McDonalds is taking on all comers –Starbucks,Dunkin Donuts,Caribou Coffee,Biggby, and don’t forget the Canadian underdog Tim Hortons. And Mickey D’s placed a $100 million down to gain share in the crowded coffee field.
It is a David &Goliath marketing battle with a twist. While McDonalds pummels consumers with commercials,ads,web sites,and free Mocha Mondays,Starbucks is clinging to market share with branding, local activation, and advocacy. It’s budget versus branding.
Over the years I have worked for marketers with so much media budget,they became lazy. The would generate safe,simple commercials and pound the message into consumer’s heads using mega-media weight. They accepted mediocre ideas,and did not strive for the breakthrough idea,because they did not have to. Think about it —if a marketer has $100 million to spend,the budget seems more important than the idea. Usually media models rule the day,and creative takes a back seat. But what if a marketer had only $10 million or $1 million. To be successful the brand campaign needs to break through idea to get through the clutter due to minimal media support.
So back to the coffee war. After round one Starbucks appears to have survived the initial body blows. Per the Wall Street Journal,the result of round one is that Starbucks is doing a little belt tightening and increasing prices to offset single digit decreases in store sales and traffic. Although McDonalds may have impacted Starbucks’market share,the economy probably played as much if not more havoc on their business.
On the other side of the coffee skirmish,McDonalds McCafe is thriving accounting for 5% of the fast-food giants sales (up from 2% two years ago). It appears McDonalds $100 million was well spent. It will be interesting to see where market share came from —was it the premium brands (e.g. Starbucks,Caribou,Biggby) or budget (e.g. Dunkin Donuts,Tim Hortons).
Keep in mind this is just round one. It will be interesting to see what long term effect McCafe’s media blitz has on the industry. As other competitors increase their exposure and the economy recovers,will consumer spending revert to the pre-recession norm,or will drive-thru McCafe Mocha’s rule the day?
