Starbucks VS McDonald's: who touched whose coffee?

McDonald's selling coffee at a high price is just a measure to add a product and make a higher profit. Starbucks coffee with Hamburg and low price promotion can compete with McDonald's in the short term, but it may hurt its strategic positioning.

The Coffee Pope has encountered cross-border competition from the king of fast food, and a top contest has begun.

Starbucks VS McDonald's: who touched whose coffee?

■ Wen / Liu Yong, co-founder of Bridget Inc.

On July 5, when I was on my way to Milan on a business trip to Italy, as soon as I walked out of the Renaissance Milan Central Railway Station, my eyes were filled with McDonald's golden arch signs around the square.

The American fast-food giant entered the Italian market in 1987 and has built 350 stores in a country famous for its cuisine in 20 years. In Milan, McDonald's has almost as many golden M signs as similar M signs in city subway stations. In the famous Emmanuel II corridor next to Milan Cathedral, McDonald's lives next to Prada and LV stores.

In sharp contrast to McDonald's, Starbucks has so far not opened a branch in Italy, the mecca of coffee. The score of 350 in Italy is a microcosm of the competition between the two American food and beverage giants in Europe.

In addition to the number of branches, the performance of the shares of the two companies is also very different.

The Coffee Pope versus the King of Fast Food

Early in the morning in March 2008, more than 6000 Starbucks shareholders walked slowly into the Mike Hall in the center of Seattle to attend Starbucks's annual general meeting. Starbucks shareholders, who walked at the front of the line, came here to line up before dawn. The Starbucks staff next to the line handed over hot coffee while recording shareholders' views on the company's operation on small white cards.

Everything seems to be business as usual, but for Starbucks, the past year has been unusual.

In 2007, Starbucks' per-store sales fell for the first time in more than a decade, and the company's share price fell. In January 2008, Starbucks shares fell more than 50%, and founder Schultz returned as CEO in an attempt to turn the tide. But due to the sluggish economic environment in the United States, Starbucks' financial statements released in May showed that the company's second-quarter profit fell by 28%, which may be in danger of falling for the first time since 2000. In July of this year, Starbucks's share price has fallen to a peak of 1 in 2006, returning to the level of 2003. In 2003, Starbucks had only 7000 stores around the world, compared with 15000 today, but the company's market capitalization is the same.

Compared with Starbucks' heroism, McDonald's has the posture of "the return of the king".

Since Jim Skinner, who has worked at McDonald's for 36 years, took over as global CEO in late 2004, Starbucks has changed direction from "bigger" to "more hierarchical". That is, it no longer emphasizes the number and speed of opening stores, but takes the stores as the terminal to enhance the consumer experience, increasing the stickiness to customers from food, beverage, comfort, environment and other aspects, so as to improve the sales of single stores. The introduction of "super roasted" coffee with a good taste but a lower price for Starbucks is a lethal move.

My friends in China also clearly feel the wind of innovation. His long-time McDonald's restaurant, located in the Oriental Ginza outside Dongzhimen in Beijing, has been open 24 hours a day since 2006, and the dining environment has also improved. As far as he knows, more than 50% of McDonald's restaurants in Beijing have implemented reforms. McDonald's has also partnered with Sinopec to open a "deluxe" car restaurant and pilot food delivery service. Customers can easily order food without getting out of the car as long as they drive here. Check out? Pick up the meal "three steps." These practices have made McDonald's taste the biggest sweetness in the past 17 years since it entered China. Last year, McDonald's Chinese restaurant sales increased by 12.3% year-on-year, passenger traffic increased by 8.9%, profits and return on investment broke records.

With the improvement in global operating performance, McDonald's share price has risen from a trough of 2003 to a threefold increase in July 2008.

Comments:

The stock market is a barometer of enterprise value. The cross-border competition between McDonald's and Starbucks has only just begun, and investors seem to have given the ultimate answer. McDonald's has regained its growth momentum by entering Starbucks' traditional turf. Starbucks, on the other hand, has been depressed and its performance has declined in the past year, which cannot be said to be without McDonald's. However, the industries to which the two sides belong used to be parallel lines, but now there is only an intersection, with the industry firewall separated by mountains, so that the competition between the two sides has not reached the situation of life-and-death and hand-to-hand combat. Starbucks re-hired its founder Schultz, closed a large number of stores and laid off staff, showing the determination of strong men to break their wrists. But this is only a way to relieve the pain, and the news of a sharp drop in profits is still hanging above its head, so whether it can turn the tide depends on whether its followers are accurate and strong enough.

Coffee: taste wins Culture

None of the 10 countries with the largest number of Starbucks stores has a long history and culture of coffee. There are tens of thousands of small coffee shops in Italy, but not a Starbucks branch. This is no accident.

An important turning point in Starbucks' operating history came from Schultz, then the company's marketing director, when he traveled to Milan in 1982. In the coffee shop on the streets of Milan, strangers talk like old friends, and the bartender jokes each customer by name and hands out cups of steaming espresso. These cafes are actually small communities that allow people to get together and communicate freely. Schultz soon realized that if he could transplant this atmosphere to the United States, Starbucks would surely succeed.

Schultz did it. After becoming the owner of Starbucks, he spent 20 years successfully combining the traditional Italian coffee shop culture with the typical American fast food chain, and through the chain, mass created a warm cafe community atmosphere and sold it all over the world.

With the help of cafe culture and community atmosphere, Starbucks' high-priced coffee has become very popular in the American market. People spend $5 on a latte cappuccino and buy a lifestyle. The deal is a bargain for both buyers and sellers.

Because the essence of Starbucks is rooted in the century-old Italian cafe culture, Schultz has been reluctant to open even one Starbucks branch in Italy. In addition to fear of Italian disdain for Starbucks coffee, there are deeper business considerations. Even if Starbucks is lucky enough to succeed in Italy, it will only add very little to the company's sales. Once the attempt fails, there will be cracks in Starbucks' deliberately created charm image. It's not worth the risk.

Compared to Europeans who see coffee as part of traditional cuisine, there is no doubt that Americans love coffee, but more precisely, what is really loved here is caffeine. Americans use coffee as a pick-me-up drink, similar to Coca-Cola and Pepsi.

So why are American consumers willing to pay $4 for a cappuccino but only 99 cents for a hamburger? McDonald's executives are puzzled when they look at the bustling Starbucks stores. The high profits brought by the specialty coffee market to Starbucks have a great temptation to the hegemons of the fast food industry.

In fact, McDonald's restaurants have always served coffee drinks with meals, but the taste is very bad. The US media once satirized McDonald's coffee "looks like coffee, tastes like hot water". Inspired by Starbucks' success, McDonald's has been setting up special coffee makers and mixers in its stores since 2005 to sell customers "super roasted" coffee with better taste. As soon as the coffee series was launched, it achieved double-digit sales growth. These coffee varieties not only make regular customers pay, but also attract a large number of new customers for McDonald's. After years of low stock prices, McDonald's turned the tide by relying on high-margin lattes and cappuccinos, which surprised the media.

What is particularly unacceptable to Starbucks executives is that in a 2007 market survey, American consumers thought that McDonald's "super roasted" coffee tasted as good as Starbucks' similar coffee.

Now the Starbucks mermaid can't smile anymore.

McDonald's has 14000 stores in the United States, and the number of customers in each store far exceeds that of Starbucks. McDonald's coffee prices are also much lower than those of similar Starbucks products. In the face of such competition, Starbucks customers who pay more attention to convenience and price factors are bound to lose.

More importantly, Starbucks' coffee taste is not as magical as advertised, and competitors can offer the same taste of coffee.

It is no exaggeration to say that the espresso sold at the pizza counter at Milan International Airport tastes better than similar products from Starbucks. Not to mention the traditional shops that have been selling coffee on the streets of Italy for decades. Of course, in the United States, a country that lacks a coffee culture, Starbucks' taste is reasonable, at least better than the "hot water" sold by fast food restaurants in the past. However, with the addition of professional espresso machines and modulators, McDonald's can make equally good coffee, and Starbucks coffee has lost its taste advantage. Although Starbucks offers tens of thousands of flavors of coffee, most customers order only a few. Here, long tail also lost its magic, Starbucks can not rely on the type of coffee to build competitive barriers.

By contrast, McDonald's hamburgers seem simple, but it takes a lot of time to make them yourself, and the taste is not necessarily comparable to that bought in the store.

Comments:

The core value of an enterprise is the products or services provided. If you want to make a distinction, then Starbucks relies on service and McDonald's sells products. Although Starbucks was once regarded as the "coffee pope", it dared not play tricks in the coffee market with a long history, such as Italy, which also exposed Starbucks' weakness. Starbucks is smart to take advantage of its strengths and circumvent its weaknesses, but once this weakness is seen through by its rival McDonald's and stripped of this religious aura, there will be only naked taste and price of coffee. Starbucks did not build enough barriers to competition in taste. As a result, Starbucks, which sells services, is forced into a narrow path of price competition by McDonald's, which sells products, and the situation is not good. If Starbucks really wants to make a comeback, it will have to consider how to bring McDonald's to the service level to compete and regain its own strengths to overcome its weaknesses.

Positioning: fast food to force the palace experience

McDonald's has already won the first move by bashing its rivals in what they are best at. Starbucks, by contrast, has no way to sell chicken legs or hamburgers when selling cappuccinos.

There are two reasons for this: first, the market positioning of selling fast food is so different from that of Starbucks, which is absolutely unacceptable to Starbucks' current loyal fans; second, it is difficult to manage the logistics and processing of standardized fast food. Far more than making a cup of specialty coffee.

Even the environmental advantages that Starbucks boasts are being undermined by its rivals. While McDonald's is increasing its specialty coffee business, it is also gradually adding coffee corners in its stores, replacing the original plastic stools with comfortable sofas. At a time when Starbucks coffee shops still have to pay for wireless Internet access, McDonald's stores in the United States already offer free wireless Internet access. All this means that McDonald's traditional "fast-in and fast-out" business philosophy is quietly changing.

When Crocker founded the McDonald's dynasty decades ago, he deliberately pursued the word "fast" to distinguish McDonald's from the slow-paced restaurants on the streets at that time. The hard, narrow plastic furniture that can still be found in McDonald's restaurants is deliberately designed to make people feel uncomfortable and leave quickly. Today, with fast-food chains all over the streets, McDonald's has once again adopted a differentiation strategy, moving large-screen plasma TVs, trendy art and fireplaces into the restaurant to adapt to the trend that modern people pay more attention to the dining environment than the food itself.

In China, more and more people regard McDonald's as a better place to study and read than Starbucks, because McDonald's has the advantages of 24-hour business and rich food, and the "hard seat" has gradually been replaced by a "soft seat". In contrast, Starbucks, in addition to coffee, there are only pastries and sandwiches that can not be eaten as meals, the price is also very expensive. In addition, people have also observed that Starbucks is quietly reducing costs, replacing mixing bars with plastic, milk into domestic products, and even cup saucers with cheap goods.

Starbucks was once proud of the coffee culture and consumer experience is being driven by profit pressure and competitors to the point of self-abandonment.

As a listed company, the pressure of sustained growth in performance has always been unavoidable. However, the rapid expansion is depriving Starbucks of its charm. Ten years ago, apart from the United States, there was no Starbucks coffee shop in the world. Today, there are 5000 Starbucks stores outside the United States. In some cities, Starbucks faces the problem of having too many stores.

Look out at a Starbucks on the street of Nanjing Road in Shanghai, and you may soon find another one. These stores compete with each other, undermining the company's overall profitability.

Although Starbucks intends to give consumers a unique cultural experience of cafes, the existence of a large number of branches on the street clearly tells people that this is actually another chain giant selling standard food. it is no different from fast-food chains such as McDonald's and KFC, except for higher prices.

In March 2007, Starbucks began selling coffee on street vending machines. This new move will make it easier for customers to drink Starbucks coffee and increase sales, but it will also further reduce Starbucks' position in the coffee market. Consumers usually think that the food and drinks sold on vending machines are low-quality fast-moving consumer goods. Starbucks Coffee joining this camp does not enhance the image of vending products in the eyes of consumers. instead, get yourself covered in "sewage". American public opinion generally believes that Starbucks' attempts to enter the self-service coffee maker and vending market in recent years have a great negative impact on its brand value, resulting in the low price of Starbucks experience. If consumers can easily drink pure Starbucks coffee on the street or in their own homes, they will no longer be willing to pay high prices for lattes or mochas in Starbucks stores.

To make matters worse, the economic downturn triggered by the subprime mortgage crisis that began last year and rising oil prices have reduced the willingness of US consumers to spend to their lowest level in 16 years. People are cutting back on unnecessary expenses in order to maintain their daily lives, and Starbucks'$5 cappuccino is undoubtedly at the top of the list.

Comments:

Through the differentiation strategy, McDonald's has grown into the overlord of the chain catering industry, and today it has successfully invaded the high-profit specialty coffee market. Starbucks, however, has lost its focus and foothold because of its blind market expansion strategy. In terms of marketing strategy, McDonald's adopted the low-price penetration strategy commonly adopted by post-market entrants, and won the first battle through cost-leading competition for price-sensitive coffee consumers. From the perspective of the competitive strategy adopted, McDonald's is undoubtedly superior. When the two powers met, Starbucks was forced to fight a defensive battle, but suffered from having no cards. McDonald's coffee products, success is a high profit, failure is only a product increase or decrease, does not matter the overall situation. But if Starbucks wants to serve hamburgers, cut coffee prices, or even launch vending machines, it may lower its position and demote itself from the altar of the "coffee pope" to street vendors, losing a large number of loyal fans. So what Starbucks needs to do is to retreat to its base, strengthen its sacred status as a "coffee pope" and separate itself from McDonald's fast-food culture, which may turn things around.

Expansion: a competition between ambition and market capacity

Starbucks has taken a series of measures in response to the growing pressure from competitors and the dire economic situation, including closing 600 underperforming US stores and cutting 12000 full-time and part-time jobs since July. At the same time, it seeks to increase the number of branches in overseas markets. Over the next three years, Starbucks plans to open 150 new stores in the UK, France and Germany. The Asia-Pacific region, especially the Chinese market, will also be a focus of Starbucks' expansion plans.

The difficulty with this plan, however, is that Starbucks, as a specialty coffee chain, is bound to have far less potential market and expansion capacity than fast-food chains like McDonald's. The reason is very simple, most people in the world can not drink coffee, but can not eat. In other words, customers have a more rigid demand for McDonald's than Starbucks. It is far more likely to have a cup of coffee when you go to dinner than to order a chicken leg set meal while drinking coffee. Therefore, when the two compete head-on, McDonald's has a better chance of winning.

At the same time, Starbucks' efforts to promote coffee consumption culture around the world are not easy to succeed. The Chinese market is an example.

Not many Chinese people really like to drink coffee. The reason for the popularity of more than 500 Starbucks stores in China is that they provide a comfortable environment for customers to chat, study or rest easily. What people spend at high prices at Starbucks is not coffee, but a comfortable privilege, or a status symbol. This "high price skimming" marketing strategy is more effective at the initial stage of new products entering the market, but it can not be used for a long time because of market competition or consumers' gradual maturity. Once Starbucks cut prices or its services spread across the country, it lost its VIP status and lost the favor of its early admirers. Competitors can divert Starbucks customers by providing similar environments, products and relatively low prices.

China is a microcosm of Starbucks' overseas market, and these problems will be encountered in other countries as well.

Comments:

The decline in profits is undoubtedly the biggest worry for Starbucks at present, and opening up and expanding territory is the only way for many chain enterprises to reverse losses. But this is a double-edged sword. Especially in markets where there seems to be a lot of potential, Starbucks may have to spend a long time and a lot of money to cultivate this coffee culture, and it will take patience for them to turn around. Compared with the invisible culture, the McDonald's that sells hamburgers is much more concrete, so Starbucks still has a long way to go.

Revelation: the contest of Business models

Although McDonald's has begun to offer specialty coffee and Starbucks has fought back by adding hot sandwich breakfasts, neither of the two restaurant giants has been able to shake their positions any time soon. This is because their target customer groups are quite different in terms of gender, age, income and other aspects, and their market focus is also obviously different.

The ups and downs of Starbucks brings us an important inspiration, that is, there is an inevitable contradiction between the high price strategy and the popular service. In the early stages of its development, with its distinctive coffee taste and community atmosphere, Starbucks attracted a group of loyal fans who were willing to pay a high price, and formed a word-of-mouth effect. In the process of continuous expansion, mass consumers poured in and diluted the original regular customers, while the lack of quality management in branch stores and the use of vending machines further led to the cheap service experience of Starbucks. Unlike early customers, mass consumers are generally more price-sensitive, giving McDonald's a chance to wage a price war. The rapid expansion of Starbucks in recent years seems to have increased the size of the company, but it has actually damaged the company's core values, which is the real reason why Starbucks shares have returned to their starting point over the past five years.

When the core value of a company's products and services deviates from the market scale, the expansion limit of its business model will surface. It is generally believed that the business models of modern enterprises are so varied that they are difficult to classify. But in fact, there are roughly two types of business models in the world. First, the larger the scale of the service, the more products are sold, the more stable the business model is and the higher the value of the company is. There are numerous companies of this kind, including domestic Tencent, foreign Coca-Cola and so on. Second, when the scale of products and services expands to a certain extent, the value generated by the business model will be reduced and the company will depreciate. Most luxury brands that earn excess premiums fall into this category. By this standard, McDonald's business model belongs to the former, while Starbucks undoubtedly belongs to the latter.

There is no difference between these two types of business models, each has its own market segmentation and profit methods, but also can be at peace with each other. But Starbucks failed to recognize the nature of its business model and tried to magnify its value through massive chain expansion, wrestling with other fast-food giants. It turns out that Starbucks' business model is indeed at a disadvantage compared with McDonald's in the market of large-scale restaurant chains.

It is the scale limitations inherent in Starbucks' own business model that have led to premature bottlenecks in its expansion and besieged by competitors. McDonald's, inspired by Starbucks, has come from behind in the nurtured American coffee market, relying on the advantages of its business model. At this point, it takes a lot of courage and determination for Starbucks to revise its existing business model that earns a premium or to resolutely retreat to the original niche market. ■