Should Starbucks be Worried about McDonald’s?

A interesting thing happened on my trip to Allegan, Michigan over Thanksgiving (yes that city again). While driving there, I stopped at a McDonalds for breakfast in Portage, Indiana (not far from the Chicago Skyway.) This particular McDonalds is built into a bigger gas station rest stop so there is a convenience store and a Subway sandwich shop in addition to the McDonalds.

While eating my Big Breakfast (highly recommend this as it’s eggs, sausage, a biscuit and hash browns for only about $3.50), I overheard a fellow traveler sitting at the booth behind me with her children lamenting: “if only there was a Starbucks within ten miles of here.”

I wanted to interrupt her and say, “there is- about 3 miles up the road” but I didn’t. (I was driving east bound on 94 she must have been going west bound because I clearly saw the Starbucks logo on the restaurant signs on the side of the road about 3 miles before I got off to eat at the McDonalds.)

Why did she so desperately want her Starbucks when McDonalds now offers what everyone has said (I’m not a coffee drinker myself) is delicious coffee?

Maybe she wanted a latte instead (which, for now, McDonalds isn’t offering.)

But that could be about to change. McDonalds is apparently trying to convince its franchisees that lattes and other high priced coffee drinks are the way to go. From the Associated Press:

“We want to move from beverages as an accompaniment to being a beverage destination,” Don Thompson, president of McDonald’s USA, said in a recent meeting with analysts. “Our speed, our convenience, the value that we can afford to customers” without compromising quality will make McDonald’s a formidable player, he said.

Restaurants will offer lattes, mochas, cappuccinos and espressos with a choice of different flavorings and milk. Industry watchers say the drinks will cost about 50 cents less than at Starbucks.”

Should Starbucks Be Worried?

If given a choice, this woman traveler would have been in a Starbucks and not the McDonalds. But I’m not so sure that McDonalds doesn’t beat out Starbucks in other locales.

In the city

McDonalds has added things like couches to some of its restaurants but I’ve never seen anyone sitting on one. Nor have I seen anyone sitting with their laptop open and hanging out in a McDonalds in the city (like you do at Starbucks.) Starbucks still has the edge in the big cities. It needs to return to being the community meeting place. People still have dates at Starbucks. They meet for job interviews or to meet with headhunters at Starbucks. They hang out at Starbucks after school or in between classes. These are Starbucks strengths.

On Starbucks website, they have a search feature where you can find out about Starbucks “events” near you which include music, Starbucks book club and things like that.

Great! Making Starbucks a part of the community. That’s what they need.

Only when I searched for “book club” in the entire state of Illinois, I found no events. So then I searched using the “find all” feature and discovered that there is only one upcoming book event in the entire country- in Dover New Hampshire. Most of the other “events” were hiring fairs or where Starbucks’ Angels were giving out free drinks at some holiday parade.

This “events” feature could be a great thing- but the company isn’t using it correctly. What a drag.

Otherwise, in the cities, they have to make sure that the coffee is darn good. They’re competing with lots of the local cafes now for taste and ambiance.

In the suburbs

Starbucks has been adding drive throughs to its suburban stores. Smart. But now that McDonalds is getting into the latte business, you will be able to go through the drive through and also get your McMuffin, one of the most popular breakfast items in the country. McDonalds will have an edge in these suburban locations- especially if they’re charging 50 cents less a cup.

In small town America

Stabucks is underrepresented in small town America. There is no Starbucks in my grandmother’s town of Allegan (and likely won’t be for another decade or more.) McDonalds didn’t even come to Allegan until 1984 or 1985. There are two or three freestanding Starbucks (outside of Meijer or Target stores) in Holland, about 16 miles to the north.

It’s hard to get any brand loyalty in these small town locations because most of the people have never tried your brand.

But for McDonalds, it’s easy. Allegan actually had a parade for the first McDonalds opening over 20 years ago. (It was that big of a deal. The closest McDonalds before it opened was about a 20 minute drive.) They recently tore down that restaurant and built a new one- complete with a drive-thru. Progress!

According to my grandmother, the local retired women go to McDonalds every morning for breakfast. And they go for the coffee. They RAVE about the coffee.

Who would have thunk it?

McDonalds has strong ties in small town America

Brand loyalty. McDonalds has the breakfast AND the coffee. Deadly combination. In ten years, when Starbucks does finally open in Allegan, they won’t be able to compete with that unless they have some new breakfast offerings or something else to bring people into the store.

Or darn good coffee and atmosphere (aka, meaning far better than McDonalds.)

Starbucks has a challenge ahead. But management should welcome it. As McDonalds grew stale in the 1990s, after it rose to the heap of the burger chains and wasn’t challenged, so Starbucks has also rested on its laurels in recent years. The McDonalds challenge is just the kick in the behind the company needs to rise to new heights.