Macdonald's and Starbucks are using the same formula.

by chee Leng (on coffee makers)
(Singapore)

Do you know McCafe? Well, it started in Australia in 1993 and since been expanded worldwide by MacDonalds. What is interesting is places in Asia got to enjoy McCafe first before some western country.

Take for example, Canada, McCafe only opens its first outlet couple of days ago. And Germany has yet to have any McCafe.

Of course, there are marketing implications for them in this expansion strategy, the decision to open out in Asia first is due to the newness of the market.

The logic is it is easier to get a new customer that has yet to swear loyalty to any coffee brnads then to fight for a current loyalist to a coffee brand.

Anyway, that is another article, which I would revisit in due time. What I am interested in is the expansion of Mcdonald, I find it very similar to Starbucks!

McDonald is no longer expanding into burgers (its core prducts), it is trying to sell more coffee. Starbucks no longer wants to sell its coffee in store, it wants its customer to buy them back with Via and now K-cups.

In fact, its marketing drive is more focused on retail then its outlet.

And it all can be summed up with this formula: Customers X no. of purchase X amt. of purchase.

Both Starbucks and MacDonald acknowledge that even with expansions of outlets in China, there would be a day where they are everywhere and no longer efficient to be having more outlets (as it was the case a couple of years back for Starbucks US).

So, that limits the number of customers that they are able to acquire. Then, the amount that a customer can purchase in store based on their current range is also limited.

You can only up sized once for your value meal, and have a cup of coffee in store. So, they need more products to get customers to buy more.

Sure, you can only have a burger meal, but how about having a coffee after the meal in Macdonald? Well, how about buying some Via coffee to make at home after drinking one in Starbucks?

My $0.02.

Thus far, it is working well. Macdonald reported good profit from its coffee business and Starbucks Via is doing very well and its K-cups is believe to have good results as well.

They have to keep changing to engage the customer, it is dangerous for a company to have no innovative new products.

This meant the company has peaked and when that happens, down slope is the only other direction.

Before Mac Donald came out with MacCafe, it's last smash hit product was MacNuggets in the 80's. Investors was worried that it might stopped growing. Of course, now they can lay their worries aside.

Similarly, after aggressive expansion in the 90's, Starbucks hits a plateau and start closing outlets. All this changed last two years with Via and now K-cups.

My opinion is this is the way to go and for the next few years, these products should sustain their growth. The tough part is "what next?"...