If there is an industry that feels the hard economic times, it is the one of the coffee chains. Already struggling for a market share in this post-era that saw the multiplication of centralized urban coffee shops, now that this tendency is over –people would still like to show off with a cup of coffee in their hands that cost 5$, but they just cannot afford it-, now they have to fight against Mc Donald’s (MCD)latest attempt to drink their market shares.
Until May 3, Canadians will enjoy a free coffee when they go eat in a Mc Donald’s restaurant, without buying anything else. The same move has two distinct goals aimed principally at two companies: To start with, the fast food emperor’s attack take place in a time where Tim Horton (THI) is experiencing tough times in the U.S, and 51M$ U.S. not collected from their accounts receivable, due to the crisis, which create a unprecedented whole in their cash available - somewhat important to counter an attack that comes from a giant like Mc Donald.
In addition of that, Mc Donald has come up with a cup of coffee that tastes much better than the one Starbuck (SBUX) serves to its customers... and because it is Mc Donald, we know it will be affordable even after the campaign. So a lot of the people who swear Starbuck has the best coffee in town, I’m sure, will have the same reaction has I had this morning and yell ‘’ O.M.G, I have paid 4 $ for crap coffee for the past years, now I have to write a great article about this great one! ‘’. Or at least you will feel comforted knowing you won’t have to pay anymore as much for something great.
At a time where Starbucks released a 50% diminution of its net income for 2008 compared with 2007 – which wasn’t particularly a good year too-, and the company declaring that the worse performances in 2008 where attributed to Canada and U.K., with a 10% drop in same-store sales, we may think Mc Donald is trying to give the final blow to the company in its northern business territory.
Mc Donald’s marketing campaign is even greater than that: By offering free coffee in the morning, managers know that if someone drink one cup of the same coffee for one month, then it will become the taste that that someone will want to find in their next ones. Also, because caffeine is an addictive product, there is no doubt people will be more than happy to make lines in the morning to get their free cup before heading for work.
Above all, what this story tells us is that times of justification for coffee chains may be over: Tim Horton won’t be able to argue it has low prices when justifying its crap coffees and Starbuck may find it harder to justify a 4$ cup of coffee when the golden arch serves a better and cheaper one.