As someone who now drinks coffee black (i.e., coffee without cream, milk and sugar) almost exclusively, coffee has always been much more of a functional drink for me than something I enjoy because it tastes great. Sustaining energy level throughout a busy day? Coffee! Meeting a project deadline at work? Coffee! Studying for a midterm? Of course, coffee. Depending on your genetics, there are plenty of research showing that coffee may offer more health benefits than harm. In fact, I started drinking coffee 15 years ago cramming for an exam. It’s a cup of Tim Horton’s “double double” (i.e., coffee with two creams, two sugar) to sustain my energy both for a morning studying session and a 3-hour exam in microeconomics. That said, the functional benefits of coffee have nothing to do with how I became a loyal Starbucks customer.
How I fell for the Starbucks brand
To me, Starbucks is the popular expression of class — a kind of affordable luxury status that any average consumers can reasonably attain (in moderation). Of course, the brand has gone from niche to mainstream (to saturation/ubiquity), from snob to “basic”. It is so bland in some consumer’s eyes to a point where Starbucks felt compelled to re-imagine/prototype an even higher-end coffee bar to protect the brand’s premium association (and block higher-end competitors attacking from the flank). Truth to be told, it was my girlfriend who first introduced the habit of drinking Starbucks coffee in my life. However, I have stayed with the brand almost exclusively since. The allure of the classy Starbucks brand, the concept of better coffee, and the relatively upscale atmosphere of the “third place” (e.g., the free WiFi, the Macbook Air’s) got me hooked, while the company’s loyalty program and innovative/thoughtful mobile initiatives won my brand allegiance. I hardly recall a time when I did not choose Starbucks first since I graduated from university when I needed coffee.
McDonald’s counterattacked with McCafe/McCafé
I was part of a trend that McDonald’s needed to respond to. Roughly a decade after 2000, the percentage of consumers drinking better coffee has more than doubled and gourmet coffee accounted for 40% of all coffee consumed. Truth to be told, this coffee trend is still going as strong as ever. For a corporation as astute as McDonald’s, it had to be aware of how major the gourmet coffee and espresso trend was in the United States and Canada at the turn of the millennia. Rather than simply changing menu items and ingredients at McDonald’s right away, the company did something different. Its first experiment was launching gourmet coffee and associated premium food and beverage items with as a coffee bar in 2001 using the McCafe brand in Chicago. Eventually, gourmet coffee and specialty drinks found their way into participating McDonald’s restaurants using the variant McCafé over the years, just as Starbucks was gearing up to compete directly with it and other fast food restaurants as the coffee giant sought new engines of growth. In Canada, the first McCafé menu items was introduced in 2011.
Rather than attempting to fully exploit this trend as McDonald’s tried when it became a major investor of Chipotle, McDonald’s seemed to be content with using McCafe and its variants to draw associations of better coffee in consumer’s mind. Arguably, with all of the competition on the horizon and ever evolving consumer trends, it is hardly a guarantee that McDonald’s could replicate and better the experience that Starbucks offers at full scale even if McCafe were to be a strategic focus, especially when McDonald’s was beginning to lose its way after it peaked in the mid-to-late 2000’s. Nonetheless, McDonald’s seemed to have found a different formula to win in coffee over Starbucks, at least for a round.
How I chose McDonald’s over Starbucks
My “affair” with McCafé coffee would never have started if it wasn’t for my mother’s recurring foot problem, and she needed me to take her to a clinic a few times last month. Upon dropping my mother off for her first visit to the clinic, I was desperately seeking a Starbucks, as I needed some coffee and a spot with better ambient the clinic’s patient waiting area. Upon realizing that the nearest one was a 10-to-15-minute drive from the clinic, I decided to simply swing by the nearest “coffee joint” in the area — McDonald’s. It was hardly a bad choice since I had heard about a coffee sales promotion that McDonald’s was running. Unexpectedly, I had found the experience at McDonald’s rivaling the delights of Starbucks in the morning. The coffee was better than I anticipated (and yes, definitely better than Tim Horton’s), the seating area was inviting and comfortable, and of course, the WiFi was free, which meant I had more opportunities to be productive. Not being a regular customer at McDonald’s meant that I never had its mobile app on my phone, but being able to complete my purchase through the restaurant’s self-serve kiosk as part of McDonald’s “Experience of the Future” initiative using Apple Pay was a pleasure (it was easier and more accurate than the barcode technology that Starbucks rely on for payment and loyalty purposes). Mostly importantly, knowing that I needed to come back to the area a few times, I decided to start utilizing its McCafé Rewards loyalty program. It was not as seamless as the My Starbucks Rewards loyalty program, but it was fun to peel some stickers and see a physical manifestation of my progress over weeks. It definitely motivated me to look for reasons to visit McDonald’s.
Explaining my switch and loyalty using a switch model and switching cost typologies (Caution: wonky and nerdy, but educational!)
TL;DR: My first switch to McDonald’s from Starbucks for coffee happened serendipitously, but my repeated purchase of McCafé products sustained over a period of time once McDonald’s showed me that it too could offer a very compelling coffee experience… so perhaps Starbucks did not do anything wrong, but my decade-old loyalty to Starbucks was irrational as it was mostly based on emotions? (Check out the graphic I made showing factors involved in the switch.)
A traditional business school analysis (e.g., Porter 5-Forces) would suggest that consumer switching costs are low in the fast food industry. I think that is precisely why reflecting on my switch to McDonald’s was an interesting exercise as I realized that I have been a Starbucks loyalist for over a decade. Moreover, any insights can potentially be beneficial considering McDonald’s well-documented struggle to turnaround its business (more on this later). Location prompted me to choose McDonald’s initially; sales promotion brought economic value and trialability. However, I ended up choosing McDonald’s over Starbucks for much of the past few weeks. In addition, I bought numerous food items along with my coffee while I was at McDonald’s, which is something that I rarely do at Starbucks till this day despite the Seattle company’s extra effort to highlight its food offerings. Perhaps it is worthwhile to frame this as a rare win for McDonald’s, and I think two frameworks explained my switch quite neatly and possibly pointed to what McDonald’s should do to get back more of its groove.
One consumer switch theory that some marketers adopted from demographers is the push-pull-mooring model that was developed to explain human migration. This framework neatly classifies all kinds of factors that could lead to a consumer switching into three categories. Briefly, push means negative factors that drive consumers away, pull means positive factors (from competitors) that attracts consumers, while mooring means consumer’s moderating factors (e.g., cost) that encourage or discourage switching intention.
Switching costs do not have to be economic in its nature. In a paper published in 2003, Burnham, Frels, and Mahajan found three types of switching costs: procedural (e.g., time and effort), financial, and relational. This model is very useful to highlight because it shows that while the fast food and beverage market can be characterized as one where the switching costs are low, it does not necessary have to be the case. Personally, I realized that most of the switching costs that Starbucks and I built together over time are relational (and somewhat irrational) in nature, though it is something that can be quite sturdy over time and not be easily quantified. My loyalty to Starbucks would not have been challenged by McDonald’s successfully if it wasn’t for locational serendipity and a large sale. Nevertheless, McDonald’s put all the pull factors in the right place, even in the absence of push factors from Starbucks in my case. I realized that my perceived value of Starbucks might not have been the most accurate. After all, McDonald’s was also able to break the remaining mooring factors with a more economic loyalty program and my repeated visits showed me that McDonald’s could be my “forth place”.
Choosing Starbucks over McDonald’s again
My recent experience meant that McDonald’s will get a slightly bigger share of my dining out budget in the future, but I really do not see myself choosing it over Starbucks as much once I collect my free drinks from McCafé Rewards. (See my confession picture on the left!) Arguably, it is still a win for McDonald’s has gone from not being a part of my fast food restaurant choice set at all to being a viable alternative if I wanted to get coffee and some food at the same time. McDonald’s effort to turn around its flagging sales and customer counts that started roughly a couple of years ago has begun to pay off. In particular, its restaurant remodeling and “Experience of the Future” program should help McDonald’s to stay competitive with its more upscale and tech-savvy rivals and to remain a convenient choice for fast food consumers.
Beyond the Coffee War
Has McDonald’s completely righted the ship? Perhaps not quite yet. A recent report from RBC Capital Markets suggested that McDonald’s value menu might be under-performing, and the fast food chain needed to do better to connect with value conscious customers. Though I think it is only a matter of time before reality catches up with perception of value conscious customers. (i.e., McDonald’s food is relatively cheap, but do I even want to walk into a McDonald’s restaurant and dine there as a customer?) By many accounts, McDonald’s Buttermilk Crispy Tenders menu item was a hit in the US. Furthermore, the chain’s US restaurants will now use fresh beef for its Quarter Pounder and Signature Crafted Recipe burgers. These two changes combined with the aforementioned ones will make a difference over time. However, if McDonald’s were to build a sustainable competitive advantage over the long term, it should tackle the following question: how do I make my customers say “I’m lovin’ it” and build a meaningful relationship (i.e., real and digital) with them over the next decade? Winning the loyalty war in a market where loyalty presumably does not exist will make a true difference.
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