McDonald's takes on Starbucks in Europe

29 May 2009

LONDON: McDonald's, the US fast-food giant, is aiming to overtake Starbucks to become the largest coffee house chain in Europe, expanding its network of McCafés across the continent while its rival closes down stores.

Starbucks, which is headquartered in Seattle, currently operates some 1,300 coffee shops in Europe, and has recently announced plans to cut prices and introduce lower priced items to its menus.

It registered a 77% slide in profits during the first quarter to $25m ($15.7m; €18m), and is to shut some sites having admitted to expanding too quickly.

By contrast, McDonald's saw like-for-like sales increased by 4.3% in the first three months of 2009, while its earnings also increased by 4% to $980m.

It is now aiming to increase the number of McCafés in the region to at least 1,200 by the end of 2009.

Of the company's 14,000 restaurants in the US, some 80% now have McCafés, and research from Stifel Nicolaus has found 60% of Americans would be willing to "trade down" to McDonald's coffee if it was cheaper and made more quickly than Starbucks.

Around half of its German stores also house McCafés, a figure that falls to a fifth of outlets in Russia and Italy.

Alongside these countries, France and Austria are among the Europeans markets where the format is set to see heightened penetration.

Each new McCafé costs between €60,000 and €85,000 to install, a low rate of investment that McDonad's says offers an easy route to enter new countries.

Jerome Tafani, cfo of McDonald's Europe, argued that “our business case is not the same as Starbucks,” which means “we can become the biggest seller of coffee in Europe.”

Data sourced from Financial Times/Time; additional content by WARC staff