages $9 -$12 for a serving for two. Clearly, these luxury beverages will not appeal everyone. However,
In the end, people will gravitate toward whatever they are comfortable with. The move by Burger King and Seattle’s best, which in essence is Starbucks, should help the latter two tap into a market they were previously not a part of, with minimal cannibalization of SBUX’s sales, and increased quality of coffee at Burger King. And for those discerning pallets with deeper pockets, the higher end segment of the market will likely continue to benefit as well. Down the road, we look for offerings to continue to widen until almost all consumers can find their own particular cup of tea… or coffee.