SBUX VERSUS MCDONALD’s – The debate rages on

I still believe that there is a significant catalyst coming for Starbucks when the world realizes that McDonald's McCafe is not taking significant share from SBUX.


The other night, not knowing I was an analyst (not that it matters), an acquaintance of mine was talking about "investing". So I asked him about McDonald's and if he had tried the new coffee drinks. He said yes and that he was very disappointed and it's not likely he will have another one. The McDonald's media blitz is clearly stimulating significant trial, but if they don't have the products engineered perfectly, that all its going to be - a onetime purchase.


The amount of media that McDonald's is throwing at coffee is coming at the expense of other parts of the menu. In the areas where they have reduced media spending, it's only natural that the trends for those products will slow. Is the coffee news enough to keep the overall sales growing? Coffee is not a core competency for McDonald's and there is a big risk that McDonald's is too focused on coffee! If June is like May, McDonald's will have a hard time explaining away a soft comp. This will be good for SBUX!


Given my friends response I sought out the bloggers to see if he the exception or the norm. All of the following comments are from the blogs debating the issue:


If anything, I think the McCafe launch has made people appreciate the taste and quality of Starbuck's beverages. I remember the first time I tried the McCafe Mocha - when I asked how many shots of espresso was in it, the person working at McDonalds didn't even know what espresso was. Starbuck's specialty is coffee and good, quality beverages. McDonalds specializes in... Sandwiches! The companies should stick with what works best for them.
The companies should stick with what works best for them." Unfortunately, Starbucks doesn't know how to do that and has alienated many a customer with decisions such as not brewing decaf and bold after noon etc. I don't really see a McCafe hurting sbux so much as the economy and the fact we raised prices during a recession....ummm...can you say stupid move


Had a few customers comment that their experience was not good at McD's. Cheaper price but less quality beverage. As for trends, seeing lots of iced coffee sales rather than iced lattes or blended beverages. I think the 1.95 price point is good for people. My opinion is that McD's can't really compete right now with espresso. If they get a good iced coffee, then it could compete. Their current iced coffee is weak tasting. Sbux breakfast sandwiches don't compare. Not fresh enough. I don't eat fast food breakfast for health reasons. Personally, I think it is dangerous for Sbux to compete with fast food... FOOD. The less like a coffee house and focus on drinks means less quality of beverages and service speed.


I'm not a SBUX employee, I'm a regular customer. The McDonalds rollout hasn't affected my consumption patterns one bit. I'll go to McDonalds if I want a fast-food hamburger. The McCafe marketing plan just sounds like a clumsy attempt to get some of Starbuck's and Dunkin Donuts' market share.


Truthfully, having a mcd's ten feet away has NOT affected my store. They post signs pointing directly at my store for their mccafe' and yet...we still get THEIR employees buying our coffee. We've had customers go there and get a drink, only to dump it out and get a drink from us.


Ugh, I had a vanilla latte at McDonald's for the first time yesterday. So gross. It tasted exactly like the vending machine coffee I used to get in college. This is about right, considering it was "made" by pushing a button.
We have a McDonald's across the street from my store and I have made it a point to ask many of our regulars: "Have you tried any of the McCafe drinks? What were your thoughts?" I also tried the iced mocha myself. The results were simple... You pay for what you get. Argue the details all you want. The fact remains that value is up for the customer to decide.


We have three McDonalds within a five minute drive of us (including one within four blocks) and our trends are:
-increase over target sales by at least 25%
-increase in average check by almost a dollar
-increase in customers asking us at the window if we can throw away their nearly-full McCafe cups after we hand them our coffee and I believe that says all I need to know about it.


I'm seeing a really interesting effect because our store is just a row of parking spaces away from a McDonald's. We're getting customers who come in saying they tried the McCafe and were thoroughly disappointed. A couple of days ago they weren't able to make any iced coffee for some reason and I actually had a customer tell me they suggested they come to our store! I had another customer who said they got mocha there, took a few sips, and drove right over to our store to get something that didn't taste awful. Also, I'm seeing more customers recently who are totally unfamiliar with anything Starbucks. I'm wondering if the McCafe got some of those people who don't normally drink coffee interested in coffee drinks, tried it, left disappointed and decided to compare it to Starbucks.


I agree with the comments that it has not hurt my SBUX at all and I would argue that it has helped exponentially. My store has been in the same location for over ten years and it has NEVER seen business like we are experiencing now. Our store is up 25% in sales over last year alone. We have a DD right next door with a drive-thru (my SBUX has no drive-thru thank god), and there is a McDonalds 2 minutes down the street. I agree that McDonalds has done us a GREAT service in drawing attention to coffee. Unfortunately for them, once people try both, they then realize that you DO get what you pay for and maybe paying a little more for a perfectly customized beverage is a better value for their money. People are certainly entitled to their opinion and if they like McD's better, then good for them... I just don't see the masses embracing their coffee products. I continually express my belief that the draw to SBUX is also the feeling that people get when they carry around a SBUX cup. It sends a subliminal message, "I'm successful, I'm trendy, and I'm sophisticated". Anyone who thinks otherwise is not in touch with the human psyche.

 


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