"They" don't get it

Starbucks on the Circle
Originally uploaded by digital_don

(Flickr photo of the Dupont Circle Starbucks by digital_don.)

The business press is full of stories about McDonald's going head to head with Starbucks for coffee drinkers. Now, the only good McDonald's coffee I've ever had is from the store at the Breezewood exit for the Pennsylvania Turnpike, and in fact I think that welcome center now has a Starbucks, but I think that people miss the point.

The hip young people, the people who are looking for "crowdsharing" or working in a public space, the people willing to spend money on affordable luxuries, the people who we might say are lifestyle coffee drinkers, are not likely to be willing to spend $2 to $5 per cup to consume the product in a substandard, unhip environment.

Yep, McDonald's will sell more coffee to their current customer base, but they are not likely to attract the people spending about $1 million/store annually. And note that unlike hamburgers, coffee has a 70% to 80% gross profit margin.

Similarly, how many pretty young things go into McDonald's and buy salads vs. how many people go into the developing chain Chopt? It's the same point.

Repositioning a chain company, especially a middle market one, is very hard. Just like it's hard to reposition commercial districts.

McDonald's in NYC. Photo by Mark Lennihan/AP.