The Next Round

We’ve been following the ongoing Coffee Wars for some time now; both in the sense of making posts about them in this space, and in the sense that members of my household are coffee consumers and take note of the changes. Just last week we obtained some McFood on the way to work, and my wife commented that the new McCafe products were very convenient for people who want cheap breakfast food and don’t feel like going to Starbucks. I’ve also noted in passing that McDonald’s offering of a $1 32-ounce iced tea product has been playing havoc with Starbuck’s iced tea drinks, most of which are both smaller than 32 ounces and cost more than a dollar. Now it would appear that the Starbuck’s strategy team has noticed this too, because they’re taking action about it…

A story available from Reuters by way of MSNBC notes the introduction of a new Starbuck’s size, which will be available only for iced coffee, iced tea and iced lemonade drinks. Called a “Trenta” in an effort to retain the company’s commitment to made-up words for things, it’s expected to be 7 ounces larger than the current largest size, and cost about 50 cents more. Early trials indicate that the new size will be popular, especially during the summer months and in states that do not experience cold weather as such, and that customers who want larger portions will probably buy it. The question not being addressed, either by the article or by the new product offering itself, would appear to be how this will help Starbucks to compete with either a $1 iced tea or the opportunity to obtain junk food along with your coffee and tea products…

Given the specialization of the Starbucks product line, which is built around coffee and tea drinks and a smattering of food items appropriate to eat with them, the company has always been more vulnerable to attacks by fast-food companies than the food-generating competition has been to their incursions. They also have to deal with the ongoing threat from convenience stores, which had been offering 32-ounce iced tea and even 32-ounce coffee products at much lower prices than a Starbucks outlet for years now. The company has had some success with strategies like infiltrating the fast-food market directly (using their low-cost “Seattle’s Best” brand) or co-locating in bookstores and the like, but the key innovations for Starbuck’s will probably have to come from non-coffee products, like the Starbuck’s Music operation, and value-added tactics like attempting to position their outlets as neighborhood coffee houses (offering meeting and work space, and social opportunities in addition to food and drink), since the company can’t expect to compete on a low-cost strategy and win…

In many ways, it’s a classic case of mixed strategies in competition, with Starbucks attempting to differentiate its product as being better (and offering more value), and McDonalds and the other fast-food companies attempting to provide parity at a much lower cost – the traditional low-cost strategy. It seems unlikely that the larger product will make that much of a difference in a strategy where the size of the product or cost per ounce isn’t really the focus to begin with; the people who want a very large cup of iced tea for cheap will probably still go to McDonalds – or to the Circle K up the street. But if the new product helps Starbucks to sell a more profitable product to their existing customer base it should improve their bottom line even without drawing in any new customers. And, of course, there’s no telling what their next move is going to be…