McDonalds vs Starbucks - its all in the “experience”

With McDonald’s focused effort to enter into direct competition with Starbucks via their “McCafe” concept, I’ve been giving some thought to what that really means to the investors in both companies. 

McDonalds is certainly a juggernaut and has nothing to lose by entering into the industry (high margin coffee drinks could greatly increase the average order in the drive thru for example), but I wonder if Starbucks really has as much to lose as everyone is thinking.

The question comes down to this: Will consumers have the same experience going into McDonalds to get their tall, 2%, vanilla latte as they would if they went into Starbucks to get that drink?  Will that difference in experience be enough to justify going to one store vs. another? 

Unfortunately for Starbucks, they are mostly to blame for even having to ask the above question.  Ten years ago, the experiences would have been so different that it would have been absurd to ask if the experiences were different enough to sway the consumer.  Starbucks’ greed and desire to build consistency among stores over the last few years though has introduced a process that is very much something that McDonalds could compete with.   Starbucks has moved to completely automatic espresso machines in many of its stores.  You walk into their stores which are, generally, comfortable, but when you order your drink the barista often just has to press a few buttons on the machine to make your drink.  They are losing the personal touch in their store culture.  The loss of the personal touch has opened the door to McDonalds.  McDonalds is the master of automation and consistency.  If McDonalds can obtain good quality coffee (it sounds like they had to drop Seattle’s Best due to it being a Starbucks brand), they can very much compete with Starbucks in the actual product. 

In order for Starbucks to protect itself from competition by McDonalds, they must get back to their roots of providing a friendly, personal and unique experience.  Their stores need to be more comfortable, their barista’s need to maintain a high degree of skill through training, and their coffee needs to be prepared by hand.  If Starbucks continues on the trajectory toward automation and genericization of their stores, they will be doing themselves a disservice.  Howard Schultz says he is aware of this and is coming back to the company to recreate the Starbucks experience, but the stakes are high this time.  If Schultz cannot recreate the personal experience, McDonalds will capitalize on the opportunity.