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Ray Kroc would never have dreamed that McDonald's would go into combat in a war over coffee, the fact it's doing so is a testament to the work of Howard Schultz and Starbucks.

The elevation of the coffee experience in America has been done by Starbucks and now the fast food guys want a share of the lucrative pie.

Clealry, McDonald's is striking from a position of strength and Starbucks is at one of its weakest points.

Purists could argue that McDonald's developed the third place concept first by providing an alternate destination to home for families, but then failed to build on the concept and make it relevant to different audiences, which allowed Starbucks to seize that territory.

In the end, this is all about a consumer win and the need for brands to meet consumer needs to remain relevant.

McDonald's realized four years ago, quite correctly, that the old brand experience was not sufficient to compete in today's marketplace and the upgrade which started with the menu by adding salads and new items, has now been expanded to include improvements to the facilities and the decision to take coffee seriously.

If consumers have been trained by Starbucks to expect a better cup of coffee, there's no reason McDonald's should't give it to them.

There are a couple of critical questions here.

1. Can McDonald's make a decent cup of coffee?

2. Will consumers trust McDonald's to make good coffee?

3. Do consumers want to be drinking a decent cup of coffee in McDonald's?

4. What can Starbucks do marketing wise to "own" coffee?

5. What can Starbucks do to show the superiority of their experience?

Yesterday, Starbucks announced the return of Schultz with the goal of bringing the service obsession back to the brand. The board clearly looked at the sales data and re-read Schultz's memo from last year and decided enough was enough.

The blue touch paper has been lit and Starbucks once shy of advertising will now get on with selling its pitch, it will be interesting to see how McDonald's responds, but it's likely to be with some shock and awe, that's the way they like to do things in Oak Brook.

In the end, McDonald's can crush Starbucks with its marketing spend, but the real test will be on the fronline and this is all about Schultz, if he can bring the magic back to Starbucks and add some creative new touches, McDonald's will take some share, but not much, if he can't, the losses might be considerable.


Posted by Ed Cotton Post the leaked Schultz Starbucks memo, Daniel Gross wrote a great piece for the  LA Times, about brand expansion.

He talks about the frenzied desire to expand brands faster than their DNA can tolerate and highlights some examples of brands that have expanded slowly.

"But the Schultz memo is interesting and useful nonetheless, because it shows that even an iconic company that serves a highly addictive product can water down the immense value of its brand by expanding too far and too fast and in too many directions at once. Sadly, this is a fate that befalls many American companies. Time and again in recent years, we've seen small, cutting-edge and quirky brands gain critical mass — only to lose their charm and customer appeal after they engage in breakneck expansion.

Why does this happen? Companies can't help it, in part because the huge macroeconomic forces that dictate corporate behavior impel them to expand too fast and too wide. But at the same time, the powerful psychological forces that dictate consumer behavior can cause customers to recoil from the chains they once loved.

Many of America's best-known chains came of age in a period in which it was easy for companies to go public at a comparatively young age. And publicly held companies, whether they make turbines or tiramisu, are programmed to maximize efficiency and increase sales every quarter — no matter what. Inevitably, this mentality leads to the cutting of corners."

Gross goes on to talk about the problem rapid expansion caused California Pizza Kitchen, Restoration Hardware and Krispy Kreme and contrasts these strategies with those of slow movers, Trader Joe's and In and Out Burger.