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Starbucks and McDonald's

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Tuesday, Jan 8, 2008

Starbucks was prominent in the news yesterday. Founder Howard Schultz has been called back into action in an effort to reverse the coffee chain’s slide into mediocrity.


[Schultz] said moves to automate coffee making in the interests of efficiency had damaged the “romance and theatre” of a visit to the stores. Starbucks shares have fallen 48 per cent over the past 12 months. They rebounded 8 per cent in after-hours trading on Monday.
Mr Schultz said his agenda would include slowing the pace of new store openings in the US and closing under-performing locations, and redeploying capital originally assigned to the US to increasing the profitability of its overseas operations.


Ah, yes. I’m sure you fondly remember as I do how romantic it was to stand around in the Starbucks theater waiting for someone to hand you your coffee. What high drama there was in a cranky espresso puller getting burned by hot milk.


It seems that Starbucks’ ubiquity has bred indifference to the brand, and its own success has undermined the mystique it once had as purveyor of some rare, special elixir known as a “latte.” Now just about everyone knows what a latte is, and you’ll even be able to get them at McDonald’s, as this entertaining WSJ story details. Though Starbucks may have originally conceived of itself as the opposite of McDonald’s, it always seemed natural that they would either mimic each other’s identity or actually combine, like the women in Persona slowly shading into one another. I used to argue that instead of “selling hot, brown liquid masquerading as coffee” (as a ex-Starbucks exec called McDonald’s coffee), McDonald’s should be licensing Starbucks coffee and selling it to people who have come to want the serious gourmet shit. (But then I typically make the mistake of thinking that Starbucks primarily sells coffee as opposed to “upscale coffee drinks”—I don’t drink anything but black coffee, and I forget that most people associate Starbucks with the elaborate froufrou drinks and don’t really care one way or the other about good coffee as long as there is lots of sugar and steamed milk.) Both companies are also primarily brands that communicate a certain uniformity of standards. It’s not ideal but you know what you are getting when you roll into McDonald’s after pulling off I-80 somewhere in Nebraska.


It seemed as though the companies could reinforce each other’s brand equity; in a sense they already do. By giving the language of brands such powerful and universal symbols, it validates the whole phenomenon. But I hadn’t expected them to become direct competitors, for, as the article points out, they want to supply different things to achieve the goal of vending high-margin beverages: McDonald’s uses cheap, high-calorie food; Starbucks, ersatz ambiance and “theater.” But ultimately, Starbucks abandoned that method and sought more and more store traffic. Schultz’s return promises a reversal of that trend.


But the WSJ article offered other surprises. For one, McDonald’s may also seek to provide a music downloading service at some of its locations. What more evidence does one need that music has been thoroughly commodified, that you’d buy some songs alongside a Big Mac? But who wants to stand in a McDonald’s browsing for music? It’s not like Starbucks, which seeks to sell its (now faded) ambiance as an enhancement to the music sold. If there’s any justice, the first song McDonald’s will sell will be the Gang of Four’s immortal “Cheeseburger.” 


I also found this interesting:


Mr. Schultz has said that new competition actually helps Starbucks by expanding the specialty-coffee category. “Those consumers over time are going to trade up,” he told investors in November. “They’re going to trade up because they are not going to be satisfied with the commoditized experience or the flavor.” He has emphasized that Starbucks’s baristas, who are instructed to memorize customers’ drink orders and make genuine conversation with patrons, will continue to set the chain apart.


Not only is it ripe for Schultz to argue that the Starbucks experience is not commoditized, but he goes on to offer the fact that workers are ordered to make “genuine” conversation as evidence. This may be stupid of me to ask, but when you force people to talk, can the resulting conversation really be considered genuine?

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