McDonald's Is Poised For Lattes
By JANET ADAMY WSJ, March 1, 2007; Page A11

Remember the last posting on Starbucks and how they were struggling with maintaining their competitive separation from the rest of pack as they expand and automate to manage costs and uniformity of quality plus adding breakfast-type food– they were losing the vaunted “Starbucks experience”. Now, McDonald’s is going after Starbucks to protect their valued breakfast business and Dunkin Donuts is right in the middle. This is classic competitive maneuvering that is playing out right in front of us! I will share some powerful frameworks in the next two positing (a little pre sell) that deal with competitive separation vs. competitive advantage and how you can measure it your self against competition and decide what to do.

For the new KIN members, please go directly to the blog for better insight into what we are trying to accomplish.

I will busy consulting and teaching this week plus partying at Rob Wolcott’s wedding this weekend. I hope to recover from the festivities and issue the next posting by Tuesday of next week.

Enjoy……..

In a direct shot at Starbucks Corp., McDonald's Corp. is moving closer to adding lattes and cappuccinos to its menu across the country.

The fast-food giant wants to keep competitors from poaching its lucrative breakfast business and draw customers throughout the day with what it calls a "destination" beverage line. It is installing behind some of its counters large black machines that dispense vanilla lattes, iced mochas, caramel cappuccinos and other specialty coffee drinks.

The move promises to create a major new competitor in the industry pioneered by Starbucks. The Seattle-based coffee chain transformed espresso from a niche Italian drink into a popular American ritual by offering it in an appealing atmosphere and sweetening it with flavorings and whipped cream. Last month, Starbucks Chairman Howard Schultz warned in a memo to executives that fast-food chains and other competitors were poaching Starbucks's customers.

McDonald's offering would make espresso drinks cheaper and available to a broader swath of the population at its more than 13,700 locations across the country. At stores where it is already serving the drinks, McDonald's has priced most of them between $2 and $3. By comparison, many of Starbucks's espresso-and-milk drinks sell for more than $3.

McDonald's began testing espresso drinks when it opened its first McCafe in the U.S. in 2001 in an experiment to capture part of the growing coffeehouse business (remember options thinking). The company has yet to confirm it will sell espresso drinks at all restaurants; a spokesman wouldn't say whether McDonald's plans to add the drinks nationwide. However, the chain has recently started selling the drinks at restaurants in Michigan, New York and New Jersey, and one franchisee says McDonald's has indicated it is preparing to add them in other parts of the country.

"We don't have to test whether customers want them.... We know that already," McDonald's President and Chief Operating Officer Ralph Alvarez told investors at a conference in New York yesterday.

McDonald's espresso drinks will also compete with Dunkin' Donuts, a unit of Dunkin' Brands Inc., which has been expanding its specialty coffee offering in recent years and is laying plans for a nationwide expansion.

McDonald's espresso drinks are part of a broad strategy at the Oak Brook, Ill., fast-food chain to stretch beyond hamburgers and french fries. In the past few years, the company has added more chicken items and upscale salads. Last year, it upgraded its coffee to a premium blend (it was rated the best vs Dunkin Donuts – my favorite – and Starbucks), which lifted its coffee sales. It is also looking at adding smoothies to its menu.

Meanwhile, Starbucks last fall announced plans to start selling hot breakfast sandwiches in its stores, treading on Egg McMuffin turf.

To keep service fast, McDonald's has installed push-button machines that roll most of the drink-making into one step. By contrast, Starbucks baristas make espresso drinks using a series of separate steps that include steaming the milk by hand and adding the espresso.(this represents a huge dilemma for Starbucks)