Jan 8, 2008

Fried vs. Ground

As Howard Schultz takes over the reigns of Starbucks once again, The Wall Street Journal is also reporting that McDonald’s is preparing to open its own coffee bars in an attempt to take on Starbucks. It seems McDonald’s plans on having espresso makers and actual “baristas” in a special section in the front of the store in order to sell their high-end coffee drinks.

And while most analysts are treating this as a head-to-head competition, I’m not really seeing it that way. To me, it’s a questionable move by McDonald’s to sell overpriced coffee drinks to the vast blue collar market that’s unserved by Starbucks.

Let’s face it: in January 2008, the presence of a Starbucks on the corner is as good an indication as any that you are in an upper middle class neighborhood, or a business district favored by white collar professionals. I mean I’ve even read articles about towns pleading with Starbucks to open a store there so as to advance their efforts towards gentrification. And while Starbucks has expanded way too rapidly in recent years, there are still vast swaths of the country where the words “venti soy latte” are never heard.

The McDonald’s coffee bars have their best opportunities in those areas where Starbucks are few and far between and in business districts where speed and convenience are far more important than brand preference. That said, I’m still not convinced that your average McDonald’s customer is going to want anything to do with a $3 caramel macchiato or that the competing smells of brewed coffee beans and deep-fried fast food will be anything other than noxious.

Starbucks may have to close down stores in some of the more downscale areas where they probably shouldn’t have gone in the first place. Maybe even give up on the Starbucks McMuffins. But the market for the two behemoths seems to be wide open: each will take a different end of the market. The bigger question, to me, is will McDonald’s be able to sell high-end coffee drinks to anyone other than harried office workers, high school students and road trippers?


Anonymous said...

I agree that there is a huge market for McDonald's in targeting the "other" coffee drinkers.

Just look at, randomly, the market for paint where the second-biggest paint seller after Home Depot is Wal*Mart. And they sell only two colors, wall white and ceiling white.

Starbucks is the coffee for frills, McDonald's is the coffee for the rest of the country (which doesn't mean it shouldn't be good, just look at Dunkin' Donuts, it just means that it should be marketed differently).

Anonymous said...

Tangential comment: Why Starbucks actually helps mom and pop coffee shops.

Alan Wolk said...

@Noah: And, in the other corner, this from the Wall Street Journal:
McDonald's: Savior Of Small Coffee Shops

(I tend to agree with the Slate article you cited.)

Anonymous said...

Offer free wireless and it might work. ;-p

Anonymous said...

I find this a very odd move by McD's. I just do not see Starbucks and McD's as competitors. Aside from the fact that I don't like Starbucks coffee (or McD's really), it seems that people go to Starbucks for a $5 coffee and to McD's for a $5 breakfie.

I could be wrong. But it seems so desperate by McD's, not innovative. Again, I might be wrong but I just prefer McD's sticks to its brand.

Stanley Johnson said...

This was pioneered in Australia, where select McD's outlets have a McCafe. Coffee's made fresh. Muffins, pastries etc. Here's a review of one near where I live:


Alan Wolk said...

@Stan: Thanks for the link. That's interesting about the McCafes. Does Starbucks have the same sort of upscale reputation in Australia that it has in the US?

@CK: I agree. Not sure McDs is going to be a place people want to hang out either. Pick up a quick cup on the way into the office or at 11:00 because it's half a block away, but not to sit and chat. Panera is offering Starbucks some real competition as "The Third Place"

Stanley Johnson said...

Starbucks upscale? Not down under.

We have a massive Italian imigrant population in Australia. They brought espresso culture with them.

As such we're a nation of coffee lovers.

To Aussies, Starbucks is a chainstore takeaway. A bit like McDonalds I guess.

HighJive said...

mccafes are not even a new idea in the states. mcd's definitely had them in test markets. or did they go national and bomb?

Ad Broad, oldest working writer in advertising said...

Just before reading this, I was in a Starbucks where one barista says to another, "You know why Macy's Starbucks is the best one to work at? Because there's a McDonald's in the same building." Hey, maybe it's a joint venture.

Anonymous said...

Do you know for certain that the plan is to keep the pricing similar to Starbucks?

Alan Wolk said...

@Cam: The article said that McDonald's drinks would be slightly less expensive than Starbucks. So that a $3.75 Starbucks caramel macchiato would become a $3.24 Caramel McMacchiato. (e.g. certainly not the bargain basement price structure that helps bring people into McDonalds.)