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• Little chance of full on war, as other competitors exist (Dunkin Donuts)
• Different coffee consumers go to different locations for their needs

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McDonald's executives came out swinging when they announced their assault on the comfy world of coffee shops.

After the success of its upgraded drip coffee - which even managed to snag a thumbs-up from testers at Consumer Reports earlier this year - the fast food chain known for super-size meals is gearing up for a massive expansion into the world of lattes.

"We want to move from beverages as an accompaniment to being a beverage destination," Don Thompson, president of McDonald's USA, said in a meeting with analysts Tuesday. "Our speed, our convenience, the value that we can afford to customers without quality comprise will make us a formidable player."

Restaurants will offer lattes, mochas, cappuccinos and espressos with a choice of different flavorings and milk. Industry watchers say the drinks cost about 50 cents less than at Starbucks.

But as it tries to cash in on the fast-growing specialty coffee market, the world's largest restaurant chain is already finding itself at odds with the unlikeliest of groups: Its own franchise owners.

"There's a real groundswell of resistance among the franchisees about this," said Richard Adams, a consultant for McDonald's franchise owners. He estimated the effort has a 50-50 chance of getting off the ground because of franchise opposition.

Store owners are balking at the plan's estimated $100,000 price tag to cover renovations and initial new equipment.

And many are concerned that little customer interest in McMochas means it will could take years to recoup their investment, even on the famously high-margin coffee drinks.

"They're going to have whipped cream on their face," Adams said.

McDonald's said it's confident the new coffee will win over new customers and help individual stores boost annual revenue by about $125,000 once the coffee products, along with new bottled drinks, smoothies and other beverages are added to stores.

Zachary Aisley, a 27-year-old from Woodland Hills, Calif., has been impressed with the value and taste of McDonald's attempts at premium drip coffees and iced coffees. Now he's looking forward to sampling the company's lattes and mochas to see if they merit more frequent visits.

"I think their addition could bring me into the store," he said. "And I would definitely be likely to go in and try it."

If McDonald's can convince its franchisees to sign on, analysts say it can likely thrive in the growing $12 billion specialty coffee market, which includes both brewed coffee and beans.

About one in five Americans drinks some kind of espresso-based coffee each day, and the market is supposed to grow by at least 4 percent each year until 2011

"With coffee gaining so much ground, McDonald's almost has to go there," said Sharon Zackfia, a restaurant and retail analyst with William Blair & Co. "The feeling that the coffee business is a single pie and everyone is fighting for different slices doesn't seem to acknowledge that the pie is growing."

In response, companies are scrambling to offer more steamy drinks and snacks.

Dunkin' Brands Inc. added espresso beverages to Dunkin' Donuts shops in 2003 and credits the full-line of coffee drinks with helping its aggressive growth plans.

And Canadian coffee chain Tim Hortons, which is expanding its own U.S. presence, said customer demand for one-stop food and coffee shopping is growing.

"I think we're all now competing in the same space," said spokeswoman Rachel Douglas. "I think the lines are blurring and I think consumers are demanding that."

A full-court press by McDonald's couldn't come at a worse time for Starbucks Corp., the world's largest chain of coffee houses, which is struggling with rising dairy prices, growing competition and flattening store traffic in the U.S.

In a conference call with analysts last week, executives with Seattle-based Starbucks said they welcomed the competition. Then they threw in a subtle jab.

"We understand all too well that we have built a very attractive business for others to look at and try and take away, whether it's 1 percent on the margin or big companies that are trying to take more," Starbucks Chairman Howard Schultz said. "We are up for the defense and we are going to get on the offense."

McDonald's first launched its so-called premium coffee about 18 months ago, followed by limited tests of sweet tea and iced coffee. Since then, its added the specialty coffee drinks to about 800 U.S. stores, and announced Tuesday that it intended to add the beverages to locations nationwide by early 2009.

A Starbucks spokesman declined to comment on the news, offering a company statement that it remains "focused on exceeding ... customers' expectations."

In a seemingly coffee-saturated society, there's little chance of a full-fledged coffee war between McDonald's, Starbucks and the myriad of other coffee purveyors like Dunkin' Donuts and Caribou Coffee.

"I think that they appeal to two different types of customers," said Morningstar analyst John Owens. "I think there's room for both McDonald's and Starbucks to be successful in selling coffee. This isn't something where one is going to be completely victorious over the other."

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Coffee clash: McDonald's takes on Starbucks

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McDonald's executives came out swinging when they announced their assault on the comfy world of coffee shops. After the success of its upgraded drip coffee - which even managed to snag a thumbs-up from testers at Consumer Reports earlier this year - the fast food chain known for super-size meals is gearing up for a massive expansion into the world of lattes.

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BuzzFeed
-Starbucks placed over others for taste
-Also proves that people can be neutral about coffee

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Calorie, Caffeine, and Cost Comparison of Starbucks and McCafe

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Calorie, Caffeine, and Cost Comparison of Starbucks and McCafe

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Final Analysis

Expense: All McCafe drinks are less expensive.

Calories: Most of the McCafe drinks contain less calories, except for the McCafe Frappes.

Caffeine Content: If you're looking for an extra kick, the Starbucks Frappuccinos and its Iced Mocha have more caffeine than McCafe. But the iced latte and the hot drinks from McCafe contain more caffeine than Starbucks.

Variety: Starbucks has a lot more variety of flavors.

Healthier Options: Both Starbucks and McCafe have ways to make your coffee drink healthier by using low-fat milk, holding the whip, adding sugar-free syrups, etc.

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Cari Jean resides in North Dakota where she works as a freelance writer and blogs at Faith's Mom's Blog.

At one time in my life, I had a serious Starbucks addiction. With five of them located in the area I live, it was convenient to stop at Starbucks no matter where I was driving. After a while, though, my Tall coffees grew to a Grande and then finally the largest size they offered-Venti. As my need for caffeine increased, the money in my purse decreased.

Then I made a wonderful discovery: McDonald's McCafe! Their drinks were cheaper and just as tasty. It was a win-win situation.

Nowadays, I'm trying to cut down my caffeine intake, but every once in a while, I head to McCafe for an iced mocha. In the fall, when the air is crisp and the leaves are turning gold, Starbucks calls out to me, "Come get your pumpkin spice latte."

I did become curious, though, whose coffee drinks are better, healthier, and cheaper-hence the writing of this article.

What Kinds of Coffee Drinks Are There?

Cappuccino: more espresso, less milk.

Latte: less espresso, more milk.

Mocha: a blend of chocolate and coffee

Frappuccino or Frappe: coffee, milk, and ice blended together

Iced Latte: espresso and milk poured over ice

Iced Mocha: espresso, chocolate sauce, and milk over ice

Calorie, Caffeine, and Cost Comparison of Starbucks and McCafe

Please note:

Drinks below are made with whole milk.

Latte and Cappuccino information is without added syrup flavor.

All prices are without tax.

Prices may vary according to location.

Which Drinks Have High-Fructose Corn Syrup?

If you're concerned about high-fructose corn syrup, which is getting a lot of press lately about being a cause of obesity and other health problems, here are the breakdowns:

McCafe: Mocha, Iced Mocha, and Frappes contain high-fructose corn syrup

Starbucks: Frappuccinos contain high-fructose corn syrup

5 Reasons High Fructose Corn Syrup Will Kill You By Dr. Mark Hyman

Final Analysis

Expense: All McCafe drinks are less expensive.

Calories: Most of the McCafe drinks contain less calories, except for the McCafe Frappes.

Caffeine Content: If you're looking for an extra kick, the Starbucks Frappuccinos and its Iced Mocha have more caffeine than McCafe. But the iced latte and the hot drinks from McCafe contain more caffeine than Starbucks.

Variety: Starbucks has a lot more variety of flavors.

Healthier Options: Both Starbucks and McCafe have ways to make your coffee drink healthier by using low-fat milk, holding the whip, adding sugar-free syrups, etc.

Taste: This, of course, is a personal preference. I prefer Starbucks when it comes to the hot drinks, but I like the McCafe iced drinks better.

Which to Choose: If I had to choose between the two, I would choose McCafe because they are less expensive and comparable in taste to Starbucks.

I hope this helps you make a more informed decision about your coffee drink purchases.

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Starbucks vs. McDonald's McCafe: Calories, Caffeine, Cost

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Cari Jean resides in North Dakota where she works as a freelance writer and blogs at Faith's Mom's Blog. At one time in my life, I had a serious Starbucks addiction. With five of them located in the area I live, it was convenient to stop at Starbucks no matter where I was driving.

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Starbucks has been fighting its competitors – Dunkin' Donuts and McDonald's – for the top position as coffee king for several years.

With fiscal year 2017 revenues of $22.82 billion, McDonald’s outperformed both Starbucks and Dunkin' Donuts that year, though this was in large part because of the restaurant franchise's expanded menu.

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Starbucks, the Industry Leader

Starbucks began over 50 years ago with a single location in Seattle, Washington. Since then, it has experienced phenomenal growth and is now the largest coffeehouse chain in the world.

From its humble beginnings as a Seattle-based coffee roaster, Starbucks has strived to create a "second home" for consumers, where they can stop on their way to and from work. In recent years, the company has invested heavily in its brick-and-mortar locations by expanding its food options, remodeling its restaurants, and revamping its rewards programs.

Like many other retail or restaurant companies, Starbucks was negatively impacted by business restrictions implemented for COVID-19. On March 4, 2020, Starbucks paused the use of personal cups and restricted company-wide business travel. Eleven days later, Starbucks temporarily moved to primarily drive-thru only for the United States. As a result, global store sales declined 14% and consolidated net revenues declined 11.3% from 2019 to 2020.

However, 2021 proved to be a much strong year. Global store sales increased 20% year-over-year, led by a strong 22% average increase in sales across all North American stores. Consolidated net revenues increased 24% to $29.1 billion for the year. At the end of 2021, Starbucks shares were trading for $116.97; at the time of writing, the company's stock price had dropped below $82.

Today, Starbucks continues to innovate through new sustainable practices and commitments. Starbucks has committed to providing easy access to reusable to-go cups for various orders by 2025, implementing electric vehicle charging stations across the United States, and reducing company-wide waste by 50% by 2030.

With big plans in the future for its product and future growth of its already existing 34,000 stores, here's how the company stacks up against its competitors.

Key Takeaways

Dunkin' Donuts

Dunkin' Brands-owned Dunkin' Donuts peacefully co-existed with Starbucks for decades. When the spokesman for the company's ad campaigns retired in the late 1990s, however, Dunkin began to transition away from coffee and in the direction of donuts. By the early 2000s, the company had introduced its first specialty coffee line and slowly began to make a name for itself as a destination coffee shop.

In 2006, Dunkin' upped the ante and declared war against Starbucks when it launched its "America Runs on Dunkin'" ad campaign. While Starbucks has created an intentionally chic and upscale environment, Dunkin' Donuts represents itself as an All-American brand.

In December 2020, Inspire Brands completed an $11.3 billion acquisition of Dunkin' Brands Group, Inc. This acquisition included the purchase of other brands including Baskin-Robbins. The move has the two restaurants joining an already diverse portfolio including Arbys, Buffalo Wild Wings, Jimmy John's, and SONIC Drive-In.

As Inspire Brands is a private company, it is not required to publicly disclose many financial metrics. However, it does report global sales of over $30 billion with over 650,000 employees worldwide. With the potential to capitalize on a diverse leadership team and economies of scale, Dunkin' Donuts continues to rival Starbucks in the coffee industry.

McDonald's

McDonald's has long been known as a fast-food restaurant, but the global franchise joined in on the emerging coffee craze by introducing flavored and iced coffees in the mid-2000s. After leaning on the "I'm Lovin' It" advertising campaign for more than 10 years, McDonald's recently pivoted to embrace the everyday American with emphasis placed on people of every educational and cultural background.

In 2021, McDonald's surpassed $23.2 billion of sales globally, though this does include revenue from its entire food product line. After being negatively impacted by COVID-19, McDonald's revenue increased 21% year over year. The McCafe line of products has grown to 23 different drinks. To further rival Starbucks pastry, McDonald's also boasts an independent product line of McCafe bakery products.

McDonald's remains committed to the long-term success of its coffee line. In the company's 2020 Annual Report, McDonald's stated it is "committed to the core by tapping into customer demand for...burgers, chicken, and coffee." However, the company also admits to "facing sustained, intense competition from... coffee shops."

Maxwell House and Folgers

Starbucks has also entered the coffee beans and ground coffee market by distributing its product line to retail and grocery stores around the world. In the process of expanding its retail segment, Starbucks has gained two new competitors: Maxwell House and Folgers.

Maxwell House is one of the more recognizable subsidiary brands of Kraft Heinz. Kraft used to be the exclusive manufacturer to license and distribute its McCafe coffee in retail outlets, but McDonald's opted into a new long-term agreement with Keurig in 2019.

Kraft Heinz has been reimagining Maxwell House products to compete with Starbucks in the environmentally sustainable product sector. In 2020, Maxwell House launched a 100% compostable coffee pod. The company also reduced material inputs of packaging in New Zealand to save 28 tons of material a year. However, Maxwell has not been able to capture success in the market in the past few years. Kraft Heinz recently noted a $140 million impairment to the Maxwell House brand.

Acquired by The J.M Smucker Company in 2008, Folgers also boasts a diverse product line that prides itself on convenience. It's diverse product line includes ground coffee canisters, K-Cup pods, instant coffee jars, and single-serve packets. Folgers also does not have physical storefronts.

Through the first three quarters of Smucker's fiscal year, U.S. Retail Coffee has generated $661.8 million, a 6% increase over last year with a segment profit margin of 32.2%.

Who Is Starbucks' Biggest International Competitor?

With physical locations around the world, Starbucks competes with McDonald's and Dunkin' Donuts in dozens of international storefronts.

How Does Starbucks Differentiate Itself From Competitors?

Starbucks differentiates itself by creating a "third home" value proposition. In addition to home and work, the company strives to have a welcoming, warm location for customers to consume their products. Alternatively, competitors like McDonald's and Dunkin' Donuts strive for lower prices for goods more likely to be consumed offsite.

How Much More Popular Is Starbucks Over Its Competition?

Starbucks is the largest coffee company in the world. With annual revenue of over $29 billion, it sells more product than McDonald's (with annual revenue of ($23.2 billion).

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Starbucks has experienced phenomenal growth and success. Learn more about Starbucks competitors and where the company stands in relation to them.

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McDonald's could be cutting into Starbucks' sales,
According to some analysis, McDonald's is contributing to the decline in Starbucks' profit as people are looking to cut costs.

The fast-food chain win over customers in the afternoon.
It may be nice to stop by Starbucks on the way to work, but it is easier to pick up an afternoon cup of coffee at the same time customers are buying lunch.

Starbucks doesn't provide any real incentive to buy coffee in the afternoon.
Starbucks killed afternoon promotions that were enticing people to make a stop.

Business insider

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McDonald's could be cutting into Starbucks' sales, according to a note from Bernstein analysts.

The fast-food chain seems to be winning over customers in the afternoon with "more food options and cheap coffee."

Starbucks has struggled to grow afternoon sales, killing its well-known Frappuccino Happy Hour deal that aimed to drive traffic after 3 p.m.

It's looking a lot like McDonald's is stealing Starbucks customers.

In a note to investors, Bernstein analysts said that McDonald's may be taking share away from Starbucks.

However, the fast-food chain isn't necessarily stealing the customers looking for a cheap cup of coffee in the morning. Instead, McDonald's is winning over afternoon customers.

"There is some evidence that MCD - with more food options and cheap coffee - is taking pm traffic from SBUX (and DNKN)," analyst Sara H. Senatore writes.

Negative afternoon traffic is Starbucks' biggest problem, Senatore says. Competition is more intense in the afternoon, and customers are less loyal and more cost-conscious.

McDonald's has recently been ramping up efforts to win over coffee drinkers who may otherwise visit Starbucks.

Over the last year, the chain has launched new espresso-based drinks at significantly cheaper prices than Starbucks' counterparts. Currently, the fast-food giant has a deal that allows customers to purchase any small McCafé drink for $2.

Starbucks has long set its sights on growing afternoon traffic. In years past, the Frappuccino Happy Hour has been a major sales driver after 3 p.m. in summer months. However, Starbucks canceled the deal this year, with executives saying it had not been profitable for the two prior years.

Instead, Starbucks brought back a new version of Happy Hour across the US in March. The new Happy Hour features a shifting range of deals, with customers being alerted via apps and email of the promotions of the day.

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McDonald's 'cheap coffee' could be stealing customers from Starbucks when it needs them most

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McDonald's may be taking share away from Starbucks, Bernstein analysts wrote in a note to investors. However, the fast-food chain isn't necessarily stealing the customers looking for a cheap cup of coffee in the morning. Instead, McDonald's is taking afternoon customers.

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McDonald’s Epic McCafe Upgrade Will Have You Reconsidering Your Starbucks Order

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McDonald’s Epic McCafe Upgrade Will Have You Reconsidering Your Starbucks Order

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"The new McCafe campaign will include special deals — such as $1 drip coffee and $2 small specialty beverages. Compare that to Starbucks, which sells its grande brewed coffee for $2.10 and tall specialty drinks for $4.25. Giving Starbucks a run for its money.

At Starbucks, customers expect consistent, innovative, high-quality coffee or blended drinks. While McDonald's caters to a different customer who might not necessarily be interested in coffee. It's just a convenient option on the menu to accompany breakfast, or as a quick, cheap caffeine fix."

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McDonald's has been revamping its brand over the past few years. It launched table service, ordering kiosks, and all-day breakfast. Now, the fast food chain is pouring its resources into McCafe.

Out of all the initiatives McDonald's has taken to move forward in the competitive world of fast food, all-day breakfast is a major win. Capitalizing off of that - McDonald's will be updating its eight year old brand, McCafe, to be an affordable, quality coffee experience. McCafe racks in $4 billion in US sales each year, reports Bloomberg. McDonald's will use that to build the brand into something that customers want, rather than be a cheap option. The new McCafe concept will upgrade the chain's coffee experience.

"We're really excited about the McCafe brand and what it can do to complement our food offerings," Kristy Cunningham, US senior vice president of strategy and insights, said in the report.

The new McCafe campaign will include special deals - such as $1 drip coffee and $2 small specialty beverages. Compare that to Starbucks, which sells its grande brewed coffee for $2.10 and tall specialty drinks for $4.25. Giving Starbucks a run for its money.

Customers at Starbucks expect a different experience than when they go to McDonalds. At Starbucks, customers expect consistent, innovative, high-quality coffee or blended drinks. While McDonald's caters to a different customer who might not necessarily be interested in coffee. It's just a convenient option on the menu to accompany breakfast, or as a quick, cheap caffeine fix.

McCafe seeks to improve its coffee quality to be a stronger competitor to Starbucks. While Starbucks already uses sustainable sources and quality ingredients such as Starbucks Reserve, McDonald's announced in October that it will purchase its coffee from sustainable sources by 2020. While that's still far in the future, McCafe did open its first stand alone location in Toronto as a way to promote the brand.

The new McCafe experience will launch in 2017. McDonald's invested in new espresso machines and milk steaming technology that will upgrade its coffee. McCafe will also be revamping its seasonal menu and offer a rewards program to loyal customers. Watch out Starbucks, looks like McDonald's is taking a few notes from your success.

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McDonald's Epic McCafe Upgrade Will Have You Reconsidering Your Starbucks Order

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McDonald's has been revamping its brand over the past few years. It launched table service, ordering kiosks, and all-day breakfast. Now, the fast food chain is pouring its resources into McCafe. Out of all the initiatives McDonald's has taken to move forward in the competitive world of fast food, all-day breakfast is a major win.

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McDonald's New Coffee Is Better Than Starbucks, According To Everyone Who's Tried It

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McDonald's New Coffee Is Better Than Starbucks, According To Everyone Who's Tried It

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Delish - McDonald's frozen drinks become a fan favorite.

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When you think of McDonald's, you immediately picture yourself biting into a juicy cheeseburger, McMuffin, McNuggets or even a happy meal. Over the last year, however, McDonald's has made its way to center stage of your coffee imagination for it's affordable (and tasty) java. Now, the fast food chain has rolled out t wo new cold brew beverages and some fans are saying they love it so much, they're picking it over Starbucks.

The two new drinks, Cold Brew Frozen Coffee and Cold Brew Frappe which both clock in at about 300 calories, have fans flooding Twitter with their raving opinions.

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One thing that may raise an eyebrow is the amount of "extra" ingredients McDonald's new drink has compared to a normal cup of joe, Food Beast reported. They are as follows:

Ice, Cream, Skim Milk, Sugar, Cold Brew Coffee Extract (Water + Cold Brew Coffee), Water, Caramel Color, Dipotassium Phosphate, Guar Gum, Mono and Diglycerides, Tripotassium Citrate, Disodium Phosphate, and Carrageenan.

But, despite the laundry list of ingredients, frappe guzzlers are still flocking to try a cup from the fast food joint. Not to mention, McDonald's cold brew beverages also beat out Starbucks classic cold brew drink price by a decent amount-and the difference would definitely be noticeable when your credit card bill arrives each month.

McDonald's new editions are going for $2 as part of the $1 $2 $3 Dollar Menu, while Starbucks grande cold brew sells for $3.75, and their Iced Coffee Frappuccino sells for $3.95. Now that's some good competition. But, keep in mind, both of McDonald's latest cold-brew drinks are only available for a limited time.

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McDonald's New Coffee Is Better Than Starbucks, According To Everyone Who's Tried It

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When you think of McDonald's, you immediately picture yourself biting into a juicy cheeseburger, McMuffin, McNuggets or even a happy meal. Over the last year, however, McDonald's has made its way to center stage of your coffee imagination for it's affordable (and tasty) java.

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McDonald's has been in the game longer and is better equipped to weather economic challenges.

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Starbucks has more to lose from outbreak than McDonalds: Piper Sandler analyst

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McDonald's McCafé coffee not only comes in so many forms, but it also is absolutely up there as one of the best quick-service caffeine stops around—not to mention it's some of the best-priced coffee out there, too.

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When it comes to coffee, you have a lot of options (duh). And while you may be the kind of gal who turns to Starbucks (or Dunkin') (or Tim Horton's) (or wherever) without fail, McDonald's is often overlooked as one of your go-to options. McDonald's McCafé coffee not only comes in so many forms, but it also is absolutely up there as one of the best quick-service caffeine stops around-I'd be remiss if I also didn't mention that it's some of the best-priced coffee out there, too. So, sure, yes, keep at it with your PSLs and Frapps and Coolattas and such, but don't forget about McD's coffee when it comes to your mornings.

Oh! And by the way, here they all are! Ranked from worst to best. From someone who drinks a lot of coffee. Like, a lot. Enjoy!

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A Definitive Ranking Of Every McCafé Coffee Option At McDonald's

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When it comes to coffee, you have a lot of options (duh). And while you may be the kind of gal who turns to Starbucks (or Dunkin') (or Tim Horton's) (or wherever) without fail, McDonald's is often overlooked as one of your go-to options.

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Social Media users rave on Twitter that McDonald's Cold Brew Frozen Coffee and the Cold Brew Frappe are better than "anything Starbucks has ever come up with."

"The cold brew frappe is literally everything I’ve ever wanted in a coffee... straight up tastes like tiramisu."

Aside from the cold beverage being half the price, it has around 290 calories, which many loyal McD's customers are satisfied with.

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Ice, Cream, Skim Milk, Sugar, Cold Brew Coffee Extract (Water + Cold Brew Coffee), Water, Caramel Color, Dipotassium Phosphate, Guar Gum, Mono and Diglycerides, Tripotassium Citrate, Disodium Phosphate, and Carrageenan.

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People Are Saying McDonald's New 'Cold Brew' Tastes Better Than Starbucks, Here Are Our Thoughts

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Ice, Cream, Skim Milk, Sugar, Cold Brew Coffee Extract (Water + Cold Brew Coffee), Water, Caramel Color, Dipotassium Phosphate, Guar Gum, Mono and Diglycerides, Tripotassium Citrate, Disodium Phosphate, and Carrageenan.

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Starbucks continues to dedicate its time, energy, and effort toward selling food in its stores, which is hurting its coffee business.

"Ignoring its coffee in favor of baked goods, there may be more painful lessons yet to learn."

Ultimately, it is causing for its coffee to lose its central role, leaving behind its core customer.  McDonald’s is taking advantage of this opportunity by attracting Starbuck’s price sensitive customers with their reasonable priced cappuccinos, macchiatos, and other popular McCafe beverages.

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(( Starbucks NASDAQ:SBUX) has blamed a lot of things for the slowdown in its U.S. business: Limited-time offers didn't resonate with customers; they weren't buying merchandise and gift cards; more people were shopping online; changes to its loyalty program were unpopular. One thing that didn't take the blame was McDonald's NYSE:MCD) -- though maybe it should have.

A morning jolt

While Starbucks reported below-average growth globally, in its biggest market, the U.S., it saw a 6.9% increase in net sales on a less-than-expected 2% increase in comparable-store sales. Since higher ticket prices accounted for the entire gain, that means the coffee shop wasn't getting any more customers into its stores, even with the continued expansion of food into its restaurants.

In contrast, McDonald's is attracting customers. In fact, for the first time in four years, the burger chain recorded its first full-year increase in guest counts. CEO Steve Easterbrook had estimated McDonald's had lost 500 million customers over the previous four years, and it was the restaurant's mission to regain them. By finally concentrating on the value end of its menu, he has seen customers respond, and now store traffic was 1% higher in the U.S. in 2017, and nearly 2% higher worldwide.

McDonald's said it was because it was concentrating once more on what its core customer was looking for that it's growing once again.

"In the U.S., fourth-quarter comparable sales increased 4.5% as a result of strong performance of core menu items featured under the McPick 2 platform and beverage value," the company stated.

Starbucks, on the other hand, continues to have delusions of grandeur and is suffering as a result.

Food for thought

Starbucks recently began introducing high-end bakeries into its pricey Roastery restaurants under the Princi name. The one it opened in Shanghai is reportedly raking in more in one day than what a typical Starbucks makes in a week, and it plans on greatly expanding the concept as it goes forward as a result, but there's still good reason to believe the more the coffeehouse pushes food and the less its coffee plays a central role, the more the difficulties exhibited in its results this quarter will continue, despite the 2% gain in food comps versus a 1% gain in beverages.

It seems to be a risky strategy to be counting on high-end bakeries, tchotchkes you sell in the lobby, and hopefully hitting upon the next unicorn frappuccino to make your quarterly sales goals.

In fact, McDonald's may be beating Starbucks at its own game. It recently began offering cappuccinos, mocha, and macchiatos at its restaurants for only $2 under its popular McCafe line of beverages. That may mean Starbucks is losing customers who are looking for a value version of their favorite drinks.

Contents may be hot

Starbucks is never going to be McDonald's and vice versa, nor should they seek to swap places. The latter tried once by pursuing millennial consumers and saw its sales crater. Only when it reversed course and took its core menu and customer to heart did it succeed in turning around.

If Starbucks tried to become a fast-food outlet, it would probably experience similar results. Yet by going after this high-end ideal, it's leaving behind its core customer who comes in looking for a good cup of coffee and a bit of food. Increasingly, that's being found more at McDonald's, which is siphoning off Starbucks' more price sensitive customers with aggressive marketing of its coffee. When Starbucks boasts about expanding its Reserve bars where coffee sells for $10 a cup, McDonald's is going to win.

Certainly, food can and should be a component of Starbucks' menu, and if it can find the right mix it ought to be able to establish a growth trajectory once more. But its track record in this regard has been not been good, and by ignoring its coffee in favor of baked goods, there may be more painful lessons yet to learn.

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Is McDonald's Really the Cause of Starbucks' Poor Showing? | The Motley Fool

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(( Starbucks NASDAQ:SBUX) has blamed a lot of things for the slowdown in its U.S. business: Limited-time offers didn't resonate with customers; they weren't buying merchandise and gift cards; more people were shopping online; changes to its loyalty program were unpopular. One thing that didn't take the blame was McDonald's NYSE:MCD) -- though maybe it should have.

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McDonald's is hurting more than just Starbucks with their coffee

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McDonald's is hurting more than just Starbucks with their coffee

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Restaurants that focus on morning coffee are being hurt by McDonald's
Because McDonald's does breakfast and lunch, by introducing specialty coffee drinks with their already full menu, it is an easier shift than for coffee companies to start offering food and entice people to come for later eating.

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Both Starbucks and Dunkin' Donuts recently reported earnings from the last three months of 2017 with a similar problem: They were losing customers in the afternoon, and were strong in the mornings.

RB's Peter Romeo detailed efforts by those and other chains to improve their business in the afternoon.

But my question is this: Why are they losing business in the afternoons and evenings, after they both spent so much time and effort improving noncoffee drinks and food offerings in a bid to make their shops all-day affairs?

Same-store traffic is a problem at both chains. Starbucks has struggled with it for more than a year. Dunkin' has struggled with it for longer.

Both do fine in the mornings, catering to their loyal customers while giving them rewards for their repeat business through loyalty programs. They haven't generated the same growth in the afternoons.

There are two possible explanations for this: McDonald's and overdevelopment.

McDonald's is an underrated but massive player in the coffee market.

If we assume that the soon-to-be-Chicago-based giant gets a third of its business from breakfast or breakfast items plus coffee drinks (which might, in fact, be an underestimate), then that alone is an $11.6 billion business.

That would make it the country's third largest restaurant chain, just after the rest of McDonald's business and Starbucks. It would be quite a bit larger than Dunkin'.

Essentially, McDonald's is a top-three coffee player in a burger chain suit.

McDonald's has been aggressively going after the beverage business in the past couple of years, but in 2017 in particular, with $1 drinks, $2 McCafe beverages, smoothies and slushie drinks in some markets over the summer. While these drinks might not be able to take away the coffee chains' powerful and loyal morning business, they could sap less loyal afternoon customers.

In addition, McDonald's added all-day breakfast in 2015 and expanded it in 2016.

Dunkin's traffic has fallen for 10 straight quarters, according to BTIG analyst Peter Saleh, a slide that coincides, perhaps coincidentally, perhaps not, with that all-day breakfast.

I think there's another problem in the form of development.

Both Starbucks and Dunkin' have aggressively added locations in recent years. In the past two years, Starbucks expanded its unit count by 13% and now has more than 14,000-quietly taking it past McDonald's to be the second largest chain in the country based on units.

Dunkin', meanwhile, has grown by 9% over that time, giving it just over 9,000 locations.

Both chains clearly have enough demand in the morning dayparts to handle the additional supply of locations.

But there's clearly not enough demand in the afternoon for all of these additional coffee shops, at least not with a strong McDonald's out there offering $1 coffee drinks and all-day breakfast.

There are other factors, to be sure. Dunkin' has problems in its key markets competing with convenience stores like Wawa that have aggressively targeted beverages and other drinks. Starbucks has problems in retail areas.

Both Dunkin' and Starbucks have suggested that traffic patterns and consumer changes are more to blame for their afternoon problems. "It's a competitive environment out there," David Hoffmann, president of Dunkin' Donuts in the U.S., said on the company's earnings call this week. "But traffic patterns and consumer behaviors are changing in the afternoon."

Starbucks CEO Kevin Johnson, meanwhile, dismissed suggestions that competitors could be taking away business.

He said that data shows Starbucks increasing customer occasions when it builds a new store in an area. And there's "little to no impact on Starbucks' traffic" in an area when a competitor builds a store nearby.

"It's evidence that we're not losing share to competition," Johnson said. "And it's evidence that we're not cannibalizing as we build new stores."

Still, it's difficult to ignore the chains' unit growth, and McDonald's, as Starbucks and Dunkin' lose business in the afternoons.

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Is McDonald's hurting Starbucks and Dunkin'?

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Both Starbucks and Dunkin' Donuts recently reported earnings from the last three months of 2017 with a similar problem: They were losing customers in the afternoon, and were strong in the mornings. RB's Peter Romeo detailed efforts by those and other chains to improve their business in the afternoon.