An article in today's Reuters ("In a weak economy, Americans swap steak
for chicken") said that coffee sales are "soaring at McDonald's, while
high priced Starbucks slows." The author of the piece gives this as an
example of what retail sector analysts call "trading down," a term used
describe customers' buying cheaper alternatives.
Coffee sales may be soaring at McDonald's, but I seriously doubt that
because Starbucks' core customers are trading down.
Let me start by admitting that I consider coffee to be a part of a
balanced diet. I start most of my days with not one, but two grande
coffees at Starbucks.
For the past few years, McDonald's has been dripping into Starbuck's
market by offering premium coffee. Later this year the chain will start
selling cappuccinos, mochas, and lattes. Saying "McDonald's latte" is
saying "Mrs. Paul's sushi" and according to my calculations, Starbucks
nothing to fear; the company's core customers are no more likely trade
down to McDonald's than customers of the legendary steakhouse, Peter
Luger, are likely to start trading down to Outback.
You could say that based on the coffee and the pricing, McDonald's could
take away Starbucks' core customers. You could say that -- but of course
you'd be wrong.
Sure a Consumer Reports study showed that people prefer the taste of
McDonald's premium coffee over Starbucks. But that's like saying that
studies showed that people preferred the taste of New Coke over Classic
Coke -- and we know what happened to New Coke. Going to Starbucks isn't
about the taste of the coffee.
I'll be the first to admit that spending nearly $2 on a cup of coffee is
slightly perverse. It's like buying porn; sure you get satisfaction from
it, but deep down you know that it's wrong. So... yes, compared to
McDonald's, Starbucks' coffee is overpriced, but it's worth it. That's
because Starbucks is not just a place where you buy coffee; it's more
an exclusive club. And the prices you pay are equivalent to paying a
membership fee. Why else would people spend $1.70 on two chocolate
graham crackers knowing full well that for roughly the same price they
get a whole package of Keeblers?
That going to Starbucks is like going to an exclusive club became
to me when I had a meeting with an associate who had never been to
Starbucks before. She wasn't a coffee drinker. She had never tried Tazo
tea and she had no idea what Chai was. And, she didn't know the
between a tall and a grande -- it was a terrible experience for her. I
regret bringing her to Starbucks. In fact, I have two regrets regarding
Starbucks. First, drinking four grande coffees before delivering an hour
long presentation. Second, inviting my non-coffee drinking associate to
Going to Starbucks provides me with a great a excuse for doing the one thing
that I love, talking to strangers. And at Starbucks, you never know who
you might meet. Frequent any Starbucks and there is a high probability
that you will meet some business leader or celebrity. For example, at
Starbucks in my neighborhood, I've met a former CEO of Hearst and a
two-time Emmy winner. I even met Davis Guggenheim, who directed An
Inconvenient Truth. He was in town filming the movie Gracie, which
starred his wife, Elizabeth Shue. I had no idea who he was; I saw him
reading a screenplay and since I've written several screenplays, I
up a conversation with him. We talked for a while and he even
a book to me, Easy Riders, Raging Bulls. A few months later, he won an
Oscar for An Inconvenient Truth. I had met an Oscar-winner in
I doubt if I'd meet a Razzie-winner in McDonald's, let alone an
People who frequent McDonald's want a cup of Joe. People who frequent
Starbucks want a cup of Serena or Sumatra, which has a "full, syrupy
and an "earthy aroma." Sumatra sounds so good that I don't know if I
to drink it or make love to it.
I don't mean to disparage people who prefer McDonald's over Starbucks.
(For those of you who do prefer McDonald's, disparage means to
I'm just saying that the two stores appeal to different people.
In addition to being an exclusive club, Starbucks is also a place where
you can hold business meetings. I've often called business associates
asked them, "Can you meet me at Starbucks at 7:30 AM tomorrow?" I can
imagine how the conversation would go if I asked them to meet me at
McDonald's: "Hey, Dennis. I was wondering if you could meet me tomorrow
morning at McDonald's. Yes, McDonald's. Hello...Hello?" I wouldn't want to
do business in McDonald's and I doubt that I'd want to do business with
someone who wants to have a meeting in McDonald's. I imagine it would be
hard to have a serious business meeting with Ronald McDonald looming in
Now, don't get me wrong, I do believe that Starbucks can make some
improvements. In a recent letter to customers, Starbucks' Chairman,
Schultz, said he has a personal commitment to ensuring that customers
the "distinctive Starbucks Experience" every time they visit a store.
me offer my suggestions on how the company can improve the Starbucks
Personally, I cannot see how Starbucks is having trouble boosting sales
existing stores because the company is certainly getting more of my
every year. Every time you visit Starbucks it is apparent that they are
begging you for your money. It's like you're in the airport of some
developing country -- as soon as you walk into a store you are accosted
a child soldier, a kite runner, and two African boys named Kebede and
who want you to buy some water. And for $11.99 some guy named Eddie
wants you to download a soundtrack and go into the wild with him.
On a shelf you'll see Hamilton Beach 10-cup Drip Brewing Machine priced
$89. Who goes into Starbucks for a $2 cup of coffee and walks out with
$89 coffee maker?
(I, too, have bought a non-food item from Starbucks. However, I couldn't
resist it; it was The Best of Genesis CD.)
My point is that I know Starbucks needs to boost business in existing
stores, but it needs to be more subtle.
Schultz says that he wants to restore the atmosphere of Starbucks' early
days. He can start with Starbucks Entertainment. More specifically,
Starbucks XM Café, which is pumped throughout the store. That music is
too loud. I like Corinne Bailey Rae just as much as the next person, but
can you please lower it a few decibels?
Should Starbucks be concerned about its customers trading down to
McDonald's? I don't think so. Still, Schultz is right to want to focus
the Starbucks Experience and "reigniting" Starbucks' connection with
customers. However, he needs to do this without burning them.
# # #
Wayne E. Pollard is the author of Minds Before Market Share: The Art of
Public Relations and president of Hunter-Pollard, a management
firm. A ghostwriter and freelance writer, his work has appeared in
publications such as The New York Times, The Village Voice, PR Week,
(Asia's number one media, advertising, and marketing publication), Chief
Marketing Officer, Chief Marketer, Bulldog Reporter, BtoB: The Magazine
for Marketing Strategists, Life Insurance Selling, Senior Market
Writer's Digest, Writer's Digest Guide to Writing Nonfiction, Chief
Information Officer, Chief Information Officer-Asia, Computerworld
Australia, Darwin, Inside Direct Mail, The Deal, Wall Street &
Financial Executive, American Banker, FedTech, Wireless Week, Wireless
Business & Technology, and NJBIZ. Pollard wrote for two Gannett-owned
newspapers: the Daily Record and the Asbury Park Press, where he wrote
the Sunday "Business" section. He has been interviewed in leading
publications ranging from The Boston Globe to USA Today and has been a
guest on programs such as CNBC TV's "Power Lunch".