Starbucks, Mcdonald's and Dunkin' Donuts
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Journal of Case Research in Business and Economics Coffee wars: The Big Three: Starbucks, McDonald’s and Dunkin’ Donuts Michael G. Brizek South Carolina State University ABSTRACT Coffee – for some, a morning cannot begin without it. Many daily rituals include it. It can be seductive, enticing, and addictive. Hard-core coffee drinkers pride themselves on their coffee palettes, their refined ability to distinguish “good” coffee from “bad.” And once a die- hard coffee drinker finds his favorite blend, mountains sometimes must be moved to entice him to deviate from it. But, for decades, the idea of “good” coffee was synonymous with “expensive.” If a consumer wanted to try the best blends or flavors, he had to be prepared to pay for it. Wallets were emptied, change was gathered, and the coffee-hooked consumer was walking into the coffeehouse ready and quite willing to hand over $4 to a smiling barista. Perhaps it was true that the coffee was the best to be offered. Perhaps the ambience and cozy atmosphere was a drawing factor. Perhaps it was the label that was associated with it, the feeling that he now belonged to an upscale club or group that not everyone else was entitled to join. Whatever the draw, the consumer continued to come back; day after day, week after week. Then something happened. The economy began spiraling downward, prices rose, and suddenly, a $4 cup of coffee was not quite as attractive as it once had been. Enter: The Coffee Wars. Premium coffee shops like Starbucks were suddenly faced with competition from fast food upstarts like McDonald’s and Dunkin’ Donuts, operations that were abruptly breaking into the premium coffee industry with “cheaper, but almost as good, coffees.” Life as the coffee- drinker once knew it had changed forever. For the better? That question remains unanswered as the war continues. But one fact is for certain; the battlefield will never be the same again. Keywords: economic recession, competition, marketing strategy, market entry Copyright statement: Authors retain the copyright to the manuscripts published in AABRI journals. Please see the AABRI Copyright Policy at http://www.aabri.com/copyright.html. Coffee wars, page 1 Journal of Case Research in Business and Economics OVERVIEW OF THE ORGANIZATIONS As we attempt to understand how the Coffee Wars began, it is essential to review the history of Starbucks and its major competitors. Although the number of companies attempting to enter the specialty coffee market is growing, the primary competition right now is coming from McDonald’s and Dunkin’ Donuts. This case study will review the factors that make Starbucks vulnerable to these competitors, the current state of the Coffee Wars, and develop research questions Starbucks must address if it wants to win more battles than its rivals. Starbucks Company History The first Starbucks store opened in 1971, in Seattle’s Pike Place Market. The name was inspired by Herman Melville’s Moby Dick. Starbucks’ chairman, president and CEO Howard Schultz, joined the company in 1982 as director of retail operations and marketing. Schultz returned from a trip to Italy in 1983, with the dream of bringing the Italian coffeehouse tradition of conversation and community back to the United States. When Starbucks did not immediately embrace this concept, Schultz left to start his own Il Giornale coffeehouses. He later returned with the help of local investors in 1987 and purchased Starbucks. It was also in 1987 when the Starbucks opened the first stores outside of Seattle, with locations in Chicago and Vancouver, B.C. (Starbucks Heritage, 2010). In 1991, Starbucks became the first privately owned company in the U.S. to offer stock options for its full and part time employees. It completed its initial public offering, with common stock traded on the NASDAQ, in 1992. The hugely popular Frappuccino® blended beverages were launched in 1995 and Starbucks joined with Pepsi-Cola to launch ready-to-drink bottled Frappuccino® drinks in 1996. It was also in 1996 that Starbucks opened its first store outside of North America in Japan. The company acquired Tazo Tea Company in 1998, and partnered with Conservation International in 1999, to promote environmentally responsible methods for growing coffee. Starbucks has continued to grow over the years, launching its VIA™ Ready Brew coffee in 2009 (Starbucks Timeline, 2010). Today, Starbucks has more than 15,000 stores in 50 countries, and is known as the world’s premier roaster and retailer of specialty coffee (Starbucks Heritage, 2010). Mission Statement As stated on Starbucks’ company website: “Our mission: to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time” (Starbucks Mission Statement, 2010). The company lives by certain principles every day to ensure achievement of this mission. These principles include creation of quality coffee using the finest coffee beans, embracing diversity in its employees (called partners), building a human connection with its customers, creating a sense of belonging through its stores (havens), being a part of a neighborhood through development of a sense of community, and delivering rewards to all its stakeholders. Because Starbucks understands the importance of social responsibility, and is tremendously dedicated to the “green movement,” it has a separate environmental mission statement. “Starbucks is committed to a role of environmental leadership in all facets of our business” (Starbucks Mission Statement, 2010). Coffee wars, page 2 Journal of Case Research in Business and Economics Starbucks fulfills this mission by understanding environmental issues, using environmentally friendly products, and instilling environmental responsibility as a corporate value. McDonald’s Company History Dick and Mac McDonald opened the first McDonald’s Bar-B-Que restaurant in 1940, in San Bernadino, CA. After a few months’ closure, McDonald’s reopens in 1948 as a self-service drive-in restaurant specializing in 15 cent hamburgers. In 1949, McDonald’s replaced potato chips with their world famous French fries and introduced their Triple Thick milkshakes. McDonald’s future was forever changed when Ray Kroc, Multimixer salesman, dropped in for a sales call in 1954. When Kroc learned the McDonald brothers were looking for a franchising agent, he decided he was ready for a career change. Kroc opened his first McDonald’s in Des Plains, IL in 1955, using architect Stanley Meston’s trademark Golden Arches and attention grabbing red and white tile building. In 1956, Kroc hired Fred Turner, future McDonald’s Chairman (McDonald’s History, 2010). McDonald’s sold its 100 millionth hamburger in 1958, opened its one hundredth restaurant in 1959, and introduced its first restaurant with indoor seating in 1962. By 1963, McDonald’s had over 500 restaurants, and in 1965 celebrated its 10th anniversary with the first public stock offering at $22.50 per share. Mascot Ronald McDonald appeared in his first television commercial in 1966, riding his “flying hamburger”. McDonald’s went international in 1967, when it opened restaurants in Canada and Puerto Rico. McDonald’s introduced the famous Big Mac in 1968, the Quarter Pounder in 1973, the Egg McMuffin in 1975 and Happy Meals in 1979 (McDonald’s History, 2010). McDonald’s underwent a facelift in 1969 by doing away with the red and white buildings and revamping the Golden Arches logo. Long before social responsibility was an expected part of leadership, McDonalds made history by establishing the first Ronald McDonald house in 1973. Fred Hill, football player for the Philadelphia Eagles, had a need for such a facility while his child was being treated for leukemia, and McDonald met that need. McDonald’s opened its 5000th restaurant in 1978, in Kanagawa, Japan. In 1987, McDonald’s saw the need to offer healthier alternatives and introduced the Fresh Salad, and later the Snack Wraps in 2006 (McDonald’s History, 2010). McDonald’s has introduced some hugely popular advertisement slogans over the years, including “Have you had your break today?” in 1995 and “Did Somebody Say McDonald’s?” in 1997. Seeing the necessity for technological advancement, McDonald’s launched its corporate internet site, McDonalds.com, in 1996. McDonald’s underwent a Global Packaging Redesign in 2008 (McDonald’s History, 2010). In 2009, McDonald’s kicked the Coffee Wars into overdrive with the introduction of McCafe coffees, including lattes, cappuccinos and mochas. In 2010, to further promote the coffeehouse atmosphere, McDonald’s began offering free Wi-Fi in over 11,000 restaurants in the United States. Today, McDonalds is located in 118 countries around the world. Current McDonald’s leadership executives include Jim Skinner, Vice Chairman and CEO, and Don Thompson, President and COO (McDonald’s History, 2010). Coffee wars, page 3 Journal of Case Research in Business and Economics Mission Statement As stated on McDonald’s corporate website: “McDonald's brand mission is to ‘be our customers' favorite place and way to eat.’ Our worldwide operations have been aligned around a global strategy called the Plan to Win centering on the five basics of an exceptional customer experience – People, Products, Place, Price and Promotion. We are committed to improving our operations and enhancing our customers' experience” (McDonald’s Mission, 2010). McDonald’s strives to achieve its mission through commitment to its seven core values. First, they place the customer experience at the core of all they do. Second, it is committed to its people, training, developing and nurturing its workforce to be future leaders. Third, they believe in the McDonald’s System, their business model depicted by the three-legged stool. Fourth, they operate based on sound ethical principles. Fifth, they give back to the community by doing their part to make the world a better place. Sixth, as a publically traded company they strive to grow their business profitably for all shareholders.