McDonald's opens Canada's first standalone McCafe in Toronto

Competition is brewing in the coffee business as McDonald's Canada opens its first stand-alone McCafe in a new play for the billions Canadians spend on java every year.

The first McCafe location opens on Wednesday morning at Toronto's Union Station, with a second to open in a nearby office tower in January.

All-day breakfast

The cafes will sell McDonald's line of specialty coffees, fruit smoothies and baked goods, as well as the Egg McMuffin breakfast sandwich. Unlike the rest of McDonald's Canada restaurants, which switch from breakfast to burgers after the morning rush, McMuffins will be available all day at the McCafes.

McDonald's has been looking beyond the Big Mac for growth as consumers have lost their appetite for the company's famous burgers and fries.

It has introduced healthier options, including salads and wraps, to its Canadian menu, and in the U.S. it has introduced all-day breakfast.

McDonald's Canada CEO John Betts says the two McCafe outlets are a pilot project to determine whether the model should be expanded.

"Our customers have been asking for a bit more of a cafe experience, and they want more access to the product, which means more locations," he said.

Betts said while growth in the coffee shop market is relatively flat, McDonald's has increased its share significantly since it introduced McCafe products in 2011 and has doubled its total breakfast business over the past five years.

"Quite frankly, McCafe turned our business around here in Canada," he said.

Market niche

Michael Mulvey, a marketing professor at the University of Ottawa's Telfer School of Management, said there is an opportunity for McDonald's to address an underserved customer segment by being faster than its direct competitors such as Tim Hortons and undercutting the premium prices of alternatives such as Starbucks.

The McCafe offers a larger selection of specialty options than Tim Hortons, including espresso, and its two-step brewing machine is quicker than the process of pouring a customized Starbucks coffee.

"Some of the competitors, it's not fast food, especially when you have six or eight cars in front of you at the drive-thru," Mulvey said.

"If they can do it well and do it fast, that can definitely separate them from the pack."

Mulvey said the move is a shot across the bow for Tim Hortons, a company that has seen its top ranks change after it was bought out by Restaurant Brands International earlier this year.

"It's time to convene a meeting and get their best minds together," he said. "This is not something to be ignored."

McDonald's has more than 1,400 restaurants across Canada, compared to more than 3,800 for Tim Hortons and around 1,200 for Starbucks.