The Breakfast Wars

By JULIA MOSKIN
Published: January 10, 2007, New York Times

A number of postings discussed the importance of competitive separation vs. advantage in sustaining growth. The March 14 posting discussed the Value Map tool and the consequence of not understanding the underlying dynamics it represents. The following excerpts highlight the on going battle in the food industry over the fast food breakfast market space. We may see history repeat itself. The Attribute Map discussed in the March 27 positng will also be a useful tool to establish competitive separation.

LAST Wednesday at a Starbucks in Times Square, Katie Voss, a nursing student, was drinking one of the chain's new coffee creations, a cinnamon-flavored low-fat latte. Ms. Voss, who was visiting from Maryland, said she visits Starbucks every day -- up to three times a day, in fact -- but rarely eats anything.

''I've been burned too many times by that pastry case,'' she said.
Neither of the whole-grain, trans-fat-free pastries -- a cinnamon loaf and a banana muffin -- that Starbucks introduced that day were sufficiently alluring to change her mind.
''I try to fill up on coffee here,'' she said, ''so I won't be tempted to get an Egg McMuffin before lunch.''

In the frenzy of grab-and-go breakfast that seizes the nation each morning, the trek from Starbucks (for coffee) to McDonald's or another destination (for food) has become a familiar one. Even as Starbucks has developed a mass following for its dark, super-roasted coffee and its iced, frothed, blended and flavored offspring, the company has struggled to get its food up to par.
''It's a good thing for Starbucks that coffee is a big part of the breakfast decision,'' said Tom Miner, a principal in Technomic, a food service industry research firm. ''But most Americans spend no more than three minutes shopping for breakfast, which doesn't leave time for two stops.''

Thus, the latest move by Starbucks is a big one: challenging McDonald's by introducing hot egg-and-cheese sandwiches on English muffins, just as McDonald's is promoting its new higher quality coffee.

The breakfast sandwiches, with upscale ingredients like peppered bacon and sun-dried tomatoes, are being gradually rolled out across the country as part of a concerted -- and some say long overdue -- effort by Starbucks to improve its food. ''We are going to be all about premium and upscale ingredients, bold and layered flavors,'' said Kathleen Kennedy, the chain's recently hired director for food research and development.

Until now, Starbucks has managed to maintain the fast-food industry's most consistent revenue growth per store -- at least 5 percent each year since 1991 -- partly by avoiding the messy and expensive business of cooking (current model is running out of steam as a growth engine), said Joe Buckley, a restaurant industry analyst at Bear Stearns. Although the company appeals to customers with talk of high-quality ingredients, carefully trained baristas and a European cafe ambience, the stores were built to make coffee, not food; they have about the same cooking facilities as a 7-Eleven.
In trying to elevate the quality of the food, Starbucks faces a particular challenge, Mr. Buckley said. ''Starbucks customers have a very high-quality perception of the coffee,'' he said. ''That pushes their expectations very high for everything in the store.'' ………………

When the chain began its rapid expansion in the 1990s, the food offerings varied widely in selection and quality, and Mr. Miner said that Starbucks may still be recovering from those initial impressions. Also, a Starbucks is not always a Starbucks: when it is in an airport or a Barnes & Noble bookstore, for example, the company may not control what food is sold there.
But even the food in ''company'' stores has been inconsistent. Pastries were long bought from regional bakeries; only recently has the company nailed down its own recipes and established a pumpkin muffin that tastes the same from San Diego to Boston, with minor variations. ……………………..

The bakery items are still produced at about 50 different bakeries, and shipped daily to the stores. Some items, especially seasonal ones like the wintry Cranberry Bliss bar and new ones like last week's Five Fruit Banana muffins, are made in one or two locations, shipped frozen, and simply thawed before serving (This is where the McDonald’s systems are a huge competitive advantage)…………..

To produce hot breakfast sandwiches without building a kitchen in every store, Starbucks has made a huge investment in new high-speed, high-heat ovens (playing catch up) …………………..

Ms. Kennedy's food research and development team is charged with fulfilling the new motto printed on the sandwich wrappers: ''Great Coffee Deserves Great Food.'' That means food that suits the Starbucks psychographic: warm chocolate croissants, tarragon chicken salad, possibly even the return of quiche. It also means nodding to nutrition trends with items like cheese-and-fruit boxes and whole-grain pastries.

''Because of the coffee, our customers look to us for culinary challenges,'' Mr. Barr said. ''They want flavor, but they also expect a certain kind of thoughtfulness.''
Although the Starbucks sandwiches are unmistakable McMuffin clones, re-engineered for the Starbucks demographic, ''thoughtfulness'' put Cheddar and fontina instead of American cheese on top of the egg. (attempting to maintain the Starbuck”s image)……….

The stakes get a little higher each morning in the fast-serve breakfast business. For the last two years, breakfast has been the fastest-growing sector of the fast food industry. In consumer research conducted last year, the research company Mintel found that more than a quarter of Americans who eat breakfast do so away from home -- i.e. in the car, at a desk or in a restaurant. That number has been going up steadily for 25 years, as American eating habits have incorporated longer work hours, longer commutes and drive-through windows .

Since the Egg McMuffin was first test marketed in 1971, McDonald's has held a solid lead over all its competitors. The McGriddle, introduced in 2003, was a howling success that consolidated the chain's position at the top of the breakfast heap. But now the sharks are circling, sensing opportunity. ''Everyone is watching the breakfast category,'' Mr. Miner said.

Taco Bell and Wendy's are also test marketing breakfast menus, and Burger King upgraded its coffee last year, introducing a fuller-bodied BK Joe, brewed from arabica beans (instead of the cheaper robusta that is most common) in both regular and extra-caffeine ''turbo'' strengths. (the stakes are high and the competition is intensifying).

This battle may find using the Attribute Map a useful tool for the critical customer segments each company is targeting:

We will continue to follow this growth saga!