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INTERACTIVE STRATEGIES 207

ILLUSTRATION 6.3

McCafés versus Starbucks

Starbucks coffee chain changes its strategy in response to McDonald’s

challenge.

Fast food chain McDonald’s has launched a world-

wide challenge to coffee giant Starbucks with its new

concept, McCafés. The McCafé concept had emerged

in Australia in the 1990s. McCafés typically operate

within or next to regular McDonald’s outlets. They use

high-quality coffee machines and sell different blends

of coffee according to the tastes of local markets. By

2012, there were 1,500 McCafé outlets in the USA,

and 600 in Germany. McCafés are spreading rapidly

across Europe, from Spain to the Ukraine (in the

United Kingdom, McCafé products are still sold under

the usual McDonald’s brand).

Starbucks is the world’s largest coffee chain,

with nearly 20,000 stores across 60 countries from

Canada to China. Founded in 1971, Starbucks was

bought as a small Seattle coffee shop chain by

Howard Schultz in 1988. The Starbucks’ original

concept was good coffee, brewed in an intimate

atmosphere by skilled ‘barristas’. Schultz expanded

rapidly, with his first store outside North America

opening in Tokyo in 1996. In 2001, Schultz retired

as CEO and under the next two CEOs Starbucks

continued its expansion. But in 2007, performance

was beginning to flag. Schultz wrote a famous

‘Valentine’s Day memo’ to the then CEO, complaining

that growth had led to a ‘commoditisation’ of the

Starbucks’ concept. The introduction of automatic

espresso machines to speed up service removed the

dis tinctive coffee odour in the shops and deskilled

the barristas. The next year, Schultz returned to the

helm as CEO.

As he started back in his old job, Howard Schultz

proclaimed:

‘We are laser-focused on delivering the finest qual-

ity coffee and getting the customer experience

right every time. We have. . . . been putting our

feet into the shoes of our customers and are

responding directly to their needs. Our customers

are telling us they want value and quality and we

will deliver that in a way that is meaningful to them

and authentic to Starbucks.’

Schultz famously closed all the stores worldwide for

an afternoon in order to retrain the barristas in the

skills of brewing good coffee. Starbucks also improved

its food offerings: in 2012, the company bought

the bakery chain La Boulange for $100 m. So as

to access its innovative, quality food products for

transfer to Starbucks outlets, the standard Starbucks

international store format was relaxed in order to allow

more variety according to locality. Local artefacts,

bolder colours, bigger community noticeboards and

even second-hand furniture were used to create more

individual stores. Starbucks stores offered free wi-fi

to users.

McDonald’s is aiming to match Starbucks’ changes.

Thus McDonald’s too introduced free wi-fi. The

quality and price of McDonald’s coffees are highly

competitive. Thus a McCafé frappé drink cost $3.99

for a 16 ounce drink in 2012 (against $4.20 for a

Big Mac burger); Starbucks’ equivalent frappuccino

cost $5.45. The Canadian Globe and Mail reviewed

the two companies’ products in 2011. The comment

on McCafé was: ‘It tastes like a combination of damp

forest and uncleaned coffee maker.’ As for the Starbucks

product, it was ‘bitter; burnt toast. This is so bad, it’s

the antithesis of coffee.’ Overall, the Globe and Mail

rated McCafé as slightly superior.

Sources : Financial Times , 26 May 2009; smartmoney.com , 23 July

2012; the Globe and Mail , 8 November 2011.

Questions 1 Plot the moves of McDonald’s and Starbucks

on the axes of price and perceived quality, as

in Figure 6.7 .

2 What should be done by a company with a

similar original position to Starbucks, but

operating in a market where McCafé has not

yet arrived (e.g. Costa Coffee in the United

Kingdom)?

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