Starbucks, McDonalds and Marketing Strategy - Part Two

Business Week has found McDonald’s 24/7 strategy worthy of front page attention. The last issue develops on McDonalds strategy to expand business into new dayparts and offers an interesting contrast with a previous article in Time magazine about Starbucks’ growing strategy.

Some comments on similarities between the two:

• Both McDonalds and Starbucks are looking into dayparts penetration as a growth strategy: McDonalds now owns the breakfast segment and is moving fast to take over the afternoon and evening segments, Starbucks is moving in the other direction and going from primarily a breakfast and afternoon snack stop to lunch and evening
• Starbucks is still focused on opening new stores whereas McDonalds seems to have slowed down it’s expansion, these expansion funds seem to be re-allocated to improving stores and service.

At this stage, I’d bet my money on the success of McDonalds’s strategy and here’s why:

• Dayparts expansion is natural to McDonalds: the brand stands for fast food and afternoon and evening snacks are… well, fast food. Starbucks on the other hand stands for coffee, and coffee is great in the morning or an afternoon pick-me-up for some consumers, but one hardly makes a quick leap from coffee to evening snacks or lunch fare.
• Process changes in converting ovens and hot plates from grilling sausage patties to grilling burgers is far more straight forward than introducing ovens that cook lunch but that preserve the aroma of coffee in a store. McDonalds faces less risk in the strategy than Starbucks.
• From a Marketing standpoint McDonalds is a winner too given that it positioning does not change: it is still a purveyor of fast food, whereas Starbucks incurs the risk of  “getting stuck in the middle”: it does not want to be viewed as a QSR and yet it wants to compete in that space. More disturbing still is that Starbucks carved a whole category for itself and is now expanding into areas where the competition is fierce, instead of accepting a lesser but defensible growth rate within the confines of the “coffee shop” market, it is now exposing itself to competitive risks in the QSR market.
• McDonalds’ investment in traditional advertisement pan out when it pursues strategies like this one: given its high brand awareness and preference, it is easier to attract clients for breakfast and evening just by keeping the stores open than it is easy for Starbucks to let the message out that it is open for lunch by investing in customer experience.

For the future, the yardsticks of this competition should be simple: growth rate of free cash for the next 8 quarters as well as corresponding stock price growth. As for the past… McDonalds is not doing all too bad for the past 5 or 6 quarters

Comments

[Ron Shevlin]

Good points.

While Starbucks is the textbook case for the "customer experience", there are a couple of points worth remembering:

1) There are chinks in most firms' armor. The lines at Starbucks are getting long, there are no comfy chairs available to lounge around in, the product is overpriced, and there are places opening up right next to Starbucks that offer free WiFi.

2) Re: the Starbucks' customer experience, its also worth remembering that they serve (primarily) an adult market. McDonald's serves a wider range -- and has anybody ever asked the 7 year olds who get cool toys w/ their Happy Meals what they think of the "customer experience" of McDonalds vs. Wendy's or Burger King?

You're making some good points about the relative strategies about the two firms, and, quite frankly, the pundits who pull out one data point about the ad spending levels of the two firms to highlight Starbucks' "wisdom" shouldn't be advising firms on strategic matters.

[Gordon Whyte]

I agree on the then winning the Breakfast and Lunch spots, but after living int he US for a while both East coast and West coast, I would say they have a bigger struggle to win that segment in the US, there are many more offerings there...now when I spent 4 years in Japan, MD's won hands down out there for me..for dinner...goos post always a pleasure to read your work..

Slainte

Gordon

[Oboulo]

Mc Donald's has mastered communication, and has proved once again with the release of the film "Super Size Me" which aimed to demonstrate the evils of fast food, and made an actual attack on Mc Donald's. Thus in the beginning the company did not react as a culprit. It preferred to leave the balanced meals and communicate on the sponsorship of Olympic athletes in Athens. Once again, the company has excelled in communication and advertising, since the film has not had a real impact in the end.

http://en.oboulo.com/