Market Overview

Common Grounds: McDonald's Enters the Bagged Coffee Market

The U.S. packaged coffee industry is reportedy worth around $5.6 billion, with over 55 percent of Americans saying they bought coffee in a supermarket in 2011.

So it's probably not a huge surprise when McDonald's (NYSE: MCD) says it's entering the crowded but lucrative bagged coffee market.

The Daily Meal website, quoting NASDAQ, reports the fast food giant filed a trademark for its own brand of ground and whole-bean coffee in September. NASDAQ says McDonald's is partnering with Kraft Foods (NASDAQ: KRFT) in the marketing and distribution of the new coffee venure, which is expected to launch some time in 2014.

Reuters reports the companies will also be testing single-service versions, like the K-cups used in the popular Green Mountain Cofffee Roasters' (NASDAQ: GMCR) Keurig brewing machine.

"We want to work with McDonald's to help consumers enjoy McCafe premium coffee in the comfort and convenience of their own homes," the wire service quoted Kraft Foods CEO Tony Vernon telling analysts on a conference call last month.

It's not like McDonald's hasn't been known for its java – and not just for the highly-controversial spilled-coffee lawsuit it went through in the 1990s.

The company opened its first McCafe in Australia in 1993, and brought its version of designer coffee to the U.S. in 2001 – in an apparent effort to challenge Starbucks (NASDAQ: SBUX), Dunkin Brands (NASDAQ: DNKN) 7-Eleven and others for a share of the premium coffee drink market.

The Christian Science Monitor notes McDonalds began selling McCafe bagged coffee in Canada last year, with 12-ounce bags costing around $7 dollars. And NASDAQ speculates the packaged McDonald's coffee will be marketed as “a cheaper alternative” to the higher-priced beans on sale.

The announcement appears to be part of a broader strategy that the world's biggest hamburger chain has been working on for years.

"Coffee has increased in popularity beyond a breakfast beverage," a McDonald's spokesman told USA Today back in 2005. "We see an opportunity to bring our customers a better-tasting product at a value price."

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