McDonald's to challenge Starbucks with barista-staffed coffee bars

Starting this year, McDonald's will install coffee bars with baristas serving cappuccinos, lattes, mochas and the Frappe, similar to Starbucks' ice-blended Frappuccino. The Wall Street Journal 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." (Read the story at WSJ.com)

Comments

[Emily]

Calling: Large McNugget Frappe, no whip!

Well, in order to "compete" McDonalds first has to employ competent help. Enough said!

[Pat Nerr]

This is the post that will bring lots of baristas and managers here to bash McDonalds employees, when really they should be concerned... McDonalds knows drive-thru whereas Starbucks has yet to figure it out entirely... McDonalds bar is set way lower for customer expectations... whereas some Starbucks bareeestas think they're sooo good they can ride the brand to bring in customers... I think McD's may have just taken a huge chunk out of the gap. They're prices will be cheaper and they'll offer free wi-fi...

So, instead of bashing your now serious competition, you'd better be working on your angle to keep your customers...

Enough said!

[Ken]

Pat Nerr, you took the words right out of my mouth! I think McDonlds can give the Bucks a real challenge. I don't normally get coffee from either, so it will be fun to sit back and see what happens here.

[djo10]

All you really need to know about this subject can be found by looking at the stock chart after clicking the link to the actual story.

[Just Wandering by]

A couple things from the article:

#1. In the middle of the back page, it had a really good insight (via, of course, that ever available 'unnamed analyst(s)'): this may be a much bigger threat to Dunkin than to Starbucks.

I agree with this. I think Dunkin' franchise owners are waking up to a very bad morning with this news.

No doubt, this is bad news for a bunch of coffee places, Sbucks included, but I think that the demographics of Dunkin & McDonalds line up just too well. That morning Dunkin' customer IS a McDonald's customer, just one who said 'their coffee stinks' and therefore opted for Dunkin. He/she won't need to make that choice any longer.

What's ironic is that this danger is accelerated because of the very thing that Dunkin has prided itself on: the "democratization" (their own word, from the article) of espresso drinks. They made them accessible and acceptable for 'everyday joe'. They forgot that 'everday joe' really likes Mickey D's and that Mickey D's really wants to keep 'everyday joe' as a customer. Oops.

#2. Having said that, again, I don't mean to minimize the negativity of this news for Starbucks: it's not good. Anytime the leading fast food company in the world targets a core component of your business, it is bad news.

#3. I think this event (and sbucks potential response ... downmarket some more? free toys with your coffee?) also nicely dovetails into one of the axes I've had to grind with Starbucks for at least the past 2 years, maybe more: its diminishing 'uniqueness' and differentiation within the market.

Its stores, its offerings, and its customers are increasingly moving into the category of 'like everyone/thing else'. I'm sure that sbucks strategic response to this news will only accelerate that trend.

What I'd love to see -- although it may already be too late to authentically do this -- is a bold attempt at truly differentiated market offerings by rolling out both a lower-end and a higher-end line of stores, to complement but also contrast with its mainstream Starbucks flagship.

I know the industries are completely different, but one analogy would be Ralph Lauren or Gap industries tiered approach, with Old Navy / Gap / Banana Republic; Polo, Polo Denim, Rugby / Ralph Lauren, Blue Label / Black Label Purple Label.

It would take careful planning and study, but I think it would be a great long term strategy. They could thereby keep up the fight in the mainstream, reinvigorate the loyalty of their higher end demographic customers (who, I surmise, are being increasingly put off by the direction of sbucks development in the last few years) AND start tapping into previously unaccessible markets, in a 'reach and teach' / grow the future base sort of way.

And, I think I've blabbed enough for one morning! :)

[Jon_B]

Pat Nerr hit the nail on the head. This should be a wake-up call for Starbucks. If McD's can pull off the logistics (and if anyone can, it's them), they could take a large chunk of Starbucks' hungry-on-my-way-to-work business. Face it, with super-autos, making a capp isn't much more complex than a Big Mac.

Personally, I like both companies' products. But, if I want a great burger I don't go to McD's, and if I want a great espresso, I don't go to Starbucks.

Good luck, you woke up the sleeping giant.

[B-Mo]

Has anyone here been to one of the test McCafes? I was at one in Maryland a few weeks ago. The cappuccino was of the quality of what you would expect from McD's. They only had about three flavored syrups (vanilla, hazelnut, caramel, and I might be forgetting one). It really reeked of a fast food chain trying to be something it's not.

It's possible McDonald's can grow out of this, but it will have to do a lot to clean up its image. Yes, they might have free wi-fi, but no one is going to want to sit there on their laptops unless they provide a comfortable environment to do it in. The McCafe I was in did not have that environment. I was certainly not a "third place."

[Todd]

I don't know if McDonald's really is going after a big segment of Starbuck's crowd. The idea of going into McDonald's and smelling fries and burgers to get a latte' totally turns me off. It doesn't have the higher-end feel that Starbucks has and a lower price wouldn't bring me in.

Then again, if Starbucks continues to lower it's 'upper end' feel (ie. 'Skinny' latte's), the more I won't feel this way.

[Kearns]

I went to a McCafe when I was down in Raleigh, and I have to say that they needed a ton of improvement. The selection was bad, the service was horrible. The quality of the Espresso? Better than a Starbucks auto-machine, not as good as a hand crafted espresso (or even my pod machine at home - krupps with ESE).

[MD Macchiato]

B-Mo: Where in Maryland? I'd like to scope it out for myself.

[Tall Guy]

I stopped visiting McD when they introduced their premium coffee. I knew back then that they would soon be a major threat to Starbucks and chose not to support them. In addition, my family members who do visit McD no longer get my weekly markout! :)

I too have thought Starbucks needs a two tier approach for their cafes. The current cafe would be the "McD" version. The new cafe would feature hand crafted beverages, high quality fresh-baked pastries and displaying the original brown Starbucks logo (nipples and all).

In addition, would this be a good time to introduce free wi-fi in all Starbucks? This might help increase those lagging customer counts.

[Jeff]

I am a customer, and I can say that I'd never choose MCD's over Starbucks as a destination for coffee or any of its varients. I can't speak for any other Starbucks, but the one near me (which has been opened around a year) has always had top-tier service, has given me exactly what I wanted, and provides that "third place" feel. I always feel dirty when I walk into a McDonald's.

[Jeff]

BTW, I don't think changing the wi-fi policy would have much of an impact, as far as trying to compete with MCD's. I was seriously bummed the first time I tried to use my portable at a SBUX to access the Internet, and found out it wasn't free. But MCD's would never be a viable alternative, I couldn't envision sitting in there for hours like I can with Starbucks.

[Sarah]

RE: Todd's statement "Then again, if Starbucks continues to lower it's 'upper end' feel (ie. 'Skinny' latte's), the more I won't feel this way. "

Starbucks has started using the word "skinny" to make it easier for our customers and because Starbucks now understands that we are not the innovative leader in the coffee industry. "Skinny" is the hot buzzword in the coffee industry and we are just taking that next step in trying to keep up with the competition. If you're a partner, you know that our company changes all of the time, this is just one example of that. I also do not see how the word "skinny" makes Starbucks "low-end". I would guess that 95% of our "high end" customers use the word skinny to begin with. We are just now adjusting to cater to what our customers are asking for...isn't that why we're here in the first place?

[GlenFelizRegular]

Good, clean the riff raff out of my local Starbucks line.

I am confident SBUX will respond by RAISING prices...placing themselves as the Premium Brand in the ever expanding coffee market.

I have never bought a breakfast thingy at Starbucks (although I have sampled one)...and every barista I asked said that McD's was better because it was cheaper, and you could get a hash brown to boot. I never could understand the reasoning of putting in the worlds most expensive-giant microwave ovens, and stinking up the store with ham smell. What a way to piss off the Vegans and Kosher customers. They might not have a lot of people taking offense in Laurelhurst, but they certainly do in other metropolitan areas.

Should Starbucks have free Wi-Fi? I dont know about that.

Perhaps it could be free if you have a valid Starbucks Card in your name and you made a purchase recently. The bigger issue is the number of outlets around the store for people to plug in. I have even seen people pull extension cords out of their bags so they could all plug in.

[Deanne Martin]

I think we are all forgetting how much potential MCDs has in the area in Coffee. When I worked for Starbucks I was always arguing with loyal McDonalds coffee lovers but to no end and now that the testers are in place and gaining A LOT of publicity, Starbucks will have more compitition from MCDs as drinks get better.

On top of the coffee, MCDs also offers better and a larger option of pastries and sandwiches.

[UPOD]

I'm from Minneapolis MN and I've tried McDonald's Iced coffee. I did not like it at all. It tasted like water and milk mixed together with vanilla flavoring. The barista's at my local Starbucks are always outgoing and friendly. I also have a Dunn Brothers by my house, and their baristas are also friendly, but I absolutely can't stand their coffee.

I don't see how McDonalds is going to be able to hire any *QUALITY* baristas unless they offer the same benefits as Starbucks. If your looking for a job as a barista, who would you rather work for.

I once read an article that said McDonald's was going to be Starbuck's "Coupe De Grace" and couldn't help but laugh outloud. Wall Street is so overhyping this.

I actually think this is going to help Starbucks because I think this will inflict much more pain on Caribou and Dunn Brothers.

I've been wrong plenty of times in my life, and I could be this time, but I just don't think this is going to put a dent in Starbucks.

I will say, as a shareholder, this better be a wakeup call to management, please don't think this will all take care of itself ( like blaming lower same store sales on the weather ). Slow the growth a little, and focus on your existing stores and employees.

[Deanne Martin]

Quality can come from other places besides Starbucks. And benifets have nothing to do with quality.

[UPOD]

I have to admit, I get a little annoyed whenever a hear someone say
people are crazy for paying $4 / $5 for a cup of Starbucks and that
the company is going to be hurt by people switching to their
competition. First of all, not all of their drinks cost that much.

Secondly, you can make the same analogy to someone who smokes and pays
$5-$6 bucks for a pack of cigarettes. Most of the people I know that
smoke a certain brand of cigarettes don't switch to GPC just to save
an extra buck or two. I'm sure there are a few who do, but I bet
it's a small percentage.

Same thing for alcoholic beverages. Are people out of their right
mind for paying $4/$5 dollars for beer in a bar ( not including tip )
when they can buy a 24 pack and drink at home for what amounts to less
than a dollar a beer. And most people who go to the bar buy their
beverage of choice regardless of price. If I enjoy drinking captain
coke, and pay $5.00 for it, I'm not likely to switch to a different
brand of Rum if it's a dollar cheaper, even if it's just as good.
People usually stick with their brands.

People also normally frequent certain bars. Usually this is based on
location, services, and cost. I go to the same neighborhood bar
because that's where my friends go, I know the bartenders well, and
it's close to where I live. If their competition opened up next
door and served my same beverage of choice for 50 cents cheaper, I'm
still going to go to the same bar I'm familiar with because I already
know and like the bartenders and like being in a familiar
environment. Now if the bartenders left or the service went to crap
or if the other place offered drinks 50% cheaper than what I already
pay, the perhaps I'd consider switching. I do admit being in a bar
environment is different than going to Starbucks, but there are a
number of similarities.

Although gas and food prices are rising, I'm not likely to switch
from a Starbucks Latte to a McDonalds Latte just because it's .50
cents cheaper at McDonalds. If I already went to McDonalds for
breakfeast, and went to Starbucks separately for my coffee, then
I'd consider switching to McDonalds if the coffee is just as good. I don't think it is.

When times get tough, people do cut back on small things, but I also
think they're just as likely to decisions make changes in larger
area's so they don't have to cut back on their smaller luxuries ( like trading in their gas hog for a honda ).

Just my 2 cents.

[natallica]

i was in buenos aires in 2000 and the mcdonalds i went to had something exactly like this. it was packed! i was surprised that people would take a coffee shop at mcdonalds seriously, but they did. of course, mcdonalds there is way tastier because their burgers are made with real beef....maybe the coffee was also decent back then?

[fred rubner]

WHO THE HELL KNOWS, MAYBE THE NEXT ANNOUNCEMENT WILL BE MC DONALDS MAKING AND OFFER FOR STARBUCKS. THAT WOULD ASSURE THE SUCCESS THEY ARE LOOKING FOR.

[Watercolorz]

I go to McDonald's ALL the time... and so do my suburban soccer mom friends.

For basic hot coffee, and ice tea it is actually really good and not expensive and very convenient.

Ordering their iced coffee drinks is a bit of a challenge if you have some one who doesn't speak English well.

They tend to use way too much milk and sugar/syrup. But if you get the right ration... yummy.

Ironically I rarely eat there.

But a Mc Cafe would attract me if it was clean and quiet with lower prices, why not.

Look SBUX has lost some of its charm for me. The auto espresso, never touch the stuff.

Depending on the coffee of the day if
its good I might have that. I won't get into the chai tea latte.

The ice brewed coffee and tea are much more expensive a SBUX but not better.

I would actually argue that folks (like me) who don't EAT at McD's might be more inclined to hang out in a Mc Cafe.

SBUX needs to step their game up ~W

[Kyle]

This isn't going to significantly cut in to StarBucks customer base. They offer totally different atmosphere's and service. There has always been a 1,000 places to get coffee, but people choose StarBucks because of the superior atmosphere and service. There are BOOKS written about this.

There is no way a large majority of StarBucks patrons who go there for just those reasons would prefer a greasy burger joint and questionable service so save even a whole $1. As someone else said, the Dunkin's of the world will see this as much worse news than they will.

[Kyle]

One more thing too - If McDonald's employees don't handle the complex coffee ordering well, it may actually hurt MCDONALDS more than it hurts anyone else. Anyone who's been to a McDonalds in the last 50 years know that it often is hard to get your burger order right, let alone a coffee with 50 variants.

[Kelly]

McD's brewed coffee actually tastes pretty good. I actually prefer it to SBUX in terms of taste and price. It's their prepared drinks that need work, especially the iced drinks.

McD's will never work as a cafe because of the atmosphere. A lot of the people who work there wouldn't be able to get a job at most places because of various factors. At SBUX, you rarely see that type of employee.

[Todd]

Sarah, I went and ordered my non-fat latte' this weekend and was told that I should call it 'skinny' from now on. Maybe some people like to call it skinny, but for me that just really diminishes it for me. It is not 'skinny' milk, it is non-fat. Maybe I'm in the minority here but it really turns me off to call it skinny. I will continue to call it non-fat and the baristas can just deal with it.

Todd:

This barista for one would be quite fine with you continuing to order your beverage the way you already have. The barista may have been trying to help you simplify your ordering process, but if she told you you ordered incorrectly, they were out of line and I apologize. I do not really care how you order your drink as long as you make it clear what you want.

[Skinny my Timbers]

I was in London for a little over a year in 04' and 05'. It was commonplace there to designate espresso drinks with skim milk as 'skinny'. In fact, the first time I ordered a venti latte, skim milk, the barista looked at me for a good 3 seconds pause, then "you mean skinny?" as if I spoken in Portugese ... :)

I got used to it, but I never saw the point. Is it offensive? Sure. Something is offensive to everyone. Fat people might be offended because of implication; people ordering the drink might be offended because it suggests they are trying to be skinny, etc. Blah blah. The offense part isn't really critical.

What bothers me is the linguistic imprecision. Terms of art are acceptable when they convey additional meaning / understanding quickly. However, when they are just there as another barrier to 'learn' to order a product that is meant to be consumed, it smacks of artificiality. What is the point?

(I can see if 'skinny' comes to embody a whole nexus of concepts: skim milk, no sugar syrup, no whip. That does make sense. It's a time saver. As long as the linguistic use is CONSISTENT ACROSS STORES)

[Joe]

I completely agree with Pat's thoughts. And, to take them one step further, McDonalds doesnt have to take ALL of Starbucks business...all they need to do is skim the cream off the top. Given how Starbucks has completely mismanaged investor expectations by portraying a cost structure that was cut to the bone as somehow being "normal" business, it wont take much to knock that house of cards over.

McDonalds wont take the hardcore Starbucks customer because, as even evidenced in this thread, the hardcore Starbucks customer is much too snobbish to ever be caught dead in a McDonalds. There are, however, a sizable number of people who "trade up" when they go to Starbucks....THOSE are the ones McDonalds are going after because they are much more price sensitive...if they can get something from McDonalds that's close to what they now get from Starbucks for a buck less, they're likely to take it. Even more distressful for Starbucks is the likely attack on frequency of visits. One of these trade up customers doesnt have to stop going to Starbucks to hurt them...but if they start splitting their monthly visits evenly between the two, McDonalds gains and Starbucks loses.

[B-Mo]

MD Macchiato,

I believe it was on US-40. It was on my drive to Elkton from Philadelphia, and I know it's right near the Maryland-Delaware border. It could even be just barely on the Delaware side.

I wrote a lengthy blog post about my view of Starbucks and the strategy choices it faces. I don't work there, just like coffee and have an interest in the business. Check out the post if you are interested.

http://earnestobserver.blogspot.com/2007/12/starbucks-today.html

[Javaccino]

Did we open ourselves up to this trying to break into the Egg McMuffin maket?

Starbucks can go one of two ways, try to do more and more stuff passably well, or be the best at just the few things that I'm under the impression grew this company in the first place.

a: more than just simply adequate handcrafted beverages. (Give me more training, I don't mind, really, you can even teach me to use a portafilter machine, that sounds like fun, I like to learn)
b: friendly customer service.
c: Whole bean sales with a knowledgeable staff.

If we do these three things, who cares what Mickey D does.

[Pat Nerr]

The only thing that could save the company now is for Howard Schultz to take over for Jimmy D... My prediction is that this will happen pretty soon.

I get annoyed when people say they pay $5 for a cup of coffee at STBX because STBX does not sell a $5 cup of coffee.

[Pat Nerr]

Woo hoo ! Howie's is back... Jimmy D is gone!!!

[Decaf Drinker]

I think SBux needs to return to the basics and stop trying to compete w/McD's. Get the sandwiches out of the stores - do they even sell well? I don't want my breakfast sandwich at SBux, I want my coffee!

I also think SBux made a big mistake by selling machines that make lattes, etc.... at home. I have one - I bought a Magnifica and love it. So why should I drop by SBux other than to buy my syrup and coffee? I normally don't, I have friends who have done the same and just make their own now - thats a lost customer! SBux lost me as a regular customer due to turnover in the store I went in.....I didn't enjoy the new atmosphere so I bought my own machine.

As far as McDonalds - they're certainly trying to compete, but I agree with another poster above, you need to be able to understand the order in English to get it out to the customer.

[N]

Just the other day, during a conversation about where this company seems to be headed (ie; the shitter), I said that I thought the only thing that could possibly bring it back was for Howie to step in.

Whoop, there it is!

This IS good news!
:)

[shannan]

mcd's can't manage to put a boy toy in my son's happy meal how are they going to manage complex drink orders? are they going to have customer x's decaf iced venti peppermint mocha ready before the customer sets foot in the store?

[Boraxo]

All this talk of *$ atmosphere - 90% of the people I see ordering in the morning get their cup and leave, they're on the way to work, not hanging out there. The biggest issue for many is the long line, I think. If MickeyD can provide a quality product - and they will tweak it until they do - for a lower price, and crucially get you in and out faster, they'll take a chunk of the morning business. Add drive-through and often parking at urban locations, unlike *$, and you have a formula for grabbing 10, 15, maybe 25% of the pie.

Faster, easier, cheaper - that's a winning formula that will put people down with the clown.

[Grebby]

As a fat guy, I firmly believe that fat people who are offended by the word "skinny" need to get over themselves. Denial doesn't make you any less fat.

[Watercolorz]

I think SBux needs to return to the basics and stop trying to compete w/McD's. Get the sandwiches out of the stores - do they even sell well? I don't want my breakfast sandwich at SBux, I want my coffee!
@Decaf Drinker and others who have said this and similar... ITA!

I posted earlier that McD’s gets the soccer mom drive thru crowd out here in the burbs.

But when in the city I wouldn’t and don’t drink Mc D’s coffee and if I lived in the city it would be SBUX all the way. Why? Because in the city SBUX takes the same effort to get to as McD’s but SBUX is cooler.

Look part of the SBUX experience is brand and at the heart of that brand is the cache of cool.

I was reading a post on here were barristas upped tips by asking patrons to vote MAC or PC putting tip money into the jar that got their vote... MAC won.

That is the SBUX customer, urbane, discriminating, aware, and cool... in a geeky, intellectual sort of way.

So maybe the focus should be on being the standard McD’s and others pathetically try to emulate.

Let McD’s be the PC to SBUX MAC... oh and get rid of those dayum auto espresso machines. ~W

[sprezzatura]

Biggest challenge for McD's will be training the average McD's employee to be a barista. 99% of them barely speak English and/or didn't finish high school. Good luck getting them to steam milk properly or make any kind of drink mods correctly.

[Javaccino]

The only thing that could save the company now is for Howard Schultz to take over for Jimmy D... My prediction is that this will happen pretty soon.

Wow, You're good.

[Javaccino]

"mcd's can't manage to put a boy toy in my son's happy meal how are they going to manage complex drink orders? are they going to have customer x's decaf iced venti peppermint mocha ready before the customer sets foot in the store?"

I was looking at the picture in the article of the drink machine they are using in M'D's It's a vending machine.

[Patrick M]

Yes we have this in Ireland. The McCafe, usually separate to the fast food counter, usually more relaxed, serving coffees and cakes. Rather nice. Took off very well here.

[NYCSM]

-For all of you baristas out there. Let's face it the company just isn't what is used to be. I am a store manager but that makes me no less of a barista.
When I am on the floor the partners lack the energy and enthusiasm of years before. Somehow, they think Starbucks owes THEM something. We can only stop this downward slide in our individual stores.
No sales means, no hours! If you wonder why your hours are getting cut as your manager about sales and customer comps. How well is your team doing?
Remember passion for everything you do... or have so many baristas forgotten and just work for a paycheck?

[Jim]

My goodness. McD's serious competition to Starbucks! That's the funniest thing I've heard all year.

As an almost daily (and incredibly reluctant) customer of McD's coffee via their drive thru, I can tell you that for all their vast experience McD's doesn't have it figured out either. Wait times are often atrocious, just like at S$. And the coffee? If it wasn't the only viable option where I live, I wouldn't even consider it.

McD's latte? Get real.

[jabanga]

i had a mcdonald's latte in canada years ago. it was much better than a dunkin' donuts one. i think it was like $1.25 canadian.

[Scott]

McDonald's competing with Dunkin Donuts? But they don't have donuts!