The Economy Boosting McDonalds, Dunkin Donuts; Hurting Starbucks


Unlike many regular coffee drinkers, I actually quite like Starbucks. I plan to write further about this, but Starbucks is innovative, open to consumer feedback (hence the Pikes Place brew) and make consistently good coffee. I written many times though that I prefer Dunkin Donuts - in part due to the pricing. One outcome of the economic climate is that cheaper coffee producers (namely McDonalds) are finding success as consumers aren't willing to forgo their morning joe... but are willing to buy from cheaper locations.

Douglas Fisher, president of consultancy FHG International Inc, said, "The consumer is retrenching. They're out less and they're spending less. It's the low end of the market that is picking up now. A lot of it is consumers trading down."

I've heard - but been unable to verify - that Starbucks in fact saw sales rise, but revenues and profits fall as their consumers were shifting from more expensive, espresso-based drinks to drip coffees (which are about 50% of the cost). Whereas as latte can cost over $4.00, drip cofees are $1.50-$1.85 with available refills.

mcdonalds coffee

More from ReportonBusiness.com:

Meanwhile, business at McDonald's continues to grow as it cashes in on consumers' appetite for value. "Value, which has always been important, is mission critical today," McDonald's chief executive officer Jim Skinner said last month in reporting strong third-quarter results. Its U.S. same-store sales, a key measure in retailing, rose 4.7 per cent.

The picture is in stark contrast at Starbucks. It reported a same-store sales decline in the United States of 8 per cent, which was more than the company had anticipated. ... It doesn't help that McDonald's, which has declared itself to be "recession-resistant," is putting a push on selling coffee. In Canada, McDonald's premium drip coffee costs $1.13, $1.36 and $1.54 for its various servings compared with $1.58, $1.79, $2.05 and $2.24 at Starbucks.