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What does McDonald's entrance into the specialty coffee market mean for Starbucks and the rest of the café concepts?
McDonald's specialty coffees challenge Starbucks and others

Two weeks ago, news broke that McDonald's Corp. will add specialty coffee and other premium beverages to the menus at its more than 14,000 U.S. locations in 2008. Crain's Chicago Business reported that the addition of lattes, cappuccinos, and other specialty drinks is expected to bring the chain more than $1 billion a year in sales, but the question is what will it take away from Starbucks and other coffee retailers?

For its part, McDonald's has been reserved in public comments concerning news of the endeavor.

"To meet the changing needs of our valued customers, we’re testing a variety of beverage options, including specialty coffee," reads a statement released by McDonald's spokeswoman Danya Proud. "We’re encouraged by what we’re hearing from our customers. They’re telling us they appreciate the added value, convenience, and selection.

"It is far too early, however, to speculate about test results or specific product offerings. No final decisions have been made. To speculate beyond this, or comment on rumors, would be irresponsible and inaccurate."

Starbucks, too, seems to be stepping around the issue, despite Crain's declaration that the McDonald's plan is a "frontal assault" on the reigning coffee king.

"We believe there is room in the coffee world for many different approaches and providers," says Bridget Baker, with Starbucks media relations. "We're focused on continuing to provide the coffee expertise and welcoming experience that customers can get nowhere else."

But at least one expert says McDonald's presents a significant threat to Starbucks and other quick-serve coffee retailers.

We believe there is room in the coffee world for many different approaches and providers.”

"McDonald's is already a strong player in the retail coffee market and has recently gained experience from its McCafé concepts worldwide," says Andrew Hetzel, CEO of Cafemakers, LLC, a Hawaii-based specialty coffee business consultancy. "In Germany, for example, it is my understanding that they already lead Starbucks for specialty coffee market share."

Hetzel says Starbucks is especially vulnerable at present as the result of many of the same factors the company's CEO, Howard Schulz, addressed in the notorious memo lamenting the commoditization of the brand leaked earlier this year.

"I foresee that Starbucks will need to return to its roots to regain its competitive advantage," Hetzel says. "The company has drifted away from its original 'third place' environment concept with drive-thru and store-in-store locations; their once skilled baristas have become pushbutton machine operators, and straight espresso was taken off the menu in favor of 'pumpkin lattes' … They should get back to focusing on coffee and the formula that made them successful in the first place."

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