Sir,

Both points made are relevant. The business model of Mcdonald's has been built around the concept of standardization. Such a focus has resulted in quick service and loyal customers - as the saying goes, a Mac tastes the same in London or New York or any other location. Against this scenario, providing customized coffee variants would be a formidable challenge. Waiting times may drive away some customers. In turn, this could offset the incremental revenues projected.

Second, it is rather unfair to force franchises to open coffee bars. Investment is one dimension. Space could be another. Additional people could be a third constraint. It is doubtful whether incremental revenues in each outlet would be sufficiently high to warrant the headaches that are bound to emerge.

Foraying into the coffee business may not be the best option for Mcdonald's. "Stick to the Knitting" is a more apt proposition.

Warm regards

I agree to the view of "Stick to the Knitting".
Thinking from consumer perspective, McDonald's and coffee shop are two totally different entities. There is definite difference between ambiance, customization, service and the mentality with which a consumer goes to McD and a coffee shop.

Hi Scott --

There may be a generational divide on this -- or at least strong consumer segmentation. In my family, my 22 year old son's reaction to McDonald's joining the coffee wars was "fantastic!" He say's he'll switch over at the first opportunity. Why? Drive throughs -- in other words, speed and convenience -- the opportunity to get a good Americano without getting out of the car to him would be irresistable.

Now, my immediate reaction was exactly the opposite. McDonald's can come up with the best tasting coffee in the world, and it will be tough for them to coax me into the fold. Why? (1) small children eating food that involves mustard -- very dangerous to any business suit, (2) lack of internet -- one of my favorite Starbucks features; frankly I think a hardware store could lure me in if they promised free internet coverage in the paint aisle, and (3) french fries -- the ultimate temptation -- I fear supersized fries would seriously dampen the benefit of my nonfat latte.

Bottom line -- there are lots of coffee drinkers in the world with many different criteria for the optimum consumer experience. I suspect there will be enough for both McD's and Starbucks to succeed.

Best,

Tammy Erickson

In Canada, Tim Hortons, which began by serving coffee and donuts, now does a great deal of business serving lunch time items. Near my office, the lunchtime lineups at Tim's exceed those of both McDonald's and Starbucks.

Macdonald's may be moving into the coffee business for defensive reasons, to protect its core business. Tim Hortons has definitely been taking lunchtime business away from MacDonald's. I believe that Tim Hortons has grown much faster than MacDonalds and has more or less matched the growth of Starbucks in Canada.

Although the US and Canadian markets are different, Macdonald's may be looking to prevent a competitor that serves both coffee and lunchtime items like Tim Hortons from showing up in the US market. I wouldn't be surprised if Canadian franchisees have been squaking for this move as a defensive measure against Tim Hortons.

Best Regards

Certainly both those points are valid for McDonald's to succeed. However, I have followed McDonald's closely over the last few years. The franchise consultant referenced is Dick Adams, who seems to never have a good word to say about McDonald's strategy. It's clearly in his best interest to drum up negativity among the franchisees so that he can gain more consulting business. That being said, McDonald's must carefully navigate the communication and potential roll-out of the product to keep the franchisees content.

Personally I think its a great way to start the year for McDonald's..I am absolutely loving the idea..After all we as Americans drink plenty of coffee and considering that theres a McDonald's on every corner of the street, it will only make it easier for us to reach our coffee in the morning..

Dunkin' Donuts ought to be more concerned than Starbucks about losing customers to McDonald's.

While coffee snobbery may be moving down market in part due to the success of Starbucks, a $4 cup of coffee is still easier to swallow when you are enveloped in a comfy chair, being soothed by the soulful sounds of Ray Charles, getting into the editorial page of the paper and having some friendly banter with a cheerful barista. As Schultz' comment suggests, Starbucks needs to retrench around its core promise of a brief oasis in the craziness of our everyday lives and find a way to profitably satisfy that need in the broadest variety of customers.

McDonald's is selling calories at your ultimate convenience. Dunky's has been successful at repositioning themselves around the promise of caffeine at your convenience. High quality lower priced coffee at McDonalds seems to be a much bigger threat to the customer seeking to quickly refuel (now they can get predictably delicious calories AND caffeine at their ultimate convenience).

Customers will continue to use McDonald's and Starbucks to address very different needs during their day. Perhaps Starbucks should be thinking about how to offer temporary escapism and a 99 cent cheesburger.

Speaking as a consumer more than a businessperson:

I grew up in Texas, but live in the UK and wanted to throw in some comments: as far as I've noted in Edinburgh, Scotland, the idea that Starbucks, Costa Coffee, Nero and other similar coffeehouses overlapping with McDonald's in terms of consumer base and being threatened by this new venture by the burger giant seems pretty slim - I think it comes down to a few factors:

1)Atmosphere: Many of these coffeeshops focus not just on offering a selection of coffee, but a relatively sane place to have a business chat, have a relaxing drink, read, surf or write. Quite a few of them are connected to, or located very close to bookstores. A far cry from the average UK-based USA fast food chains in town which are often grubby, slow, and chaotic/noisy by comparison, and usually in different locations less handy to office buildings, banks, and the like.

2)Different customer bases: People go to one to eat with their kids, and the other to relax and have a java with their work associates. The difference in clientele is obvious, coffee establishments being frequented more often by university students or business people, and the fast food places more often by kids out on their lunch break, families with young children, or tradesmen.

2)Logistics: Edinburgh, unlike many American cities has a great deal of pedestrian and public transportation versus cars, and drive-thru are a non-entity except on the outskirts of town. Like many British cities, its age and layout simply isn't 'car-friendly', so the idea that remaining in your car is a plus will not benefit the majority of Edinburgh residents - the only exception being the commuters who perhaps might happen to pass by a drive-thru on the Motorway.

In essence I think lifestyle plays a huge factor in whether or not customers in this particular city frequent Starbucks or McDonalds, and that lifestyles don't overlap here as easily as they do in the USA.

This is, of course, one woman's perception and exceptions will always apply.

Great comments everyone. A couple things to amplify:

1) It is very interesting how individual responses depend a great deal on the reason why consumers visit the venues they do (in our parlance, the job they hire the venue to get done). People looking for pure functionality (quick caffeine, like Tammy's son) are going to drift to McDonald's. People looking for a mobile office (as Kristin notes) aren't going to defect any time soon. It is the job, not the customer, that needs to be the basis of deeper analysis, because the customer could hire McDonald's one day for one reason and Starbucks that same day for a very different reason.

2) I personally think it is great for McDonald's to think about ways to "stretch" its knitting. After all, solely sticking to your knitting is a recipe for the innovator's dilemma! If it executes appropriately, it could create a big business without impacting Starbucks at all. Dunkin', who has its own aggressive growth targets, could certainly feel the heat first.

3) Like many analysts, I worry about Starbucks for reasons beyond McDonald's. The need to simultaneously master wrestling hold of the core business while innovating in new directions is incredibly challenging.

Thanks again for the comments.

Best,

Scott

I first came across this concept when I was living in New Zealand 4-5 years ago, where McDonald's started opening up McCafe's inside a number of thier busier locations. My first reaction was the same as point 1; how could the fast food king's make a quality products that requires trained and more importanly; expirenced barists; while still making Big Macs. The McCafe's I went too had a small section where they had new cabnets installed; hard-wood floors, and the sterile McDonalds seating repalced with leather arm chairs. Playing in the background was modern funky music. They also made surprisingly good coffee and pastry's, all with very reasonable prices.

If the US model is based even loosely on what is happening in the New Zealand McDonald's, they are certainly in for an interesting times at McDonald's.

Scott interesting question. If we look at the coffee market in Japan as in other markets there is considerable growth occurring in the coffee market and in each segment of the market. I believe McDonalds has a chance to grab a slice of the market that is untapped. Customers are drawn for various reasons and the new coffee line is certainly a draw or new reason to visit a store.Also coffee drinkers are different to those who want a meal.Coffee drinkers tend to read a book, a newspaper or chat with a friend.I believe that by offering coffee McDonalds is actually offering a new venue for coffee drinkers.If we look at the coffee market in Japan for example:Starbucks in Japan is boutique, limited seats, stylish and premium price.It has a select target market, it doesn't attract business men on the whole(a huge segment) as it is no smoking whereas McDonalds in Japan caters to both smokers and non smokers.McDonalds in Japan has had McCafe for a number of years now and had a major roll out last year where they expanded the program. McDonalds in Japan provides a choice for drinkers who want good value and a venue to enjoy it.Maybe the new strategy in the USA is along the same lines.Attracting new customers using coffee, getting them to stay longer and possibly order other products during their visit.We will have to wait and see how it pans out.

One thing being missed: many of us baby boomers grew up on MacDonalds. As we are getting older is this a way for macDonalds to brings us back in to their stores?

On many of my days a grande capp is my version of a happy meal.

Some people are commenting on how awesome it would be to pick up their lattes from their car.

However, how does waiting an extra 5 or more minutes per person (i.e. potentially an extra half hour or more on a busy night) sound when picking up those lattes?

I like Mcdonald's new iced coffee blends and I think that they should extend their product line- but keep it to quick, ready-to-make, quality drinks with a growing selection. That way they continue to use their convenience and add coffee into the mix.

Some people are commenting on how awesome it would be to pick up their lattes from their car.

However, how does waiting an extra 5 or more minutes per person (i.e. potentially an extra half hour or more on a busy night) sound when picking up those lattes?

I like Mcdonald's new iced coffee blends and I think that they should extend their product line- but keep it to quick, ready-to-make, quality drinks with a growing selection. That way they continue to use their convenience and add coffee into the mix.

McDonalds cannot reach broad success in either hot or iced coffee drinks until they can reach uniform agreement among their franchisees on procedures. I travel constantly up and down the East Coast, and in several states I've encountered franchisees who will not put milk in my coffee unless I buy the whole container. They will add cream (which costs twice as much to buy) at no charge, but not milk...

I cannot imagine that McDonalds would allow such a silly limitation on the serving of their signature Big Mac sandwiches. Then why coffee ?

Starbucks, with company-operated stores, doesn't have this dumb situation. Until McDonalds creates uniform requirements for the coffeee offerings, they will not reach full success.