INTERACTIVE STRATEGIES

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ILLUSTRATION 6.3

McCafs versus Starbucks

Starbucks coffee chain changes its strategy in response to McDonalds
challenge.
Fast food chain McDonalds has launched a worldwide challenge to coffee giant Starbucks with its new
concept, McCafs. The McCaf concept had emerged
in Australia in the 1990s. McCafs typically operate
within or next to regular McDonalds 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 McCaf outlets in the USA,
and 600 in Germany. McCafs are spreading rapidly
across Europe, from Spain to the Ukraine (in the
United Kingdom, McCaf products are still sold under
the usual McDonalds brand).
Starbucks is the worlds 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
Valentines 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
distinctive 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 quality 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.

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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.
McDonalds is aiming to match Starbucks changes.
Thus McDonalds too introduced free wi-fi. The
quality and price of McDonalds coffees are highly
competitive. Thus a McCaf frapp 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 McCaf 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, its
the antithesis of coffee. Overall, the Globe and Mail
rated McCaf 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 McDonalds 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 McCaf has not
yet arrived (e.g. Costa Coffee in the United
Kingdom)?

10/16/13 10:37 AM