McDonald’s brews up coffee battle with Tim Hortons

By Vito Pilieci

Ottawa Citizen

November 7, 2011

McDonald’s Canada is turning up the heat on its competitors, promising to double its morning breakfast business by proving to Canadians that its coffee is among the best out there.

The fast food chain’s announcement came after rival Tim Hortons said it would begin offering espresso based coffee drinks at restaurants across the country this week. McDonalds said it has been pressing to break into Canada’s lucrative coffee business and has been offering espresso-based coffees and drinks, through its McCafè brand, for close to a year.

“They say that imitation is the sincerest form of flattery,” John Betts, president and chief executive of McDonald’s Canada, said of the chain’s intention to become a major coffee source.

“McCafè is an integral part of how McDonald’s Canada is transforming and elevating its brand and the customer experience. In just a few years coffee has joined our iconic offerings like the Big Mac.”

The company has regular coffee giveaways and said it will send coupons for a free cup to 95 per cent of Canadian households.

The market is huge. With the exception of Italy, Canadians drink more coffee per capita than any other nation. In the past year, Canadians have bought more than 1.5 billion cups of coffee, with more than 87 per cent of that coming from coffee-doughnut chains such as Coffee Time and Tim Hortons, according to research firm the NPD Group Inc. McDonalds sells more than 200 million cups of its premium roast coffee annually.

More than 86 per cent of all coffee sold to Canadian consumers is brewed, with the remaining 14 per cent being espresso-based beverages.

However, fast food restaurants are quickly stealing market share from Tim Hortons, according to NPD, making a shift to the relatively untapped market for espresso-based drinks more important than ever. The researcher said McDonalds and other fast food chains are seeing “double digit growth” in coffee sales, while demand at Tim Hortons and its doughnut chain counterparts is remaining relatively steady.

As affordable espresso-based drinks are relatively new to the Canadian market, the fight over who will serve the growing demand for lattes, cappuccinos and espressos is reaching a boiling point.

“Our goal is to fuel stronger customer connections and to be the place Canadians think of first when they’re hungry or thirsty,” said McDonald’s Betts.

Canadians spend more than $650 million on coffee annually, according to researcher ACNielsen.

Beverage Marketing Corp., another researcher, says coffee accounts for 16 per cent of all non-alcoholic beverages consumed in Canada, tying carbonated soft drinks and topping bottled water, tea, milk and fruit drinks.

Tim Hortons dominates the market for brewed coffee in Canada, accounting for 80 per cent of all coffee sold at restaurants. Coffee accounts for 45 per cent of the company’s annual revenues. The company also currently dominates the market for breakfast, taking in more than 45 per cent of all breakfast dollars spent in Canada, according to research firm Edward Jones. The company said it would offer its espresso drinks starting at $2 each.

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