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McDonald’s partners with WestJet to offer McCafé coffee on flights

A customer holds a McCafe cup inside a McDonald's restaurant in a file photo.

Tim Boyle/Bloomberg

The coffee wars have taken to the skies.

WestJet Airlines Ltd. will start serving McDonald's brewed coffee to its passengers on Flight 659 from Toronto to Calgary on Monday, marking a new partnership between the airline and fast-food chain and a global first for the U.S.-based fast-food giant. The alliance follows in the footsteps of rival Second Cup Ltd., which teamed up with Air Canada years ago as its coffee supplier, while Starbucks is the java of choice at Porter Airlines Inc.

Tim Hortons Inc., the country's largest café chain, has yet to partner with an airline and, according to industry sources, was unsuccessful in trying to nab the WestJet coffee business. Starbucks Canada also failed to win the WestJet contract, the sources said.

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For McDonald's Corp., serving its McCafé coffee to WestJet passengers is not only a way to bolster its brand but also a step to potentially expanding the sale of its brew in other non-traditional locations, such as universities and hospitals, at a time when overall coffee sales in the restaurant sector are stagnant.

"It's part exposure; it's part introducing McCafé to folks who have not had the opportunity to taste it," John Betts, chief executive officer at McDonald's Canada, said in an interview, adding the chain is looking at other non-traditional alternatives. "It's a natural extension for us."

Under the leadership of Mr. Betts, who took the top job here in 2008, McDonald's Canada has increasingly focused on building its coffee business, launching its McCafé brand and even standalone café under that name, and raising the ante in the coffee trenches. Mr. Betts is rushing to catch up to Tim Hortons, which overtook McDonald's as the country's top fast-food player more than a decade ago.

"Maybe this is the jump into the non-traditional market" for the McCafé brand, said Jeff Dover, principal at food services consultancy fsStrategy.

"I think we're going to see more of that."

He said universities and hospitals tend to seek out Tim Hortons or Starbucks but now they may consider McCafé as "the next thing."

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Coffee chains feel the heat to find new milieus for their products. Coffee sales at restaurants have been flat or declining over the past several years, according to researcher NPD Group. The number of coffee servings sold in Canada's $4.8-billion coffee foodservice segment slipped to 2.5 billion in 2016 from 2.6 billion in 2012, it found.

Tim Hortons has been searching for more non-traditional spots for its kiosks over the past few years as it begins to reach near-capacity in rolling out its conventional cafés.

Tim Hortons spokeswoman Shannon Hall did not comment about the chain bidding for the WestJet coffee account. "We're always looking for new ways to serve our guests [customers] and grow the Tim Hortons brand in both traditional and non-traditional locations, including gas stations, hospitals and universities, which continue to be strong growth opportunities for the Tim Hortons brand."

A Starbucks Canada spokeswoman also refrained from commenting on the WestJet coffee business.

Still, U.S. parent Starbucks Corp. has shown that non-traditional sales can generate healthy profit margins. In its latest quarter, Starbucks posted a 47-per-cent operating margin among its product sales at such locations as grocery stores, other restaurants and retailers, more than twice its overall quarterly margin.

McDonald's started selling its packaged coffee in grocery stores in 2014 and those sales have beat its expectations, Mr. Betts said. But today, "it's a lot more competitive." In the restaurant field, the chain is stealing business from rivals, he said.

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Gregg Saretsky, chief executive officer at WestJet, said it initiated a search for a new coffee supplier more than a year ago but he would not comment on the companies that vied for the business and lost out to McDonald's. WestJet will serve McCafé coffee on almost all its flights by Dec. 1.

"Maybe John and I should talk about adding Egg McMuffins to go with the coffee at some point," he added.

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Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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