The Empire Strikes Back!

Today's paper contained an unusual insert: a card offering a free cup of Starbuck's new "everyday" coffee product to anyone who wants to come in tomorrow and ask for one. If tomorrow doesn't work for you, they'll let you use it any Wednesday between now and the end of May, just so you will come in and try the new product. It seems like an odd move for a company whose retail stores are so numerous that almost the only place you can't find a Starbucks is inside another coffee house (and I wouldn't be all that surprised even there!) -- until you realize that the coffee giant has been under attack lately from a most unlikely quarter...

According to reports posted on MSN.com, Starbucks has been losing some significant market share over the past couple of years to the new McDonald's "McCafe" products, which were themselves launched to try to regain market share lost to Starbucks. Years ago, if you wanted a coffee on the way to work, you went by the McDonald's and got one, along with whatever artery-clogging food items struck your fancy. It tasted bad and was bad for you, but it was hot, caffeinated, and ready to go quickly without having to clean out your coffee maker. Then the rise of Starbucks (and the collateral effect of the companies that rose to compete with them) took a huge piece out of the McDonald's breakfast market. Attempts to upgrade or upsell their food were largely futile (anyone willing to eat McDonald's breakfast food already did -- and part of Starbuck's appeal was that their food was supposedly healthier), nor were attempts to tinker with the price point any real use.

To compete with the coffee house operations, McDonald's needed a competitive product; something that would appeal to coffee house customers while retaining the traditional McDonald's advantages of lower cost and greater convenience. The result was the McCafe products, and a significant upgrade to the quality of the chain's regular coffee for those who prefer "drip" style brew. Neither menu change was all that significant, but the combination appears to have worked, gradually drawing away (or in some cases, taking back) the customers lost to Starbucks.

Starbucks was not about to just roll over and die, however, and they fought back with their own breakfast products: an increased variety of baked goods and a line of microwaved breakfast sandwiches. This had limited effect, however; most of the people who actually want to eat a sandwich for breakfast already go somewhere else, and it's hard to differentiate one handful of hastily-prepared eggs from another anyway. The core competency of the Starbucks chain was their ability to brew better coffee, but they couldn't simply lower the price of their existing coffee products without implying that these drinks were never worth their original price to begin with. They'd have lost battalions of customers -- and never sold another $3 cup of product again. So instead, they invented a new product; an "everyday coffee" which they are calling the "Pike Place Roast" after the great public market in Seattle where Starbucks had its first shop.

So far, no one seems to know for sure if Starbucks will actually sell the new product for a lower price (attempting to compete solely on cost), but most observers appear to believe that the campaign with combine speed/convenience, improved flavor, and lower price to produce something that will genuinely be a superior product to anything you can get at a fast-food restaurant. If this is correct, it could be a devastating blow in the ongoing battle for the loyalty of the coffee-drinking public, and put Starbucks back into the lead for control of the market.

Until McDonald's comes up with ITS next product, of course…