Topics: Starbucks, Coffee, McDonald's Pages: 16 (5159 words) Published: March 26, 2014
Journal of Case Research in Business and Economics

Coffee Wars - The Big Three: Starbucks,
McDonald’s and Dunkin’ Donuts
Michael G. Brizek
South Carolina State University
Coffee – for some, a morning cannot begin without it. Many daily rituals include it. It can be seductive, enticing, and addictive. Hard-core coffee drinkers pride themselves on their coffee palettes, their refined ability to distinguish “good” coffee from “bad.” And once a diehard coffee drinker finds his favorite blend, mountains sometimes must be moved to entice him to deviate from it.

But, for decades, the idea of “good” coffee was synonymous with “expensive.” If a consumer wanted to try the best blends or flavors, he had to be prepared to pay for it. Wallets were emptied, change was gathered, and the coffee-hooked consumer was walking into the coffeehouse ready and quite willing to hand over $4 to a smiling barista. Perhaps it was true that the coffee was the best to be offered. Perhaps the ambience and cozy atmosphere was a drawing factor. Perhaps it was the label that was associated with it, the feeling that he now belonged to an upscale club or group that not everyone else was entitled to join. Whatever the draw, the consumer continued to come back; day after day, week after week. Then something happened. The economy began spiraling downward, prices rose, and suddenly, a $4 cup of coffee was not quite as attractive as it once had been. Enter: The Coffee Wars. Premium coffee shops like Starbucks were suddenly faced with competition from fast food upstarts like McDonald’s and Dunkin’ Donuts, operations that were abruptly breaking into the premium coffee industry with “cheaper, but almost as good, coffees.” Life as the coffeedrinker once knew it had changed forever. For the better? That question remains unanswered as the war continues. But one fact is for certain; the battlefield will never be the same again. Keywords: economic recession, competition, marketing strategy, market entry

Coffee wars, Page 1

Journal of Case Research in Business and Economics
As we attempt to understand how the Coffee Wars began, it is essential to review the history of Starbucks and its major competitors. Although the number of companies attempting to enter the specialty coffee market is growing, the primary competition right now is coming from McDonald’s and Dunkin’ Donuts. This case study will review the factors that make Starbucks vulnerable to these competitors, the current state of the Coffee Wars, and develop research questions Starbucks must address if it wants to win more battles than its rivals. Starbucks

Company History
The first Starbucks store opened in 1971, in Seattle’s Pike Place Market. The name was inspired by Herman Melville’s Moby Dick. Starbucks’ chairman, president and CEO Howard Schultz, joined the company in 1982 as director of retail operations and marketing. Schultz returned from a trip to Italy in 1983, with the dream of bringing the Italian coffeehouse tradition of conversation and community back to the United States. When Starbucks did not immediately embrace this concept, Schultz left to start his own Il Giornale coffeehouses. He later returned with the help of local investors in 1987 and purchased Starbucks. It was also in 1987 when the Starbucks opened the first stores outside of Seattle, with locations in Chicago and Vancouver, B.C. (Starbucks Heritage, 2010).

In 1991, Starbucks became the first privately owned company in the U.S. to offer stock options for its full and part time employees. It completed its initial public offering, with common stock traded on the NASDAQ, in 1992. The hugely popular Frappuccino® blended beverages were launched in 1995 and Starbucks joined with Pepsi-Cola to launch ready-to-drink bottled Frappuccino® drinks in 1996. It was also in 1996 that Starbucks opened its first store outside of North America in Japan. The company acquired Tazo Tea Company in...

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