It’s been a bad year for Starbucks. The donuteers haven’t been doing well either. So if not coffee and donuts…
Enter McDonald’s. Buried in an epic article, in Monday’s WSJ, there’s an interesting point about the convergence of various food-retailers due to consumer “convenience”. Witness, McDonald’s and Starbucks, which started out as brands that had little - if anything - in common. Not so anymore:
McDonald’s upgraded its drip coffee and its interiors, while Starbucks added drive-through windows and hot breakfast sandwiches.
It’s been an asymmetrical process however, and Starbucks has lost out. Badly. Converging though the brands maybe, share prices have diverged - no less remarkably. Starbucks is currently down 48 per cent since last January. Compare that to McDonald’s, which has mirrored decline with a rise in its shareprice of nearly 31 per cent. Read into the tea-leaves and there’s worse to come for Seattle’s finest. McDonald’s, it transpires, is deliberately gunning for Starbucks customers:
McDonald’s says it wants customers to see the coffee beans being ground and baristas topping the mochas and Frappes with whipped cream.
“You create a little bit more of a theater there,” says John Betts, McDonald’s vice president of national beverage strategy.
We personally, cannot think of anything worse than theatre in McDonald’s. Possibly Chinese opera in McDonald’s.
But there is one fantastically, massively good reason to buy coffee from the golden arches: no longer will you have to embarrass yourself and those around you by asking for an amalfi-size aneamo-soy latte with limbs or something similar. Just Large. Or Small. Or Medium, with skimmed milk, god forbid.
That, and the fact that McDonald’s are as yet innocent of complicity in the popularity and success of Norah Jones.
Anyway, Ronald McDonald is clearly scary enough for Starbucks to pull out the big guns. Founder Howard Schultz is coming out of semi-retirement as mere Chairman of the coffee giant and moving to the fore as its new CEO, reports today’s FT. If you want a job done…
Will Schultz put things back on track? It’s an uphill struggle we suspect. One can’t help but feel that this is a battle Starbucks really shouldn’t be fighting. They shouldn’t be competing with McDonald’s. Starbucks built its very successful and popular brand on a faux-Italiano lexis, comfy chairs and nonthreatening jazz - creating, in its own terms, a “third space” between home and work. The trouble is, 80 per cent of Starbucks customers don’t stay in that space. They take their coffees to work. Or back home.
McDonald’s - in expanding into the coffee market - are, by comparison, doing so in a way that isn’t that far away from its core business model: convenience food, served to take-away. Looks like the battle is McDonald’s to win.
Update: Didn’t spot this earlier, but via Business Week, here’s a memo from new CEO Schultz to staff. Tellingly: “we will slow the pace of our U.S. store openings and close a number of underperforming locations, so we can renew our attention on store-level unit economics and be laser-focused on flawless execution.”
