News: Barista Battle as McDonald's Takes on Starbucks
Internal documents from 2007 say the program, which also will add smoothies and bottled beverages, will add $1 billion to McDonald's annual sales of $21.6 billion.
The confrontation between Starbucks Corp. and McDonald's Corp. once seemed improbable. Hailing from very different corners of the restaurant world, the two chains have gradually encroached on each other's turf. McDonald's upgraded its drip coffee and its interiors, while Starbucks added drive-through windows and hot breakfast sandwiches.
The growing overlap between the chains shows how convenience has become the dominant force shaping the foodservice industry. Consumers who are unwilling to cross the street to get coffee or make a left turn to grab lunch have pushed all food purveyors to adapt the strategies of fast-food chains.
It also shows how the chains' efforts to adapt to a changing market have had drastically different results on their bottom lines. McDonald's is entering the sixth year of a successful turnaround, while Starbucks has begun struggling after years of strong earnings and stock growth.
Still, the new coffee program is a risky bet for McDonald's. It could slow down operations and alienate customers who come to McDonald's for cheap, simple fare rather than theatrics. Franchisees say that many of their customers do not know what a latte is.
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.
"You create a little bit more of a theater there," says John Betts, McDonald's vice president of national beverage strategy.
Starbucks chairman Howard Schultz popularized lattes and cappuccinos in the U.S. after borrowing the idea from espresso bars he visited in Italy. However, the coffee chain is now battling fast-food outlets for some of the same customers and meal dollars.
Starbucks' rapid store and menu expansion have slowed traffic at older locations and gummed up operations behind its counters. After years of downplaying threats from rivals, Starbucks executives now say they are preparing for competitive encroachment.
"We are up for the defense, and we are going to get on the offense," Schultz told investors on a conference call this November. Starbucks declined to make executives available for this story or specifically address competition from McDonald's.
From the January 21, 2008, Prepared Foods e-Flash