Coffee sales may be soaring at McDonald's, but I seriously doubt that it's 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 like saying "Mrs. Paul's sushi" and according to my calculations, Starbucks has 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 like 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 covered graham crackers knowing full well that for roughly the same price they can get a whole package of Keeblers?
That going to Starbucks is like going to an exclusive club became apparent 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 difference 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 Starbucks.
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 the 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 struck up a conversation with him. We talked for a while and he even recommended 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 Starbucks. I doubt if I'd meet a Razzie-winner in McDonald's, let alone an Oscar-winner.
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 body" and an "earthy aroma." Sumatra sounds so good that I don't know if I want 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 belittle.) 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 and asked them, "Can you meet me at Starbucks at 7:30 AM tomorrow?" I can just 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 the background.
Now, don't get me wrong, I do believe that Starbucks can make some improvements. In a recent letter to customers, Starbucks' Chairman, Howard Schultz, said he has a personal commitment to ensuring that customers get the "distinctive Starbucks Experience" every time they visit a store. Let me offer my suggestions on how the company can improve the Starbucks Experience.
Personally, I cannot see how Starbucks is having trouble boosting sales in existing stores because the company is certainly getting more of my money 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 by a child soldier, a kite runner, and two African boys named Kebede and Abu who want you to buy some water. And for $11.99 some guy named Eddie Vedder 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 at $89. Who goes into Starbucks for a $2 cup of coffee and walks out with an $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 way 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 on 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 consulting firm. A ghostwriter and freelance writer, his work has appeared in publications such as The New York Times, The Village Voice, PR Week, Media (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 Advisor, 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 & Technology, 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 for 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".