New McDonald's (MCD) Initiative Takes Aim At Starbucks (SBUX)
Tweet
Share
E-mailGet Alerts MCD Hot Sheet
Join SI Premium – FREE
Before the bell rang this morning, the Wall Street Journal published an article analyzing the contrasting 2007 results for two major players in the food services industry -- McDonald's (NYSE: MCD) and Starbucks (Nasdaq: SBUX) -- and what they intend to do in 2008.
During 2007, McDonald's stock happened to be the best performing stock in the S&P 500 index. Shares were up 31% last year, while over the same period, shares of Starbucks were down almost 50%. Such differing results are interesting as the two companies, which were originally on the complete opposite side of the food services spectrum, are now becoming more aligned than ever.
Over last year, McDonald's upgraded the interiors of its locations and updated its coffee lines, while Starbucks pulled from Mickey D's playbook and installed drive-thrus and added breakfast sandwiches to its menu. According to the WSJ article, this is a clear signal that one underlying factor is making itself prominent in the food services business: convenience.
With such a large advantage in the 'convenience' part of this industry, it appears that McDonald's feels like it now has a large enough market lead to consider improving other areas of its business model. McDonald's recent announcement that it will be installing new coffee bars with baristas serving cappuccinos, lattes, mochas, and Frappes at most of its locations in the U.S. certainly seems to be aiming at this idea. The bars will be located at the front of its counters, as, at test locations, the bars performed better when the employees didn't turn their backs to the customers in order to make their specialty drinks. The initiative will also add smoothies and new bottled drinks to the menu and is expected to bring in as much as $1 billion onto McDonald's annual sales. McDonald's is currently touting the drinks as about 60 to 80 cents cheaper than its competitors and is expecting to eventually list the drinks at a menu price of between $1.99 and $3.29.
The change comes at quite an opportune time: since 2003, the percentage of meals or snacks served at fast-food joints that included coffee or tea rose from 8% to 12% at the same time that the percentage of carbonated soda drinks at a meal fell from almost 50% to about 45%. Only 7 days into the new year and it appears McDonald's is already trying to continue and extend its lead over its closest-competitors in the food services market.
During 2007, McDonald's stock happened to be the best performing stock in the S&P 500 index. Shares were up 31% last year, while over the same period, shares of Starbucks were down almost 50%. Such differing results are interesting as the two companies, which were originally on the complete opposite side of the food services spectrum, are now becoming more aligned than ever.
Over last year, McDonald's upgraded the interiors of its locations and updated its coffee lines, while Starbucks pulled from Mickey D's playbook and installed drive-thrus and added breakfast sandwiches to its menu. According to the WSJ article, this is a clear signal that one underlying factor is making itself prominent in the food services business: convenience.
With such a large advantage in the 'convenience' part of this industry, it appears that McDonald's feels like it now has a large enough market lead to consider improving other areas of its business model. McDonald's recent announcement that it will be installing new coffee bars with baristas serving cappuccinos, lattes, mochas, and Frappes at most of its locations in the U.S. certainly seems to be aiming at this idea. The bars will be located at the front of its counters, as, at test locations, the bars performed better when the employees didn't turn their backs to the customers in order to make their specialty drinks. The initiative will also add smoothies and new bottled drinks to the menu and is expected to bring in as much as $1 billion onto McDonald's annual sales. McDonald's is currently touting the drinks as about 60 to 80 cents cheaper than its competitors and is expecting to eventually list the drinks at a menu price of between $1.99 and $3.29.
The change comes at quite an opportune time: since 2003, the percentage of meals or snacks served at fast-food joints that included coffee or tea rose from 8% to 12% at the same time that the percentage of carbonated soda drinks at a meal fell from almost 50% to about 45%. Only 7 days into the new year and it appears McDonald's is already trying to continue and extend its lead over its closest-competitors in the food services market.
You May Also Be Interested In
- Starbucks investors push to split chair and CEO roles held by Niccol
- Citi says valuation in this EU airline stock is very attractive
- Buy this Shariah-compliant financial stock: BofA
Create E-mail Alert Related Categories
Insiders' BlogSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
