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McDonald's Coffee is giving Starbucks a run for its money.

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Opinion: McDonald's is not giving Starbucks a run for its money. 

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Opinion: McDonald's is not giving Starbucks a run for its money. 

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Starbucks attracts more affluent consumers by providing an elite and exclusive environment. McDonald's is primarily known as a fast food chain, of which coffee is only one facet of their entire menu. Though they are both global companies, they each cater to a different market.

Starbucks provides a coffeehouse atmosphere, while McDonald's has more of a louder restaurant environment.

McDonald's is a convenience, Starbucks is an experience.

McDonald's is cheaper, however Starbucks provides higher quality coffee and more options to choose from.

Faster does not always mean better. Though both aim to serve their customers quickly, Starbucks makes its drinks on the spot unlike McDonald's who makes hamburgers that sit under a hot lamp until ordered by a customer.

Starbucks will always be superior to McDonald's in coffee sales, unless McDonald's opens McCafe stand-alone coffee shops. If that's the case, McDonald's will give Starbucks a run for its money.

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Comparing Starbucks and McDonald's may not seem to make sense at first, but the two chains actually have a lot in common-namely, they both promise quick and easy food and beverages on the go, and both companies have recently ramped up sustainability efforts. In the new book The HIP Investor, author R. Paul Herman attempts to compare the two mega-chains. Below, we do the same.

Let's just be clear-the inherent unhealthiness of most McDonald's meals give the chain a major disadvantage, even when compared to Starbucks' high-calorie Frappucinos. That being said, McDonald's has made some inroads in sustainability. A few examples: a "green" McDonald's that offers an EV chargepoint, LED light fixtures, drought
tolerant landscape plants, and an Energy Efficiency Education Dashboard; an environmental scorecard for suppliers; a successful sustainable fisheries program; and a next-generation fryer that allows restaurants to cook the same amount of product while using approximately 40% less oil than with traditional fryers.

But there's still plenty that would be would like to see. How about smaller portion sizes, for example? And yes, we realize that the "supersize" option is no longer available-but that's not enough. In an interview with R. Paul Herman, Bob Langert, the VP of Corporate Responsibility at McDonald's, explained, "We are offering
choice-new menu items and new portion sizes, giving information
to make these choices. This is a significant thing to do." McDonald's would also do well to use more grass-fed beef and increase its use of organic fruits and vegetables. And then there's the most disturbing question of them all: Why don't McDonald's burgers decompose?

Starbucks fares better on all counts. The coffee chain has a goal of using only responsibly grown and ethically traded coffee by 2015, and it hopes to have 100% reusable or recyclable cups by the same year. Starbucks takes the extra step of offers farmers
incentives to prevent deforestation, with pilot programs currently
underway in Sumatra, Indonesia,
and Chiapas, Mexico. The company is also well-known for its partner (AKA employee) health care-the chain does, in fact, spend more on health care than on coffee bean purchases in the U.S.

Is Starbucks perfect? Of course not. While McDonald's caters to a crowd specifically interested in fast food chains (if they don't go to McD's, they will probably head to Burger King or Wendy's), Starbucks has the unfortunate tendency to challenge local coffee shops for much-needed business. But the company is moving quickly toward sustainability, and so we have to declare it as the winner.

Check out the full HIP Investor chart below.

McDonald's

Starbucks

Overview

Over 31,000 restaurants in 118 countries;
$23.5 billion revenue, 400,000 employees

Over 16,000 locations
in over 50 countries, $9.8 billion revenue (FY09); 117,000 partners (employees) **

Product

Premium salads, fruit and yogurt parfait,
and apple dippers in Happy Meal choices; packaging gives customers essential
nutrition information in easy-to-understand icon and bar chart format

In U.S., spends
more on partner health care than coffee bean purchases; The largest purchaser of Fairtrade certified coffee in the world **

Management
Practices

19 of 25:
Carefully managing supply chain to control costs and implement sustainability,
and developing an environmental scorecard to measure supplier performance

21 of 25:
Sustainability built into business vision, all performance metrics and
product development decisions; From fiscal 2000 to 2009, farmer loan commitments totaled $14.5 million, goal is $20 million by 2015; Partners encouraged to volunteer, with a goal of 1 million hours of community service by 2015 **

In 2009customer satisfaction is 70%; 82% of crew would recommend
working at McDonalds to a friend

10%

Customer satisfaction is 76%; all staff more than 20 hours/week have health
care access

14%

Crew members earn an average of $7.60 per hour; 93% of eligible employees
participate in 401(k) plan, made easier by $20 per month auto-deductions

9%

Starbucks average hourly pay rates vary across the U.S. and the globe; baristas in the U.S. are eligible for a base rate increase after six months, and a performance based increase every six months thereafter.; The Stock Investment Plan allows eligible partners to buy Starbucks stock (up to 10% of base pay) at a 5% discount; Through the Bean Stock program, stock options granted annually to eligible partners in 16 countries from part-time hourly up to (but not including the director level based on the company's performance **

13%

About 82% of the consumer packaging used in its nine largest markets
made from renewable materials and 30% of the material comes from recycled
fiber. Despite testing of innovative materials, have not yet identified
more sustainable packaging materials that are commercially viable

9%

In fiscal year 2009, Starbucks served more than 26 million beverages in reusable cups, and approx. 70% (2,163) of its company-owned stores in North America that control their own waste collection recycled items made from one or more materials; Starbucks is working toward 100% reusable or recyclable cups by 2015 **

12%

37%
of all U.S. owner-operators are women and minorities; 26.7% of worldwide
leadership are women

15%

Among managers, approx. 31% are ethnic minorities and 66% are women (6/1/2008-5/31/2009) **

12%

Guidelines to determine the sustainability of fisheries developed in
partnership with Conservation International

14%

All suppliers that adhere to C.A.F.E. status undergo third-party verification; By 2015, Starbucks' goal is to purchase 100% responsibly grown and ethically traded coffee, which the company defines as coffee that has been third-party verified or certified, either through Coffee and Farmer Equity Practices, Fairtrade, or another externally audited system **

13%

Human Impact

of 100%

TOTAL

56%

TOTAL

64%

+30.1% return on equity (2008)

+20.4% annualized total return, including reinvested dividends (6/2004-6/2009

+23.4% annualized total return, including reinvested dividends (6/2006-6/2009)

+12.8%
return on equity (fiscal 2009)

-6.2%
annualized total return, including reinvested dividends (6/2004-6/2009)

-16.3%
annualized total return, including reinvested dividends (6/2006-6/2009)

Read more Sustainability Faceoffs. ** = Updated Data From Starbucks

Table excerpted from The HIP Investor: Make Bigger Profits by Building a Better World by R. Paul Herman Copyright (c) Published by John Wiley & Sons. Used with permission.

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Sustainability Faceoff: McDonald's vs. Starbucks

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Comparing Starbucks and McDonald's may not seem to make sense at first, but the two chains actually have a lot in common-namely, they both promise quick and easy food and beverages on the go, and both companies have recently ramped up sustainability efforts. In the new book The HIP Investor , author R.

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The latest Coffee Business Statistics Report shows that specialty coffee sales are growing 20% each year. Jumping on a trend that (( Starbucks NASDAQ:SBUX) pioneered and Dunkin' Brands NASDAQ:DNKN) horned in on first has not been a winning strategy for McDonald's , however.
Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters, McDonald's, and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
In fact, even after entering this lucrative new product category -- one that would seemingly allow McDonald's to add a Starbucks worth of sales to each store -- the fast food chain has struggled to grow. Though company-owned Starbucks locations average over $1 million a year, McDonald's overall sales increased only 2% in 2013. U.S. sales even fell 1.4% in the fourth quarter. Starbucks, which did not have the advantage of adding a facsimile of the McDonald's menu to its stores, actually grew same-store sales 7% worldwide.

Though McDonald's brought its McCafe concept to the U.S. in 2008, its rollout has not been smooth. Many franchisees balked at the cost (around $13,000 for the espresso machine) and many stores simply lacked the floorspace to have a dedicated coffee counter/cafe seating area. In many cases, this has left the McCafe concept as not a variant on a Starbucks, but a McDonald's that sells lattes under a sign that says McCafe.

Despite these failures, McDonald's plans on increasing its efforts to find customers for its coffee products. Bloomberg reported that in a Jan. 28 memo, the chain's U.S. operations chief, Jim Johannesen, and U.S. brand chief, Kevin Newell, stressed that franchisees should deliver "a gold-standard cup of coffee with every visit."

McDonald's will never be a coffee house
Even before Starbucks, the coffee house experience was always as much about environment as it was coffee to at least some of the customers. Starbucks, despite being a giant chain like McDonald's, has managed to maintain the public perception of being a somewhat elite experience.

Starbucks has carefully cultivated an environment that simply feels more high end than McDonald's. This is because no matter how many signs or seating areas a store adds, McDonald's still mostly exists to sell fast food.

The National Business Research Institute explained Starbucks' careful efforts to build an experience for the coffee drinker in a June 2012 report.

When Starbucks began their run to success in the early 1990s, many noted it wasn't simply about coffee, but that the company was focused on the following factors: Atmosphere, Quality Coffee, Customer Service, and Partner (employee) Satisfaction. Starbucks sought to be a place where people could lounge with a good drink and friends or maybe just a book. This atmosphere was created to establish a friendly and welcoming environment. Through their success they changed the mind-set of coffee customers worldwide: from a coffee shop being a place to buy a cup of coffee to a place to experience a good cup of coffee.

Goldman Sachs recently released a research report that includes a survey of 2,000 consumers' restaurant preferences. The results show that the under-34 demographic, which will soon be outspending baby boomers, is far more likely to buy anything from Starbucks than McDonald's - or any other food vendor. In a chart measuring brand equity among Millennials published by Quartz (based on the bank's data), Starbucks led the list while McDonald's placed 14th (below Dunkin' Donuts, which came in at no. 9.)

Though it seems unlikely that a chain with a clown mascot can attract the hipster market, there is still substantial growth possible for the McCafe business. Unlike Starbucks, McDonald's does not have to attract people with its coffee. Instead, the chain has to convince existing fast food customers that they want lattes along with their McMuffins. That may not be happening yet on the level that McDonald's wants, but it seems likely that a chain that could convince people to pay extra to supersize their already hefty meals should ultimately be able to convince a sizable percentage of its customers to add a McCafe beverage.

McDonald's does not need to displace Starbucks to succeed. It just needs to add to its slice of what is a huge market. According to the National Coffee Association's 2013 online survey (as reported by USA Today), about 83% of adults drink coffee in the United States. That percentage was up from 78% just a year earlier. This is significant because the U.S. is the world's biggest consumer of coffee, with consumption averaging three cups a day per person.

That's a lot of coffee to go around.

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McDonald's Coffee vs. Starbucks -- Can McCafe Make a Dent?

# data[].attributes.attachment_link.description
The latest Coffee Business Statistics Report shows that specialty coffee sales are growing 20% each year. Jumping on a trend that (( Starbucks NASDAQ:SBUX) pioneered and Dunkin' Brands NASDAQ:DNKN) horned in on first has not been a winning strategy for McDonald's , however. Daniel Kline has no position in any stocks mentioned.