Cheap Coffee: Starbucks vs. McDonald's - TheStreet

Cheap Coffee: Starbucks vs. McDonald's

Starbucks is expanding further into mass market coffee brands that will help it compete with alternatives offered by McDonald's.
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By Trefis.com

NEW YORK (

TheStreet

) --

Starbucks

(SBUX) - Get Report

, the premium coffee chain, is expanding further into mass market (lower priced) coffee brands that will help it compete with alternatives offered by players like

McDonald's

(MCD) - Get Report

.

Starbucks ventured into the lucrative $21 billion instant coffee market last year with the launch of VIA. Buoyed by the success of VIA among U.S. and Canadian consumers, Starbucks is making its second strategic move into mass market coffees by revamping the Seattle's Best Coffee brand to compete against McDonald's.

McDonald's Competes More Aggressively With Starbucks

McDonald's came into direct competition with Starbucks when it upgraded its coffee in 2006. The lower priced option from McDonald's became popular among price sensitive customers and created new competition for Starbucks. As a result, the

average number of customers visiting a Starbucks store

declined from an estimated 460 in 2005 to just above 400 in 2007.

McDonald's Introduces McCafe and Capitalizes on Recessionary Cutbacks

With the launch of McCafe in 2008, the competition between the two chains intensified further. The timing of the launch coincided with a period of spending cutbacks among consumers and such cutbacks were already hurting Starbucks. As result of the discretionary cutbacks and rising competition, Starbucks closed around 890 stores in 2008 and 2009.

Starbucks Diversifies with VIA and Seattle's Best Coffee

After the success of the inexpensive VIA brand instant coffee among consumers, Starbucks is trying to give the lower priced coffee chains a run for money with the strong launch of its Seattle's Best brand coffee at more than 30,000 fast-food outlets, supermarkets and coffee houses. The company's expansion plans includes featuring Seattle's Best at convenience stores, drive through kiosks and vending machines.

You can see

our complete analysis for Starbucks' stock here.

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