advertainmentauthenticityvideosword of mouth

The New Coffee Wars: Who will prevail?

By April 11, 2008 8 Comments

I drink a grande decaf over ice with heavy cream every morning. Although I eliminated caffeine about three years ago, it’s still part of my morning ritual. I still feel off if I don’t get my fix.

Considering over 52% of Americans over age 18 drink coffee everyday, is it any wonder McDonald’s, Dunkin’ Donuts and a slew of others want a piece of Starbucks‘ action?

Dunkin’ Donuts’ has moved much of its marketing focus to coffee and has taken direct aim at Starbucks:

Over the last few years, McDonald’s increased its coffee ad spend, and even offers Newman’s Own Organic Coffee in some locations:

In Western Washington, McDonald’s is currently offering an online coupon good for one of their new espresso drinks at select McDonald’s locations. You can print the coupon at unsnobbycoffee.com.

The site is simple, but gives you the opportunity to interact with the brand. You can play Hotshot Pinball or do a snobby coffee intervention. Fill in the blanks, then sending it to a friend. Not a bad word of mouth tool.

Snobby coffee intervention. Fill in the form and send to a friend.

This competition couldn’t be coming at a tougher time for Starbucks. It’s stock is at $17.55 a share today (it’s down from $32 a year ago). Howard Schultz recently returned to the helm and has made a number of positive changes:

  • A return to the core business by eliminating a number of food products – “It smells like coffee again!” my barista told me yesterday
  • New “Pike Place Roast” coffee is fresh-ground and fresh-brewed every 30 minutes (I tried it yesterday – it’s honestly the best cup of coffee I’ve ever had at an SBUX)
  • New espresso machines that are lower so the baristas can see the customer
  • Free refills when you use your Starbuck’s card
  • The Starbucks refresh also included a new customer forum called My Starbucks Idea. It’s not a social networking site, but as a tool for creating conversation with customers, it’s quite good. In Starbucks adopts IdeaStorm concept, Shel Holtz did a nice job comparing it to Dell’s Ideastorm.

    Who will prevail?

    Dunkin’ Donuts is obviously known for their dunkers and their drip coffee. They may take some of Starbucks customers – especially those that care less about coffee or the coffee experience than they do convenience.

    McDonald’s has immense distribution, so they’ll always be a threat. McDonald’s employees will probably never be trained baristas. But if their coffee tastes good enough, some will buy it there instead of walking across the parking lot to a “real coffee shop.”

    My bet is on Starbucks. At a time when customers are seeking authenticity, they are returning to the recipe that helped them succeed. Their focus on service as well as improving and increasing the dialog they are having with their customers is the responsible thing to do, and I believe they will be rewarded for it.

    So, where do you grab your coffee, and why?

    Join the discussion 8 Comments

    • Starbucks. I dont’ like paying more for drip coffee, but I like the coffee a lot. It has a strong flavor and I know what I’m getting each time. But the thing is, I’d say 80% of the time I drink Starbucks is because I’m meeting someone or need my own break to read, etc. It’s a better atmosphere than my local McDs and DD.

    • I am a purist and prefer a simple dark roast to the fru-fru menus at barista shops. I brew at home and use my geeky blue Thermos for on-the-go refills. It’s just more economical.

      People give me Starbucks cards as gifts, and I’ll use them. Really, though, I’m a Peet’s fan. I prefer their brews and ambiance over Starbucks.

      Even so, I think Starbucks will prevail because they’ve achieved the established position in the marketplace and will maintain it. Schultz appears to be making some wise moves to reaffirm existing loyalties and entice new customers. I don’t think either Dunkin or McDonalds appeals to the same customer base as Starbucks. I could see those two competing mostly against each other for position while Starbucks will remain out of reach. Starbucks has the atmosphere and the “culture” those two lack.

    • As a supporter of local economies, I support local independent businesses when practical. For coffee, that’s easy. I have my choice from dozens of local joints, including some that serve only fair-trade organic.

      Shel Horowitz
      http://www.principledprofit.com

    • Teddy Bass says:

      The media have been claiming some “great coffee war” scenario for two years now. This isn’t new at all. Just large conglomerates desperate for attention who want you to think that they’re in some kind of life-or-death struggle.

      As we learned decades ago from Burger King and McDonald’s, so what? Especially when eventually someone like a Subway swoops by and steals both of their lunches while they’re busy posturing and whining.

    • If Starbucks continues to brew only Pike Place Roast, they will lose. PPR is clearly an attempt to compete with the blander coffees that McDonalds and Dunkin make. The coffee lovers who are the Starbucks loyalists buy Starbucks because no one else makes a cup of coffee like it. If Starbucks sticks with its “only PPR” campaign, it will lose those people. In return, they will be fighting the marketing magicians with massive budgets (McD, Dunkin) in the coffee-is-caffeine market (plus, McD and Dunkin is faster, and they have lots of drive-ins).

      My prediction: Starbucks will have a very short stock price boost from the hype, then will continue to fall. In 6 to 12 months, the CEO will have a huge press conference to say “now we are REALLY returning to our roots by giving our customers a choice of what they like to drink, PPR or something else.” As someone else said recently, PPR is like New Coke – only a return to Classic will save the company.

    • Beth Bean says:

      I totally agree with Rob, its so much the coffee that I go to Starbucks for its the setting and the locations of them, the coffee isnt bad but you can get better.

    • […] Lite v. Bud Light, Whopper v. Big Mac, Campbells v. Progresso and Dunkin’ Donuts (or McDonalds) v. Starbucks all immediately come to […]

    • For us here in S Africa, we don’t have coffee brands like there but I think that Star bucks would win hands down here.

    Leave a Reply