Inflation Could Turn McDonald's Into A Serious Competitor Of Starbucks

Inflation has turned McDonald's into a formidable competitor for upper-scale fast food franchise chains like Chipotle and Shake Shack. But it could turn it into a severe competitor for Starbucks. All it takes is espresso machines and baristas.

McDonald's and Starbucks had different value propositions catering to distinct and separate markets for years. McDonald's offered fast, convenient, and inexpensive food catered to middle and low-income individuals. It's primarily working-class people, with an annual household income of $48,000 to $65,000, looking for bargain meals like $1 $2 and $3 menu items.

Starbucks offered "third place," an "affordable luxury" catered to middle- and upper-income individuals, where they can enjoy mixed espresso drinks with friends and colleagues, away from work and home. Again, it's mostly younger, health-cautious, tech-savvy and coffee addicts.

In recent years, the two franchise giants have changed their value propositions, with Starbucks offering a broadened menu to include breakfast items. At the same time, McDonald's expanded its offering to include coffee drinks. And both franchises have been emphasizing drive-through rather than sit-in sales, turning their value propositions into "commodities."

Meanwhile, the resurgence of inflation in the last couple of years has fueled a trade-down, where middle and upper-income individuals are substituting more expensive for less expensive value propositions.

The rise of trading down combined with the company's refurbished stores provides an opportunity for McDonald's to invade Starbucks' home turf by offering its lattes. All it takes is espresso machines and baristas.

"With espresso machines and baristas, McDonald's can compete against Starbucks," Attorney Maria Hossain of The Missing Ingredient, who has a niche working with restaurants and others in the food industry, told International Business Times. "The facelift McDonald's gives its stores is one of the final steps that could put McD's in as a direct competitor."

Hossain notes that people go to Starbucks for convenience, something McDonald's already has, thanks to the prime locations its stores occupy around the world, the ambiance (thanks, new McD's makeover), the status symbol and the fancy drinks.

"If McDonald's adds some fancier additions to their menu (think: alternative kinds of milk, flavored syrups, fun toppings) and also make their cup designs something that would create envy for people who aren't yet holding a cup, McDonald's could give Starbucks a run for its money," she added.

Ola Sars, CEO, founder and chairman of Soundtrack Your Brand, thinks McDonald's needs convenient drive-through access, espresso machines and baristas to compete against Starbucks.

"Restaurants and franchises have a real opportunity to leverage sensory modalities, primarily auditory, to create a unique experience for their brand. Sound – music is a critical element that can increase sales and enhance customer experience," Sars told IBT.

Bob Vergidis, chief visionary officer of pointofsale.cloud, would add technology. "An extra layer to McDonald's ability to compete with Starbucks includes a focus on technology that can help make their coffee program easier for their team members to execute," he told IBT. "By incorporating automation into the process, McDonald's can automate a large portion of the skillset of an expert barista and create an easier job for general team members."

Still, Anna Stella, a marketing expert at BBSA, is skeptical about the prospect of McDonald's becoming a serious competitor of Starbucks. "If this is the argument, then the Starbucks latte also competes with the latte you drink at home. But there is more to that," she told IBT.

"Marketing is not a battle of products; it's a battle of perceptions," she explained. "While both brands are known for outstanding customer service, 'better' is a matter of perception. And whether this is true or not in terms of quality, it would take a lot more to convince Starbucks clients that they would get the same latte as in McDonald's."