Starbucks Corporation
Starbucks vs. McDonald's

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By Haise
October 2, 2009

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Ah, my misunderstanding. I thought we were talking about Starbucks as an investment. You are comparing McDonald's as a business and Starbucks as a really neat place to get coffee.

We are, but I'm looking at the big picture and you're worried about next quarter's results. Consider the McDonald's philosophy and you'll see why ArchDeluxe was a colossal failure and McCafe is a great success. My basic point is Starbucks will succeed by being faithful to their brand and business philosophy.

This would be a relevant analogy if it were 1994 and Starbucks was a bit player in a huge market. Unfortunately Starbucks is now the Budweiser of this segment, and there are dozens of "really neat" microbreweries opening up, and McDonald's (er, Coors) has just announced that it is expanding out of Colorado and to the rest of the country.

Well, that you can compare Starbucks with Budweiser is part of the image problem I'm referring to. Before Starbucks, most people were getting their coffee from McDonald's or wherever, so I'd consider them the Budweiser of the segment. McDonald's/Anheuser-Busch have responded to Starbucks/Sam Adams with upgraded coffee and beer. Starbucks should respond to further improving their own quality: keep raising the bar.

As for the economy, Starbucks' direct competition (the local roasteries and coffeehouses) are not hurting. The only coffeehouses that have closed recently are Starbucks, and ironically, new ones sometimes open in their place. Based on what I'm observing, there is no problem with consumers being unwilling to pay an extra 50 cents or dollar for a better product or service.

That said, maybe the future for Starbucks is a decreased retail presence and gaining more share in homes and workplaces. The instant coffee product seems to be a step in that direction.

Once upon a time Budweiser was "the king".

According to sales, they still are, regardless of ownership.

Mom. When the 3 year old wants a happy meal. It's huge, but you knew that, right?

Mom isn't driving across town when there's invariably a McDonald's right down the street.

My point, though, is that convenience is more important to the McDonald's philosophy than quality... the burgers are good enough, but when someone wants a really good burger, they drive across town to a place that makes really good burgers. Discerning coffee drinkers are willing to go a little out of their way for good coffee and the swill drinkers are going to McDonald's... that's the challenge Starbucks is up against.

So? You think Starbucks doesn't do the same thing vis a vis the local coffeehouse owner? You think Starbucks is on some ethereal mission of goodness, as opposed to running a business? Really?

Employing a barista who makes drinks by hand is part of the Starbucks business model, so they aren't doing the same thing as McCafe, where the process has been dumbed down into pretty pictures telling which order to squirt stuff into a plastic cup. The McDonald's dumb-it-down-and-crank-it-out philosophy is entirely different from the Starbucks roast-excellent-coffee philosophy. If Starbucks chooses to strengthen their identity around the product and service that brings customers in the door, and running an efficient operation to enable it, the financial results will follow.

It's not all that different with any company: those who forget their brand and identity for the sake of financial results lose out on both.