Mcdonald\'s Mccafe Initiative Mcdonald\'s Appears

¶ … McDonald's McCafe Initiative

McDonald's appears to be using an integrated low-cost/differentiation strategy. Though the cost of the McCafe products is not discussed in the article at all, from personal experience I am aware that McCafe products are significantly lower than costs at some of its coffee-retailer competitors. However, it is not content to simply use low-cost, as it offers some of the higher-end products that it felt it needed to add in order to remain competitive with more up-scale competitors. Therefore, it is trying to produce products with differentiated features at lower costs. An example of this is that they use prepackaged coffee to ensure consistency of strength in the coffee used in the stores and machines that dispense specific types of coffee, but still offer the lattes and other fancier coffee drinks one associated with a coffee house. Whether or not McDonald's can sustain its brand in this manner is questionable, because the risk of using such an approach is that the competitor must be able to continuously strategically reduce costs and add differentiated features. In order to keep its quick service features, McDonald's will be limited in how differentiated its McCafe offerings can be.

2) McCafe seems almost neutral when one looks at it using the Porter's 5 Forces model. As far as supplier power, at this current time, supplier power is small. Coffee is trading below what it costs coffee growers to get the coffee to market, which means that individual coffee suppliers do not have a tremendous amount of power. While McDonald's faces competition for coffee products, if one considers its regular coffee purchases in addition to McCafe coffee purchases, it is such a large purchaser that a coffee supplier, particularly in this current coffee market, would be wary of losing McDonald's business. The threat of new entrants is both very high and relatively low. As far as major competitors, it is very difficult for any chain to get to the same prominence as McDonald's. On the other hand, opening a coffee bar is relatively inexpensive, so that there is a low barrier for entry for local rivals. The threat of substitutes is high; people can make coffee at home and purchase it at almost any location that is open in the morning, from grocery stores and gas stations to sit-down restaurants. However, outside of substitute power, buyer power is relatively low because buyers are individuals making individual decisions, each one having little impact on the company's aggregate business. There is a very high degree of rivalry, but few exit barriers for the company; the expected loss of closing an existing McDonald's McCafe location would be absorbable into that location's receipts for the year.

3) McDonald's corporate strategy as it applies to McCafe in terms

(i) direction- McDonald's is aware of the markets in which it competes. McCafe was not simultaneously introduced in all markets, but introduced in markets where it seemed as if it could be competitive with local coffee suppliers.

(ii) composition- McDonald's only has quick-service restaurants in its stable, so that it can always employ the same combination of high value / low-cost in all business scenarios.

(iii)size- McDonald's is the world leader in quick service branding and seeking to expand, and it can use its existing locations to market its McCafe products, making it better prepared to do so than existing quick-service food providers and certainly better able to do so than new entrants to the marketplace.

4) McDonald's corporate strategy creates value by offering consistency in service, products, and value. Its main selling point is that a customer will have virtually identical services regardless of which McDonald's location is frequented. This has helped fuel growth because people who like the experience in one McDonalds are assured of this consistency when choosing another location.