Starbucks (SBUX) is near all-time lows. ~50% off its all time high. What’s up?
With Wall Street freaking out over a looming recession, the ‘smart’ people think that the first thing impacted is discretionary spending, i.e. items like expensive coffee. This may be true, but something else more significant is going on.
McDonalds is launching a new line of premium coffees that beat Strabucks’ in taste tests — and McD’s is starting to offer FREE wifi. This matters because the analysts worry that if McDonalds has “as goodâ€� coffee and offers free wifi, then people will opt for coffee breaks at the Golden Arches. These analysts assume that Starbucks and McDonalds should be competing on price once their offerings are closer in quality.
However, what the analysts are overlooking is the power of brands. Starbucks has done a fantastic job of branding itself as a community and as a place for the ‘cultured.’ My friends go to Starbucks to meet like-minded people and to work on significant things like writing, thinking and homework. I know people who get dressed up to go to Starbucks. It has an aura of sophistication. As Howard says, “It’s a great brand. The best brand.”
McDonald’s branding on the other hand, has until recently been pretty much the opposite. Traditionally McD’s has marketed low prices with an appeal to middle America and the Walmart crowd. Fast Food Nation didn’t help.
Here is a telling difference: For years McDonald’s seats were purposely made to be uncomfortable, encouraging turnover and discouraging loitering. Contrast that with Starbucks’ plush leather chairs and couches. To many, it doesn’t matter if McDonald’s was giving away the coffee for free because it’s simply a brand persona many people reject.
I understand the reason why Starbucks might take a hit if/when people decide to cut back on $4 mocha frappachinos. What I cannot rationalize however is that Starbucks’ clientele will suddenly jump ship for McDonalds en masse. Starbucks sells an experience and an image. Mickey D’s sells cheap, unhealthy food.
Brands matter and the strongest brands always win.
{ 5 comments… read them below or add one }
Great post. McDonalds do great coffee as is, I get it when driving my car on fairly long journeys (caveat: there are not a lot of starbucks in Ireland, shock, horror!!). A breakdown of who and why people go to Starbucks should offer more insights into their potential exposures. For instance, I am sure they have some percentage of “passing, discretionary, impulse-type buying”, but a 50% decrease off the top?
Hey Paul, I agree. McDonalds serves a functional purpose but when people want the experience of more than simply caffeine, they go with Starbucks.
There is a sort of stigma attached with going to McD. People are worried that they will come across as someone cheap with no concern for their health or the farmers in poor countries. How many people will ask someone to come to McD for a business meeting? If McD starts a dedicated coffee store with none of those cheap burgers then they can attract some starbucks crowd.
I doubt McD’s would ever start a separate, dedicated coffee house but I agree with the logic. Even under such circumstances however, I don’t think calling it, say,”McCoffee” would attract many Starbucks regulars
Rumors have been circulating for a while now regarding a 2010 release of the Air Jordan X (10) “Chicago,” nike air max 1 but we have not seen any sort of confirmation in the form of catalog images or words from Jordan Brand representatives. But today, we are extremely proud to present a SneakerFiles nike air max 2010 exclusive confirmation that the Air Jordan X (10) will drop this month as a quickstrike release. Not just any Air Jordan 10, but rather nike air max 95 the Chicago colorway with 45—the number Michael Jordan wore when he came back from retirement—on the ankle. nike air max 90 This colorway of the AJ 10 is one of the most popular nike air max nl styles ever created, and will surely result in lines outside stores for days and may even cause riots. The Air Jordan X (10) “Chicago 45″ will release at only 150 sneaker stores across the United States with each retailer only receiving 23 pairs. Be sure to check out the additional photos and information after the jump!