McDonald’s Free Coffee Event: What Is the Real Impetus?

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Starting today, McDonald’s (NYSE:MCD) will be giving away free small cups of coffee through April 13. Now, the question on many analysts’ minds is: Why? This is the first time the chain has ever hosted a free coffee “event,” and some suspect CEO Don Thompson is throwing out the freebies in order to keep his customers away from Taco Bell’s (NYSE:YUM) new breakfast menu; others say this is McDonald’s preparation for testing its McCafé coffee at retail.

Burger Business reports that the Oak Brook, Illinois-based company typically hands out free coffee on National Coffee Day, on September 28, but other than that, it has always charged its customers for the caffeine. Considering McDonald’s is the world’s largest fast food chain, there was never a real need to give away its food or drinks for free if customers would gladly pay money for them. Because the chain is all of a sudden willing to give out coffee handouts for two whole weeks, it has some suspicious consumers, analysts, and investors on its hands. It’s no doubt a good strategy, as the freebies are expected to boost traffic in stores, but the impetus behind the move is still in question.

One popular hypothesis that USA Today published on Saturday is that McDonald’s is simply trying to get an edge on its new competition from Taco Bell as the latter launches into the $50 billion fast food breakfast market. As of Friday, Taco Bell now has a new breakfast menu, and unlike McDonald’s conventional breakfast sandwiches and hash browns, it includes items like Waffle Tacos and sugary Cinnabon Delights.

The chain’s launch into the fast food breakfast sphere has enjoyed significant media attention, but some still believe that it wont’ really upset McDonald’s business, because the two companies have different consumer bases. That’s why many analysts don’t think Taco Bell poses a real threat to McDonald’s — its annual per-store sales are only roughly $1.4 million, and McDonald’s are more than $1 million greater.

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