McDonald's Takes On A Weakened Starbucks
Food Giant to Install Specialty Coffee Bars, Sees $1 Billion Business
By JANET ADAMYJanuary 7, 2008; WSJ Page A1
WOW….the war continues! Go back to these postings to refresh your memory. This is a classic battle for competitive separation and supremacy that is germane no matter what your business is. Remember, you read it here first!!
Starbucks Chairman Says Trouble May Be Brewing- February 26, 2007 posting discusses Sawbuck’s’ challenge of going global challenges
McDonald's Is Poised For Lattes – March 5, 2007 Posting talks about the atart of the latte war
The Breakfast Wars –June 7, 2007 posting discusses Value Mapping and competitive separation
OLATHE, Kan. -- This fall, a McDonald's here added a position to its crew: barista.
McDonald's is setting out to poach Starbucks customers with the biggest addition to its menu in 30 years. Starting this year, the company's nearly 14,000 U.S. locations will install coffee bars with "baristas" serving cappuccinos, lattes, mochas and the Frappe, similar to Starbucks' ice-blended Frappuccino.
Internal documents from 2007 say the program, which also will add smoothies and bottled beverages, will add $1 billion to McDonald's annual sales of $21.6 billion.
The confrontation between Starbucks Corp. and McDonald's Corp. once seemed improbable. Hailing from very different corners of the restaurant world, the two chains have gradually encroached on each other's turf. McDonald's upgraded its drip coffee and its interiors, while Starbucks added drive-through windows and hot breakfast sandwiches (Classic Value mapping moves)
The growing overlap between the chains shows how convenience has become the dominant force shaping the food-service industry. Consumers who are unwilling to cross the street to get coffee or make a left turn to grab lunch have pushed all food purveyors to adapt the strategies of fast-food chains.
It also shows how the chains' efforts to adapt to a changing market have had drastically different results on their bottom lines. McDonald's is entering the sixth year of a successful turnaround, while Starbucks has begun struggling after years of strong earnings and stock growth.
Still, the new coffee program is a risky bet for McDonald's. It could slow down operations and alienate customers who come to McDonald's for cheap, simple fare rather than theatrics. Franchisees say that many of their customers don't know what a latte is. (Huge issues for McDonald’s)
The program attempts to replicate the Starbucks experience in many ways -- starting with borrowing the barista moniker. Espresso machines will be displayed at the front counters, a big shift for a company that has always hidden its food assembly from customers. McDonald's says it wants customers to see the coffee beans being ground and baristas topping the mochas and Frappes with whipped cream.
"You create a little bit more of a theater there," says John Betts, McDonald's vice president of national beverage strategy.
Ads for the espresso drinks running in the Kansas City area, where the concept is already being tested, say you don't get a "condescending look" for mispronouncing the size of the drink at McDonald's -- a jab at the "grande" and "venti" sizes at Starbucks. (At McDonald's, you just ask for small, medium or large.)
Starbucks Chairman Howard Schultz popularized lattes and cappuccinos in the U.S. after borrowing the idea from espresso bars he visited in Italy. When he began expanding Starbucks beyond Seattle in the late 1980s, he said he wanted the cafes to serve as a "third place" where people gather between home and work and feel some of the romance of the European cafe.
But the coffee chain has evolved into more of a filling station. It is now battling fast-food outlets for some of the same customers and meal dollars. Today, about 80% of the orders purchas(Huge issue for Starbucks and their current business model)ed at U.S. Starbucks are consumed outside the store. The average income and education levels of Starbucks customers have gone down, the company has said. As part of a big push into food, Starbucks sells lunch at more than two-thirds of its company-owned locations in the U.S.