Coffee is a tough market, as millions of people buy coffee every day it brings on competition for notable franchises. Both McDonald’s and Dunkin Donuts now sell premium espresso-based beverages for people to quench their thirst and enjoy on a daily basis. American customers don’t view McDonald’s and Dunkin Donuts along the same caliber of more notable coffee beverage chains, leading us to believe that these additions will not affect brands such as Starbucks. The Seattle-based coffee chain exists in a world of its own when it comes to selling coffee. Even though the coffee is pretty pricey, Starbucks still gets away with selling $10 cups of whiskey barrel aged coffee. Most customers opt to buy the more expensive beverages with all the bells and whistles, which has led to growth of the Starbucks chain overall.
McDonald’s and Dunkin Donuts doesn’t have the same pricing ability as Starbucks being that their customers view their brands at a lower brand caliber. Neither of those two popular food chains will ever be considered to be “upscale” no matter how many trendy items they add to their menus. The companies do compete when it comes to price, but it is unlikely that it will affect Starbucks in any way. Starbucks, McDonald’s and Dunkin Donuts compete for coffee customers with convenience stores rivals that offer a Starbucks-like selection. Chains such as Tim Horton offer good quality coffee for a reasonable price.
According to the CEO of Dunkin Donuts, Nigel Travis, Dunkin Donuts is facing challenges when it comes to pricing. With the labor costs rising in many markets, some franchises see raising prices as a way to pay for increased operating expenses. That strategy will only send customers to other competing chains rather than keeping them. At a recent conference, Travis explained that the Dunkin Donuts chain has been working to keep franchise owners from increasing prices. Travis stated “You’re going to see a lot more value oriented pricing from us in the future.”
McDonald’s also uses a franchise model, but it does not seem to have the same problem as Dunkin Donuts with franchisees raising prices. They have expressed, however, that they have recently encountered trouble with its McCafe sales. McDonald’s offer their customers a deal that allows them to buy any McCafe beverage for only $2. McDonald’s has also used cheap sampling as a way to get customers to try its coffee offerings. The only problem McDonald’s faces with them offering samples with their coffee is that while existing customers may buy a sample two dollar latte, they would most likely stick to the sample and not buy a full priced one. Although Dunkin Donuts and McDonald’s might keep pushing their prices for coffee beverages lower to fight rivals, the issue remains the same, they simply aren’t premium brands of coffee. The discounting of prices within the two franchises won’t have any impact on Starbucks. It seems Starbucks will remain our leading coffee provider for a while longer.
Photo by: Aranami