1.1 StarbucksWas established in the year 1971 by a local high quality coffee beans businessmen. In 1981, Howard Schultz are the one who responsible to give the coffee store as Starbucks where then he focusing on providing people the more higher quality coffee and to achieve different sort of product innovation, retail expansion to be a long-term kind of business. The first store of Starbucks were open in Seatlle located at Washington D.C and after that they have expanding their business in year 1990 by opening up about 60 retails shops in the United Kingdom and at the end of year 2002, they have a total of 3500 branches of Starbucks all around the world.
Starbucks has a variety selections of menu that includes beverages, bakery food, fruit and snack plates, breakfast and their main menu ofcourse the brewed coffee.1.2 McDonald’s McCafeMcDonald’s have made a chain of brand that have offers a huge lineup of McCafe drinks that are basically consist of 8 different kind of coffee blends that already have stores in the United States, Europe, South Africa and also at some Asian countries such as Malaysia itself.
McCafe have been established in the year 1993 where McDonalds has introduced a new type of modern coffee shops that are also serves beverages drinks, bakery and pastry. Nowadays McDonald’s McCafe keeps developing termendously and they also have introduces a new award winning McCafe coffee drinks, a loyalty programmes, an variety selection of coffee menu that make them as on of the top competitors of Starbucks.According to an article written by Taylor.K(2017), McDonald’s McCafe has become a mirror of Starbucks and it will creating a nightmare for the franchisee. Where McDonald’s has introduced their new McCafe beverages or type of drinks which is a new set of espresso based drinks which is caramel macchiato, vanilla cappuccino and the americano where basically the same menu as what have been offered by Starbucks over a decade. Based on the franchisee, this newly added menu of McCafe will overshadowed Starbucks business operation because McDonald’s McCafe are one of the most well known fast-food chain business nowadays compare to Starbucks that have create an issues such as a slower service times in their attempts to implementing a new technology in their business.2.0 Can McCafe expect to compete seriously with Starbucks? Or will McCafe like other new rivals in coffee chain industries in the past, struggle? McDonald’s believes that its McCafe segment is an area where it can expand revenues and is deploying new products to test the idea. The president of McDonald in USA believe that it is such an important opportunity for them to remained coffee. McDonald’s perceives coffee as a chance of $ 30 billion that keeps growing year after year. Even though McDonald customers were third more per day than Starbucks, yet the annual revenue of the coffee chain is higher than that of McDonald’s. On average, Starbucks customers spend almost three times that of a McDonald’s customer (Hershman, 2017)Table 1: Starbuck’s and McDonald’s financial’s.Source: Yahoo YHOO +0%.finance.comRegarding the table above McCafe who is under McDonald still cannot compete with Starbucks. However, McCafe is not really struggling on their product as other fast food companies. There are several reason that Starbucks can maintain their competitive edge according to an article by Toam (2016). First, product innovation. By being the leader in product innovation, Starbucks has always maintained its competitive advantage. Recently, Pumpkin spice latte, one of Starbucks ‘ seasonal favorites, has been relaunched. As stated by Sense360, the launch followed more than 150,000 incremental visits over the first two days. Thus, Starbucks saw a share of its domestic QSR market increase to 6.96 percent by about 30 basis points. On the other hand, McDonald’s and Dunkin’s, who is its competitors were a week earlier launched the same coffee, saw their market share recede. Chart 1: Market share of leading players in the coffee industrySecond would be capitalizing on changing consumer preferences. By being flexible, Starbucks has maintained its popularity over time. It was open to adapting to changing tastes and preferences of consumers. Its flexibility is also part of the reason why it has succeeded in China’s tough and mainly tea-drinking market. For example, the using of almond milk in their stores, and also the non-dairy alternatives such as coconut milk and soy milk. These are the flexibility that own by Starbucks. According to Mintel, there are about 49% of Americans consume non-dairy milk. Thus, this move is apparently help Starbucks raise their average spend per customer on beverages.3.0 What resources and capabilities must McCafe acquire to outcompete Starbucks to lead in a sustainable competitive advantage? A company achieves its sustainable competitive advantage when the attractive number of buyers are more prefer to their own products or services than their own rivals and the basis for this preference is durable. To achieve a sustainable competitive advantage, McCafe should incorporating differentiating features. From the days of its formation, McCafe has always been obsessed with Starbucks. Consequently, most of their decisions are taken with the purpose of cutting over Starbucks, resulting in this being a poor copy of the coffee pub chain (Basin, n.d). Instead of copying as the same as Starbucks, McCafe itself should have their own superior product or service keyed to higher quality, a better performance in terms of serving and producing the product, wider selection of product, value-added services, or some other attribute. Being different from other competitors would make McCafe more attractive than the other competitors.Other than that, McCafe should focusing on narrowing their market niche. According to Basin (n.d), McCafe’s parent brand which is McDonalds is so popular in all regions that it operates that the fast-food chain is always correlated with anything remotely associated with it. Accordingly, McCafe has no independent existence and cannot carve a niche for itself. Thus, the company should take an action to create and specifically identifying the customers need or desires in their product in McCafe, which competitors do not address and by proving product that could meet their satisfaction. By practicing this strategy, customer could find that McCafe product is more unique and they can find what they really want in McCafe product.Last but not least, McCafe also should develop expertise and resource strengths not easily imitated or matched by their rivals. The primary reason people visit a coffee pub is because it acts as a status symbol. Although McCafe successfully imitating the concept of Starbucks along with wage a price war with Starbucks, it is still difficult to win over Starbucks because of its not understood the need for status and recognition that is not satisfied due to its low price options. Instead of trying to be different only in pricing strategy parts, McCafe should work more on recruiting an expertise that is expert in coffee also expertise in giving ideas on producing more unique product and marketing, and have the high quality of their product in term of ingredient. 4.0 How McCafe can sustain its brand and continue to grow? According to an article written by Taylor.K(2018) with a headline McDonald’s has a new weapon in its war against Starbucks, with the same menu in both of the business lines, McDonald’s McCafe are basically try to implement the same strategy as Starbucks where the Starbucks strategy basically depends on attracting a coffee lovers who wanted to drinks espresso based beverages but McCafe implement it by giving or providing a drinks that are lower prices compare to what Starbucks are offering. Shown below are the other strategy which is differentiation and diversification strategy that have been implemented by McDonald’s McCafe.4.1 Differentiation strategy According to Business Jargon websites, differentiation strategy is a strategy that aims to differentiate product or service from other similar products that have been offered by the other competitors in the market in other words it is offering a unique product design, features, brand image and quality for the customers. As the biggest fast food restaurant chain in the world, McDonald’s uses its intensive growth strategies to support continued business development and expansion. The differentiation strategy that have been made or implement by McDonald’s as according to an article written by Tinta.S(2013), generic business strategies that have been used by McDonald’s is the broad differentiation strategy where they differentiate their products and services from their competitors basically by offering different sort of services that provided for their consumers depending on the locations of their branch or stores such as the drive thru, lobby, restroom, breakfast menu, lunch menu and the local employee that can speak all sort of languages based on the location itself for example in Malaysia basically the employees can speak either English or Mandarin. Other than that, McDonald’s also provided services such as the WiFi where nowadays approximately about 14,000 restaurants or stores provide free WiFi service for the customers and this is obviously will allow McDonald’s to attract a customer that will come to their stores and enjoy their meal while doing their work. They are also used differentiated strategy by providing a Happy Meal where basically wanted to attract children customers to come and get the meals. 4.2 Diversification strategy According to an article written by Satyendra(2014), diversification strategy is a strategy that an organization implement to develop their business. It is involves a strategy to enter a new market or industry whilst creating a new product specifically for the new market they have entered and it is also called as growth strategy which helps the organizational business to grow.Basically the diversification strategy where by it is focusing on the corporate level of the company. According to an a journal written by Mujtaba.B.G(2007), McCafe or in general is McDonald’s have been further emphasize their globalization element that have been said as their successful expansion strategies to enter new market.4.2.1 Emphasis on local managementIn every branch that they have around the world, have been a pride of McDonald’s McCafe to hired local employees especially the management itself in order for their brands to accepted by citizens in every different country. They clearly emphasis that think global, act local as the theme of their company where then this strategy has allowed McDonald’s to gain higher access to the authorities that are associated with the government of every country that they have entered.4.2.2 Employment opportunityAs we already know that foreign enterprises are often reluctant to hire a local employees in their business especially in the managerial positions. However, McDonald’s have made their own research on the way to get or hire the local employees in the managerial level is that they need to hire basically all of the employees from local people and they will not interrupted in their way of handling the business.4.2.3 Environmental friendlinessIn order to achieve a positive reputation, as well as follow local and national policies of a country, McDonaldџs tries to establish services that are environmentally friendly. For example India where the company provides financial contributions and sponsors several community related activities as the way to promote environmental protection. This is primarily seen in every McDonald’s branches where they also conduct an activity that they needs to collaborate with local people or even a school students doing activities like drawing competitions.4.2.4 Corporate Citizenship In order for McDonald’s to have a better reputation, this multinational firm or company have their way to gives back to the local citizens in all countries it operates. For example, the company provides several financial donations to local organizations. This is one way to encourage consumers to eat at its restaurants, as it is an incentive that is used to spread the name. 4.2.5 PricingAs we all ready know that the value of currencies are varies worldwide, McDonald’s are often forced to change its pricing strategy according to their target market. McDonald’s have try to maintain a price range on all its products based on the location, income distribution and its primary goal is basically to attract middle and upper class citizens where they are able to buy McDonald’s because of it affordable prices. After that they are also slowly targeting the lower middle class citizens. For example in the United States, McDonald’s has appealed equally well to all classes from the poor class to the upper class. However, their popularity continues to be among the lower, middle and upper middle class.5.0 Conclusion & RecommendationsIn conclusion, it is important for McDonald’s to use an effective or right business strategy in their company. This is because if they are failed to do so, for sure their brands will not be able to stay last longer than what they have been hope. They should have more considerate or be alert with what have happened in the global market in order for them to be always in track and not left out or be forgotten by their potential consumers.According to an article written by Spacey.J(2018), strategic partnership is an agreement between two companies that are often based on the business contracts that are often not going so far from establishing an actual partnership such as the joint venture. The first strategic partnership that we would like to recommend to McDonald’s McCafe is the sustainability project where the McDonald’s can partnered with a non-profit organizations or an associations in order to improve the communities or the environment. For example like a free straw campaign that have been implement by KFC where it will give a great impact on the cleanliness of the environment especially the ocean as well as the safety of the marine life. The second strategy partnership that we can recommend next is the value added re-sellers. Where it is a collaborated of McDonald’s with the partner that wanted to add services or additional product features to McDonald’s offers before they re-selling them. For example like what have been made by Starbucks where they have a person who make a mug as one of Starbucks souvenirs and re-selling them to people. The last recommendation that we would like to give is the distribution of McDonald’s product where there is a distribution agreements that have been made with the retailers that have agree to sell McDonald’s product in its stores. For example like retailers sell McDonald’s souvenirs at their stores that will make it easier for people to recognized or take interest in your product.