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McDonald's Strikes at Starbucks

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Hard times can provide a great opportunity to take shots at one's rivals. Witness McDonald's (NYSE: MCD  ) aggressive plans to expand its new McCafe coffee initiatives -- with Starbucks (Nasdaq: SBUX  ) clearly square in the Golden Arches' sights.

According to Reuters, McDonald's recently announced the formal launch of its McCafe coffee initiatives in the U.S. Roughly 11,000 of its 14,000 stores will have McCafe stations, along with 1,100 stores in Europe. The success of its coffee initiatives has exceeded the company's expectations, according to the president of McDonalds USA.

Of course, not even a month into the rollout, there's little palpable information to go on yet. We'll have to wait six months for the company to reveal any market-share impact, so mark your calendars. That information should interest not only McDonald's shareholders, but also those of Starbucks, Green Mountain Coffee Roasters (Nasdaq: GMCR  ) , Peet's (Nasdaq: PEET  ) , and other coffee purveyors, not to mention fast-food rivals such as Burger King (NYSE: BKC  ) and Yum! Brands (NYSE: YUM  ) . After all, the coffee rollout isn't only about coffee -- it's also about luring customers into Mickey D's on a regular basis, in the hopes they'll eventually start buying more than just a cup of joe.

McDonald's move is definitely a cause for concern at Starbucks. The struggling java giant has been closing stores, making McDonald's aggression on the coffee front a particularly bitter brew to swallow.

Starbucks has tried to defend itself against McDonald's, and adjust to consumers' increasing skittishness about spending, by offering value meals and deals. Many observers argue that Starbucks must defend itself this way, but I fear this tactic will only end up tarnishing its higher-end brand. Diminished differentiation between the two restaurants might actually give coffee zealots less reason to choose Starbucks over the Golden Arches. (Feel free to chime in with what you think in the comment boxes below.)

Difficult times can be distracting for companies as they struggle to retrench and readjust. Stronger rivals can take advantage of this disorientation to make headway of their own. McDonald's plans aren't just news for a huge swath of shareholders now; they may also provide later lessons on how to carve out a competitive advantage during tough times.  

For further Foolishness:

Starbucks is a Motley Fool Stock Advisor pick and an Inside Value recommendation. Green Mountain Coffee Roasters is a Rule Breakers selection. The Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.

Read/Post Comments (17) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 28, 2009, at 5:23 PM, dnspc1 wrote:

    McDonald's may be trying to strike at Starbuck's, but we're not all buying that. It's rediculous to compare the Starbucks brand to McDonald's. A mocha at Starbucks actually tastes like a mocha with the espresso aftertaste. A mocha at McDonald's tastes like a cup of bad coffee with chocolate syrup poured down it half full. All you taste is the chocolate and it overpowers the coffee. I hope Starbucks makes it through this period because I'm a good customer of theirs. It might be a little more expensive, but you get what you pay for. It's according to what you want. Go to Starbucks for a wonderful mocha or go to McDonald's for a cup of overheated bad coffee with chocolate syrup. It's a no brainer for me.

  • Report this Comment On May 28, 2009, at 6:09 PM, Zaneyjaney wrote:

    Hmmm . . . I was going to add the exact opposite of what dnspc1 wrote. I have been enjoying McDonald's coffee for years now, and love it! Just recently had the occasion to sample a cup of coffee from Starbucks. What a bitter cup it was in comparison to McD's! I do believe McD's is onto something big here! Their coffee is great and at a great price!

  • Report this Comment On May 28, 2009, at 6:53 PM, Psykadolic wrote:

    Without a doubt, the effects of a drop in customer service has hampered Starbucks, allowing a cost-cutting giant like McDonald's to step in and assume a market share. With fewer and fewer Starbucks-like qualities being evident, there is no reason not to choose Ronald-ville for your coffee stop. I, however, am a blueberry muffin fan and will continue to purchase those at Starbucks, unless the Arches can come up with a delicious counter-punch to the baked goods.

  • Report this Comment On May 28, 2009, at 6:58 PM, epmccart wrote:

    I was going to write almost exactly what dnspc1 wrote (I can see this whole message board going back and forth as a reaction to the first poster's words.....). But I agree - I know there are plenty of people who dislike Starbucks coffee, but in my experience the majority of THOSE people are the type who would rather go to a local place and spend even MORE money for BETTER coffee, not the opposite (though obviously, people who like McDonald's coffee more exist too). Frankly, I and almost everyone I know who really likes coffee, thinks that McDonald's cannot compete with Starbucks, at least as far as good coffee is concerned. Yes, it's cheaper; but McDonald's is also cheaper than getting a steak anywhere, and that doesn't mean that every steak restaurant in the nation is going to go under too.

    And I've mentioned this before, but I still find it hard to believe that anyone's going to go to a McCafe and use it as a "cafe" - that is, I don't think that hordes of people who've previously been writing, reading, chatting, etc. in Starbucks are suddenly going to flock across the street to the "McCafe", EVEN IF the coffee tasted the same and the prices are cheaper. Atmosphere counts for something.

  • Report this Comment On May 28, 2009, at 6:58 PM, FastFoodNut wrote:

    I was very weary at first of McDonald's being able to compete with Starbuck's on taste. I knew Starbucks over priced their coffee line since inception, so I knew McDonald's would beat them on price. It has been a win- win for McDonald's because they taste better and at $1.50 less (not including tip) than Stabuck's for a cup of mocha makes it a no brainer. Throw in the slow service issues at Starbuck's and I would be very worried if I were a Starbuck's employee or CEO.

  • Report this Comment On May 28, 2009, at 7:05 PM, FastFoodNut wrote:

    If you want atmosphere, you would be surprised to find out McDonald's wins there also in my opinion. My local McDonald's has free Wi-Fi, areas to sit and relax around a fire place, televisions and outlets to plug in laptops. Are there more kids in the summer and at night? Yes, but in the daytime it is a very relaxing quiet beautiful atmosphere. I question if people who criticize McDonald's have actually stepped into one in the last couple of years. I have been in Starbucks and frankly they are small and the decors are cheap. Just my humble opinion.

  • Report this Comment On May 28, 2009, at 7:51 PM, Scott195 wrote:

    We tried a McD's Mocha and a Vanilla Latte this weekend. That was our first and last fancy coffee at McD's. The Vanilla had a coconut aftertaste from the cheap palm oil they must be using in the syrup! Yuck! The Mocha was just like the previous poster said coffee with a small amount of milk and chocolate syrup. It is worth the extra dollar to go to either Starbuck's or Caribou. You get what you pay for.

  • Report this Comment On May 28, 2009, at 10:02 PM, jnbasque wrote:

    People will describe Starbucks coffee as bitter occasionally. To inexperienced coffee drinkers that is exactly how it will taste. But to the rest of us, their Espresso roast (for example) is bold, intense, with a caramelly sweet aftertaste. Individuals who want more from their daily brew will continue to get theirs at Starbucks. McDonalds might win over the sugar-lovers, have you had their iced coffee?

  • Report this Comment On May 29, 2009, at 12:40 AM, Frandosplace wrote:

    I rather pay a little more money and get good friendly service, great atmosphere, good products and above all a nice place to enjoy a nice fresh cup of coffee. And I find that place to be Starbucks, I've tried Mc D's and all I get is miserable looking employees, 50 cents for an extra pump of syrup, 50 cents for this, 50 cents for a miserable extra pump of nasty tasting chocolate or 50 cents for a little extra whip cream.

    On top of that I get screaming kids with parents that do not care what their kids are doing and I could go on and on and on.

    Is an extra dollar worth the headzhe.? I know all you Starbucks customers agree with me.

  • Report this Comment On May 29, 2009, at 2:05 AM, starbucks4ever wrote:

    I don't understand the point of this comparison. McD is a place where they expect you to drink your coffee in 5 minutes and get the hell out. At Starbucks, you a buying two hours of time that you can spend sitting on a comfortable chair reading a paper or writing an essay. Even if McD could make a coffee that's as good as Starbucks, that still wouldn't change anything.

  • Report this Comment On May 29, 2009, at 2:45 AM, mayhem4masses wrote:

    Thinking about Starbucks is like thinking about the TV show Friends, it was huge in the 90’s and now nobody cares. Starbucks is tired and washed up, McDonalds has always been one step ahead of the competition, I hate coffee and could care less about who is better, but one thing is certain, The NEW McDonalds will thrive in the coming decade of the two thousand teens, whereas has-been, outdated, super 90’s coffee shop of a decade, culture and economy long since dead will fade into obscurity unless it does something to get with the now. The newly remodeled McDonalds are beautiful, tranquil, and peaceful environments compared, to the tiny, dingy, obsolete, and aging starbucks. They will continue to close their doors, as McDonalds opens new ones. The days of Starbucks are over, just like every other 1990’s subculture.

  • Report this Comment On May 29, 2009, at 10:18 AM, iamnik77 wrote:

    Starbucks' market share in coffee can so easily be eaten into. McDonald's is very intelligently managed and will soon make the premium coffee drink a commodity. Starbucks needs to stop the price increases for three or four years at least and accept that its business will no longer enjoy high profit margins on coffee drinks. Starbucks needs to somehow create better customer experiences in its stores. For those that aren't inside Barnes and Noble, maybe devote a major part of each store to magazines, newspapers, and packaged snacks so customers know they can loiter in addition to getting their favorite coffee drink. Also, Starbucks can add value by introducing more food items. I still don't know what the heck kind of food Starbucks offers so apparently they aren't doing a good job of offering something other than coffee. But they will have to avoid making prices too high. They should be the cheap chic (like Target stores) of their industry.

  • Report this Comment On May 29, 2009, at 9:07 PM, EMP70 wrote:

    I live within 1 mile of a McDonalds and a Starbucks. I'd rather pay the extra 1-1.50 dollars for Starbucks. Maybe their drive-thru coffee might take some business from Starbucks but there is no way I'd sit in a McDonalds, sipping a latte and surfing the internet at a greasy table in a restaurant that caters to parents with young children. Been there, done that, don't plan to do it again until I have grandkids.

    I don't see any comparison between the two.

  • Report this Comment On June 02, 2009, at 12:38 PM, FastFoodNut wrote:

    I agree. I also see no comparison between the two. McDonald's provides a great environment, the same amenities as Starbucks and they do it for $1.00 to !.50 a cup less. I don't know about you, but an extra $500 per year for coffee that has little difference in taste and the service is faster, I take McDonald's hands down. My wife and I are always on the run still going to our 9 grandchildren's games so we load up with Hot or Iced Coffee quickly and ar on our way. I have to say, I have only been through a Starbuck's drive through one time, but it took me 30 minutes to get through with only 2 acrs ahead of me. Time is money to me, so that did not bode well with me.

  • Report this Comment On June 02, 2009, at 2:07 PM, Frandosplace wrote:

    The only reason I go to McDonalds is to take my grandkids. I dislike their food, their atmosphere, the rude and lifeless employees, their drinks among a lot of other things.

    I go to Starbucks and I get to relax, read my paper, have a decent conversation with employees who as a matter of fact always seem to remember my name, talk to other customers. I gladly pay that extra dollar or two for that fresh cup of coffee ( I can actually get free refills all day long at any of their stores).

    FastFoodNut slow down, is not worth it to be in a hurry especially when you are driving your grandkids


  • Report this Comment On June 02, 2009, at 6:19 PM, FastFoodNut wrote:

    I am not driving them, I am driving my wife and I and have never had an accident in 37 years. Knock on wood. It looks like beauty is in the eye of the beholder. McDonald's staff know all of names (25 or so of us go there 2 to 3 times a day). They know our families and they genuinely care about our well being. We all know the owner of the restaurant who is just a regular Joe and a great family man. He gives and gives and gives to the community. His employees love him and so do his customers.

  • Report this Comment On June 09, 2009, at 6:46 PM, Strawb3rryfields wrote:

    I am a Starbucks Employee and I agree with the posts above in that there is no comparison. I had a latte from Mcdonalds just to have my own opinion. I literally vomited in my mouth. I get customers all the time that tell us how nasty the "McCafe" drinks are. Just a Starbucks knockoff. I understand McDonalds just wants to give people a cheap alternative but keep in in mind...Cheap coffee is exactly that.

    Plus, Coffee isn't the only thing we offer at Starbucks besides the comfortable environment and friendly service, we have tons of other different drinks. You can also personalize your drink however you want. Do you have a choice at mcdonalds to get a sugar free drink? or Nonfat? What about Soy milk? Organic milk? If you think about it, you really do get your money's worth with all of the options you have.

    Plus, with the hot weather, most people are coming in and getting Frappuccinos. Does McDonald's have those? The closest thing ive had to one elsewhere was at Arby's. It was discusting. I may be biased because I work there, but nothing can really compare to our products and service.

    Also, I'm not afraid of losing my job (lol) If it happens, then I'll deal and find something else. Starbuck's isn't my career, it's temporary until I'm finished with school. :)

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