McDonald's beats Starbucks?

McDonald’s has been capturing American’s stomach for decades, and it seems they are not satisfied. McDonald’s has announced their attack to the “peaceful” coffee market. In the last few years, McDonald’s has tried very hard to change, or indeed add, an image of a hangout place on top of their well-established fast food company image. On the other hand, Starbucks is trying to change too. They are so desperate to sell more food instead of only selling coffee that they even changed their logo by taking off their name Starbucks Coffee for it. Now, the war between McDonald’s and Starbucks heats up.

After looking at Jason Best’s blog post about the loyalty of coffee drinkers, it looks like McDonald’s is a bit ahead of the game. The report shows the coffee drinkers of McDonald’s appear more loyal than Starbucks. Although neither the study nor the post say why McDonald’s coffee drinkers are more loyal, Jason Best implies it is about the price. “The study didn't try to figure out why McDonald's coffee drinkers were more loyal, but the fact that you can still get a basic cup of coffee there for a buck might have something to do with it” (Coffee Drinkers More Loyal to McDonald’s Than Starbucks, SLASHFOOD). After researching on the subject matter, I somewhat agree with Jason. There is no doubt that price matters in this war; on top of that, I found McDonald’s has more advantages than just price.

Since the financial crisis in 2008 and the current economic downturn, a large portion of Starbucks’s market started to look for and purchase the cheaper alternative coffee, McDonald’s. A slight increase of young adults’ average consumption of coffee is recorded from 2007 to 2008. The figure increased from 3.1 cups per day in 2007 to 3.2 cups per day in 2008. The number indicated the growth of Starbucks targeted market was slowing down compared to the previous years. On the other hand, McDonald’s got an edge of the market after they improved their coffee. A large portion of consumers who used to consume luxury coffee now seek for medium quality coffee with lower price.

For the past few years, McDonald’s has been trying to imitate Starbucks to steal their customers. They have operated a new line called McCafe in many countries outside of the States. McCafe’s targeted market overlaps with Starbucks. “This upscale coffee and pastry shop often operates in tandem with the standard McDonald’s restaurant. They share the same entrance, but the McCafe section offers big booth couches, upscale tables, Wi-Fi, and sophisticated curvy room and wall arrangements”( McDonald’s: Breaching the Luxury Coffee Market). This idea has already been very popular in other countries, such as Germany and Australia. With McCafe, McDonald’s may draw the attention of Starbucks’s customers as people are becoming more cost-conscious.

According to a research on “Where they’d rather live, in a place with more McDonald’s or more Starbucks” I found on Bloomberg, McDonald’s defeated Starbucks by 43% to 35% overall. In the report, “McDonald’s also is tops in almost every demographic group. Among the few subsets that favor Starbucks: 18- to 29-year-olds, college grads, people with annual incomes of $75,000 or more a year, the nonreligious, Westerners, and liberals” (The Great Divide, Bloomberg).

As we can see from the research, McDonald’s and Starbucks are actually competing on different targeted markets. Although McDonald’s leads an overall 8% over Starbucks, the high income and educated group favors Starbucks. More importantly, the younger generation, which McDonald’s has been targeting for years turns out to be on the Starbucks’s side. The Hitwise data also support the research above. They found the 18-to-34-year-old group tends to buy coffee in Starbucks rather than McDonald’s, and there is a clear income gap between the two companies’ customers as well. Starbucks customers tend to be households earn over $60,000/year; in contrast, most of the McDonalds’s customers are households earn less than $60,000/year. McDonald’s has noticed that, and has been attempting to steal the high income market share of Starbucks by improving their taste.

In a blind taste test, McDonald’s actually beat Starbucks and other competitors on the taste of coffee. The trained tasters of Consumer Reports visited two stores of each company in the test. “We compared the rivals with Starbucks, all in basic black -- no flavors, milk, or sugar -- and you know what? McDonald's beat the rest”, Consumer Reports said in its March issue, “It was decent and moderately strong. Although it lacked the subtle top notes needed to make it rise and shine, it had no flaws” (McDonald’s beats Starbucks in coffee smackdown, Chicago Tribune). In 2008, McDonald’s placed 14,000 new baristas and dropping espresso machines in their fast food restaurants to upgrade their coffee, and also to increase customers’ willingness to buy coffee from them. The taste report helps a large part in McDonald’s intention to elute their image of selling cheap coffees. This is an important advantage that could help McDonald’s to steal market share from Starbucks.

Breakfast and drive thru turn out to be advantages of McDonald’s over Starbucks. McDonald’s has a large proportion of their sales relies on their breakfast. Therefore, they try to sell more coffees together with their breakfast, which boosted their coffee’s sales. Starbucks has been trying to do the same thing for the last few years, but the same strategy doesn’t seem to be successful for Starbucks. The reason why people choose McDonald’s breakfast over Starbucks is McDonald’s has higher efficiency. Drive thru has helped McDonald’s a lot on this. The high turnover rate of drive thru favors those who rush to work in the morning, and also parents who need to drive their children to school. It appears to be faster and more convenient for people to grab a fast breakfast through drive thru instead of waiting in Starbucks. However, why don’t Starbucks setup drive thru? The reason is, Starbucks is usually smaller in size compared to McDonald’s, and it is hard for them to setup drive thru in small shops. It also contradicts with Starbucks image as a hangout place, because high turnover rate is not their selling point, instead they want to make it a comfortable place for people to stay and chill.

Now, let’s get back to our topic, do you think McDonald’s will beat Starbucks in the coffee market? In spite of all the advantages of McDonald’s, I would say they will eventually beat Starbucks. However, I still prefer to buy coffee in Starbucks personally. I found out it is so hard to change the fast food restaurant image of McDonald’s in my mind. Therefore, I think they will beat Starbucks later in the future, but not now. What do you think?