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Do you prefer Mcdonald's coffee or Starbucks? There is a big competition between these two companies. So McDonald has had new strategy against Starbucks.
Fast food king McDonald’s Corp revealed a bold plan to bring baristas to thousands of its retail locations. While the instinctive reaction is this must be a death blow for staggering Starbucks Corp, don’t count out the Seattle-based coffee chain yet.
After watching Starbucks and Dunkin’ Donuts capture the explosive growth in the coffee market during much of the 1990s and early 2000s, McDonald’s began fighting back in 2006 when it dramatically increased the quality of its coffee. Now, it plans to put coffee bars in most of its 14,000 U.S. stores over the next two years. Customers will be able to obtain lattes, cappuccinos, and other high-end drinks. While McDonald’s won’t offer quite the selection that Starbucks offers, it will feature lower prices.
A McDonald’s vice president said it was McDonald’s biggest endeavor since introducing breakfast 35 years ago, and said the company hoped to generate $1 billion in incremental revenue.
Along some dimensions, McDonald’s plan is a natural. Most of its retail locations have surges in traffic around meal times. The coffee bars should allow McDonald’s to serve customers in quiet day parts. The titan’s vast marketing budget and ubiquitous retail presence are other clear strengths. The coffee category’s explosive growth means McDonald’s could very well reach its revenue targets without materially impacting Starbucks.
There are two reasons to think that McDonald’s might find the high-end coffee market surprisingly hard to crack.
1. The processes required to serve customized drinks are vastly different from the processes required to serve McDonald’s tightly standardized menu. Running two distinct systems in a single retail location can be very difficult. Lengthening lines could alienate core McDonald’s customers looking for reliably quick food.
2. McDonald’s franchise model means it can’t simply force the coffee bars on retail locations. Individual franchise owners have to decide that investing in the bars is in their best interest. While McDonald’s claims that early market tests have proved quite promising, a consultant to some of McDonald’s franchise owners told USA Today, “It is certainly the biggest potential mistake in the history of the system.”
After watching Starbucks and Dunkin’ Donuts capture the explosive growth in the coffee market during much of the 1990s and early 2000s, McDonald’s began fighting back in 2006 when it dramatically increased the quality of its coffee. Now, it plans to put coffee bars in most of its 14,000 U.S. stores over the next two years. Customers will be able to obtain lattes, cappuccinos, and other high-end drinks. While McDonald’s won’t offer quite the selection that Starbucks offers, it will feature lower prices.
A McDonald’s vice president said it was McDonald’s biggest endeavor since introducing breakfast 35 years ago, and said the company hoped to generate $1 billion in incremental revenue.
Along some dimensions, McDonald’s plan is a natural. Most of its retail locations have surges in traffic around meal times. The coffee bars should allow McDonald’s to serve customers in quiet day parts. The titan’s vast marketing budget and ubiquitous retail presence are other clear strengths. The coffee category’s explosive growth means McDonald’s could very well reach its revenue targets without materially impacting Starbucks.
There are two reasons to think that McDonald’s might find the high-end coffee market surprisingly hard to crack.
1. The processes required to serve customized drinks are vastly different from the processes required to serve McDonald’s tightly standardized menu. Running two distinct systems in a single retail location can be very difficult. Lengthening lines could alienate core McDonald’s customers looking for reliably quick food.
2. McDonald’s franchise model means it can’t simply force the coffee bars on retail locations. Individual franchise owners have to decide that investing in the bars is in their best interest. While McDonald’s claims that early market tests have proved quite promising, a consultant to some of McDonald’s franchise owners told USA Today, “It is certainly the biggest potential mistake in the history of the system.”
Which one do you prefer?
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