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McDonald's Strikes at Starbucks

By Alyce Lomax – Updated Apr 5, 2017 at 8:02PM

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Coffee and the art of war.

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.

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

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