Wednesday, July 09, 2008

McDonald's coffee strategy hurting Starbucks

We know Starbucks is in trouble. They've already announced they'll be closing 600 stores. And it is understandable... with gas prices over $4 a gallon, Americans are having to make many tough financial choices. Skipping their $4 latte is one of the easy choices.

But there's another source of trouble for Starbucks: McDonald's!

from Financial Post:
"As McDonald's Corp. tries to become a "beverage destination" for thirsty North Americans, the fast-food giant's approach is going far beyond just a "coffee clash" with Starbucks Corp.

Not only has the restaurant chain's launch of its premium coffee been a success on the back of rave reviews from taste-testers, but it is adding many more specialty coffee drinks at McCafe locations later this year, including vanilla lattes, cafe mochas and caramel cappuccinos.

It has also begun gradually adding iced coffee and iced tea to menus, and is expected to offer smoothies and energy drinks by 2010. McDonald's is also going green with its coffee push, promising that all its beans will be grown in environmentally-friendly conditions by next year."

read the rest of the article at Financial Post.


Anonymous said...

Economic theory about price elasticity of demand and when one product becomes an acceptable substitute for another certainly suggests that McDonalds coffee strategy is hurting and will severely damage Starbucks, especially since to date, Starbucks insists on saying that they are in a different market niche and is ignoring the threat.

The Starbucks fanatics also go out of their way to deny that anyone will switch, or even occasionally go to a McDonalds or Dunkin Donuts because they're more convenient, because there's just no comparison. But that's just foolishness -- we all know that even if you prefer Coke, you'll take a Pepsi (usually) if that's all the restaurant serves. Why would anyone think Coffee products are any different, especially when the foodservice giants make it faster and cheaper, and often have free Wi-Fi for those who want to linger in the store and do some surfing?

This is what low-end disruptive innovation is all about, and if Starbucks answer is to retreat to the high end where margins are bigger and to try to defend that turf, they will rapidly find themselves marginalized into a smaller and smaller niche as the low-end catches up and takes a large chunk of their market. (If Starbucks goal is to only serve the high end, then they have already created severe over-capacity, and we'll see lots more closings and layoffs ahead. You can read more at my blog:

Anonymous said...

There involvement in the culture wars will be a blessing to Starbucks then.

Apparently McDonalds Hates Christians