McDonald’s Luring Starbucks Crowd With Pumpkin Lattes

McDonald’s Luring Starbucks Crowd With Pumpkin Lattes

McDonald’s Corp. (MCD) is adding pumpkin-spice lattes to lure the Starbucks crowd and boost traffic. The McCafe pumpkin latte — a mix of espresso, milk and flavored syrup — will come in three sizes and be available with whole or non-fat milk, the Oak Brook, Illinois-based company said. A 16-ounce latte with whole milk has 340 calories and will cost $2.89. A regular coffee is $1. The lattes are being introduced this month and will sell through mid-November.McDonald’s, the world’s largest restaurant chain, has been introducing pricier items such as chicken wings, McWraps and steak breakfast sandwiches to maintain profitability in the face of higher labor, occupancy and operating costs. At the same time, the company is expanding its value menu to draw bargain-seeking diners.

“They’re trying to further refine the so-called barbell” strategy of selling low-priced, value items along with more expensive fare, John Gordon, principal at San Diego-based Pacific Management Consulting Group and adviser to restaurant franchisees, said in an interview. They really are trying to sell the higher-price food because “they need the margin.”

The operating margin at McDonald’s U.S. company-owned restaurants narrowed to 18.7 percent in the quarter ended June 30 from 19.8 percent a year earlier.

The shares rose 0.4 percent to $97.28 at the close in New York yesterday. McDonald’s has advanced 10 percent this year, while the Standard & Poor’s 500 Restaurants Index has gained 18 percent. Starbucks has added 41 percent.

Starbucks Lattes

Starbucks Corp. (SBUX) has sold 200 million pumpkin spice lattes in the nine years since it introduced them, said Alisa Martinez, a company spokeswoman. The drink has the same number of calories as McDonald’s offering and a 16-ounce one sells for $4.55, on average. The Seattle-based company, which has about 11,200 U.S. cafes, also sells salted-caramel mochas, hazelnut lattes and is introducing new bakery items nationwide.

McDonald’s may be able to steal some Starbucks customers because Americans are focused on finding deals now and pumpkin has become such a popular flavor during the fall season in the U.S., Gordon said.

“Everybody is doing pumpkin this fall,” Gordon said.

In addition to Starbucks’s lattes and pumpkin bread, Dunkin’ Brands Group Inc. (DNKN)’s Dunkin’ Donuts chain has a pumpkin mocha, Orograin Bakeries Products Inc.’s Thomas’ sells pumpkin-spice bagels and Pinnacle, owned by Beam Inc. (BEAM), has introduced pumpkin-pie flavored vodka.

Paper Cups

McDonald’s also will begin serving hot beverages in paper cups, instead of polystyrene foam containers, bowing to customers’ preference for a recyclable option, Ofelia Casillas, a spokeswoman, said in an e-mail. Changing all 14,100 U.S. locations to paper will be a “multi-year” process, she said.

The new paper cups put McDonald’s ahead of Dunkin’ Donuts, which sells its drinks in foam cups. The Canton, Massachusetts-based chain is testing a cup recycling program and looking for alternatives to foam as customers become more concerned that the containers are bad for the environment, according to Dunkin’s latest corporate responsibility report. Dunkin’ also sells a pumpkin latte.

McDonald’s has recently struggled in the U.S., where it is facing a tough consumer environment. In August, sales at stores open at least 13 months rose 0.2 percent domestically, falling short of the 0.8 percent gain projected by analysts. Earnings have trailed estimates for the past two quarters.

The fast-food company’s new Dollar Menu, which it’s testing in five markets in the U.S., includes items that sell for as much as $5. McDonald’s Dollar Menu was introduced in 2002 and it rolled out the McCafe lineup of lattes, cappuccinos and mochas to the U.S. in 2009.

McDonald’s is scheduled to report third-quarter results Oct. 21.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net