McDonald's battles Starbucks

Sensing an opportunity to further democratize espresso, McDonald’s is moving full throttle into the espresso beverage business. Currently, 800 of McDonald’s U.S. locations offer lattes, cappuccinos, and frappes. By 2009, most U.S. McDonald’s locations will be selling coffee drinks ranging in price from $1.99 to $3.29. McDonald’s believes an expanded coffee menu will add about $1-billion in yearly sales.

Writing in the Wall Street Journal, Janet Adamy reports,

The program attempts to replicate the Starbucks experience in many ways -- starting with borrowing the barista moniker. Espresso machines will be displayed at the front counters, a big shift for a company that has always hidden its food assembly from customers. McDonald's says it wants customers to see the coffee beans being ground and baristas topping the mochas and Frappes with whipped cream.

"You create a little bit more of a theater there," says John Betts, McDonald's vice president of national beverage strategy.

The theater element, of having employees preparing food while interacting with customers, is a major shift in company culture for the operationally-efficient McDonald’s system. In the article, Adamy mentions how McDonald’s franchisees have been instructed to hire people who are “very friendly.”

That’s a start to bringing more theatrics to a customer’s McDonald’s experience, but why is hiring “very friendly” people a new behavior for McDonald’s? (Hmm.)

The people component to delivering customer experiences is ultra-important to McDonald’s — more important than the actual coffee beverage program. Why? Because Starbucks competitors can replicate products and programs, but they can’t replicate people.

In TRIBAL KNOWLEDGE, my book sharing business lessons I learned from Starbucks, I wrote about this topic saying …

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Ambitious coffee competitors like Caribou Coffee, Cosi’s, Tully’s Coffee, Gloria Jean’s, Barnies, CC’s Coffee House, and others have all tried to mimic Starbucks success in some way. And they have all fallen short in some way.

These coffee companies have tried and are trying to replicate the products and experiences Starbucks delivers, but they can’t replicate the people Starbucks has delivering the products and experiences to customers.

Products do not create brands, people create brands. It’s the people that matter more in creating a brand than the product itself. And Starbucks places a tremendous emphasis on hiring the right people to deliver exceptional products and meaningful experiences to customers.

When hiring employees for store-level and corporate-level positions, Starbucks looks for the following upstanding “people” qualities in each candidate: genuineness, conscientiousness, knowledge, and involvement.

Genuineness
Genuine people build solid relationships with others because they are approachable and likeable. Starbucks employees who are genuine make for great team members, and they can be trusted to deliver heartfelt customer service.

Conscientiousness
A conscientious employee is one who is considerate and pays attention to seemingly insignificant details because everything matters to them. And since “everything matters” at Starbucks, this quality is of utmost importance in all employees Starbucks chooses to hire.

Knowledge
Starbucks employees are expected to know coffee to the extent that they will confidently share their coffee knowledge with customers. To find employees with this quality, Starbucks looks for people who ask questions. Asking questions at Starbucks is not a sign of weakness. It’s a sign of strength. Inquisitive employees lead to knowledgeable employees and knowledgeable employees are quicker to share their expertise with others.

Involvement
Employees who get involved within the company and within their community are valued at Starbucks. When employees take the time to get involved and make connections with others, they showcase a caring soul. Starbucks seeks to hire caring souls because they are more likely to make emotional connections with people.

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Even if McDonald's can successfully change its company culture to hire engaging employees, it still must solve for how to integrate its highly-involved coffee program with its streamlined operations customer have come to expect.

As Adamy writes, “Still, the new coffee program is a risky bet for McDonald's. It could slow down operations and alienate customers who come to McDonald's for cheap, simple fare rather than theatrics.”

Comments

[David Binkowski]

Ugh. Have you ever tried McDonald's "Premium Roast" coffee? It's like drinking watered down motor oil. They may be able to get a few bucks from current McD's loyalists and customers for a frappucino but there's no way a Starbucks loyalist would cross over to the dark side. Pun intended! :)

[Prescott Perez-Fox]

I blogged about this about two months ago. Of course, my view is largely from a branding/design perspective rather than a business/financial. If you're interested please have a read.

http://www.perezfox.com/2007/11/14/mcdonalds-to-take-on-starbucks/

[Jeff]

Last time I was in Hong Kong, we stopped by a McDonalds with the "mccafe" inside. McDonalds has been trying out these starbucks style coffee bars in their restaurants in Europe and Asia for a while now.

http://www.wakeuptowhatsnew.com/

If they try the same approach here, then the coffee bar is a completely separate counter from the McDonald's food. So the people in line for a latte are separated from those in line for a burger.

[Pat Nerr]

The way I read the wole McD's vs. Starbucks is that regardless of what product McD's delivers or how, they still have an edge on delivering through the drive thru channel where Starbucks is still learning. Financially, it's gonna hurt Starbucks this year, when they really needed some successes.

Brand aside... the bar is pretty low at McD's, so if they pull even half of it off, it won't help Starbucks lower-trending customer counts... AND McD's has the locations to make the numbers

[johnmoore (from Brand Autopsy)]

"Pat Nerr"... you are right, if it comes to solely competing on speed of service, McD's has the major edge.

Speed of service is an important aspect to a great customer experience but is it more important than a tasty beverage? Or a friendly staff? In my book, great taste and smiling employees will always trump fast service and low prices.

[Scott White]

Ah, who buys good coffee at Mcydee's? I don't. End of statement. That's not Starbucks target customer is it?

[Jackie Huba]

John,
Nice quote in the WSJ article:
..."McDonald's was selling hot, brown liquid masquerading as coffee"

[johnmoore (from Brand Autopsy)]

Ahh ... so Jackie, you found the needle in the haystack. (Cool.) Actually, that was a small dream come true for this marketing wonk.

Ain't like having YOUR book reviewed in the WSJ!!!

[Tim Uden]

I can't think of a single McDonald's in Australia that doesn't have a McCafe, and it has been like that for years down here.

As far as the coffee and the atmosphere is concerned it is actually a lot better than once would expect. Not quite Starbucks and certainly not as good as a small independent cafe, but better than I would expect from McDonald's.

McDonalds brings a decent espresso to small towns in Australia that wouldn't otherwise have real coffee. A bit like how you couldn't get a real espresso in most small American towns until Starbucks came along.

If there is no other choice then it is good to get a decent coffee at McDonalds, but given a choice between McDonald'a and Starbucks, but people would choose Starbucks. But given the choice I would choose a small independent cafe that has been run by the same Italian family for the past 80 years.

[Tom O'Brien]

Do you really think that right now Starbucks is hiring better quality people than McDonald's? Maybe in some locations. But if you travel often thru O'Hare International Airport (or any other airport in the USA for that matter) I think McD's employees are at least as engaged and engaging as Starbucks'.

TO'B

[finn mckenty]

I have a hard time seeing McDonald's pull this off. It seems to me to be a classic case of what Michael Porter calls "straddling":
"The straddler seeks to match the benefits of a successful position while maintaining its existing position." ("What is strategy?", Harvard Business Review, November 1996)
As Porter points out, straddling seldom works, because it is essentially an attempt to have your cake and eat it too... and we all know how that works out.
In the case of McDonalds, like John says, there's a fundamental clash between the cultures behind McDonalds and Starbucks, and it's going to be pretty tricky to reconcile those.
Buying the same equipment and ingredients as Starbucks is relatively easy, anybody with enough capital can do that. What nobody else has been able to do is replicate the company culture that makes it all meaningful and valuable to the consumer- and I don't see McDonald's as the company that's going to crack that cypher.

[olivier blanchard]

Isn't that similar to what Dunkin Donuts has been trying to do for the last few years?

It's going to be tough for the Golden Arches to shift from a low price family-friendly fast-food commodity model to a "remarkable" customer experience model.

They've had moderate success with their iced tea, coffee, salads and "healthy" offerings, but those are products. Changing the actual vibe of the place across the board by hiring friendlier people is going to be a whole lot tougher in this economy... unless their benefits package changes as well.

Are they actually trying to align the actual real-life in-store experience with the fantasy experience depicted in their ads?

[bevoost]

On my way to work I decide to skip the drive-through and order my cappuccino in person. The restaurant is bright and immaculate. Large flat screen television mounted on a wall displays CNN. Interior design: modern tables, interior veneer stone walls, stone tile flooring. I place my order - a small, whole milk, non-flavored cappuccino. Just one minute later I take the first sip and sing to myself, “mmm mmm mmm mmm mmm”.

Who would have ever thought that McDonald’s would challenge Starbucks head on? It seems, though, that McDonald’s isn’t attempting to transform entirely into Starbucks. For example, McDonald’s still offers its staple fare of burger and fries. Yet, the high quality coffee products and high-design interior are definitely aimed at stealing market share away from Starbucks. In addition, McDonald’s is already market testing free Wi-Fi service in a few areas (read http://news.cnet.com/2100-7351_3-5172630.html). Starbucks loyalists – we can call them either “Starbuckies” or the more derogative “Starbuckers” – will be forced to make a decision – “If I get hungry while surfing the net and sipping my cappuccino, would I prefer an overpriced premade whole wheat tuna salad sandwich or a Quarter-Pounder with large fries?”

A McDonald’s cappuccino is not inexpensive, yet slightly less expensive than Starbuck’s equivalent. A small McCafe costs $2.29 + tax; a tall cappuccino at Starbucks costs $2.55 + tax. In other words, McDonald's has chosen a price point not too low to be considered too cheap for its new customers...