Guy Walks Into a Coffee House…

I don’t actually have a joke to go with this line, but I’m starting to think I might have to write one, since recent developments in the coffee house industry and the quick-service restaurant (QSR) industry are starting to make it clear that something very strange is going on. First, Starbucks started offering sandwiches and salads at lunch time; then they added breakfast fare for people who want a fast meal but want something better to drink than mass-produced fast-food restaurant coffee. McDonald’s fought back with their highly successful “McCafe” line of coffee products, offering coffee house quality at reduced prices and improved production times. Starbucks introduced a larger sized iced tea beverage, and McDonald’s retaliated by lowering their large drink size to $1 indefinitely. Now McDonald’s is striking at the heart of the coffee house business model, and it remains to be seen if it will work – or what Starbuck’s can do to reply…

There have been a number of stories about this in the press, but you can catch the USA Today Online story if you want to. Basically, the idea is that McDonald’s is refitting all of its 14,000 U.S. locations to be more comfortable, and to include a separate counter area and seating area for people who just want to order coffee products – effectively, a coffee house within a McDonald’s. It’s an intriguing idea all by itself, but when you add in the recent changes to their menu (to include “healthier” options, although hardly anyone would call them “healthy”) this practically constitutes a repositioning of the entire company and its brand. For decades, the knock against McDonald’s was that they valued neither the health (considering the menu) nor the comfort (given the steel and hard plastic furniture) of their customers; with all aspects of the operation designed to process as many people (and as much money) as possible in the smallest amount of time. If this story is correct, however, this may no longer be the case…

Naturally, there are going to be complications in pulling off such a rebranding. McDonald’s key demographic is still families with small children, and while the sort of young adults who hang out in coffee house operations is a strong market for them, you can’t really have a coffee house environment in a setting where there are large numbers of small children running around, jumping off of things, bouncing off of things, and shrieking in that way they do. It’s certainly true that if this image change works it could enable McDonald’s to not only do better against Starbucks, but also to engage all of the higher-level QSR operations (the authors linked above suggest Chipotle and Panera Bread, but anything else in that class would also possible) for a larger share of a more lucrative market than they have traditionally controlled. At the very least, it would give them a clear selling point over Burger King and Wendy’s, and might help to cement their leadership in their original segment; it’s also an awful risk…

All of these actions are expensive (the authors estimate the project at $1 billion), and there is no guarantee that it will improve their market share or per-unit income in the slightest. Past experience with McDonald’s attempting to put more attractive-looking stores in more upscale areas suggests that people have some difficulty taking an upscale McDonald’s that seriously, and there’s certainly no indication that people will start hanging out in one the way they do in coffee houses, even if the McDonald’s location does offer Wi-Fi, comfortable seating, or coffee house style beverages. And while it is unlikely that Starbuck’s will start selling burgers, it’s certainly possible that they will attempt their own changes in format or product – and the other QSR burger stands almost certainly will…

It’s possible that none of these things will happen, of course; that the latest development in the burger wars will never be more than a passing fad. But I’m going to go ahead and write that joke anyway. Let’s see: “A guy walks into a coffee house and says ‘Give me three double cheeseburgers with everything…’”