American management has been trained that any company can think and execute its way out of trouble. That means that there is a solution to every sales or cost problem. It is just a question of finding it and pulling the right strings to make it work.
Often making the best of a bad situation is not that simple. Sometimes competition is so powerful that there are no answers to maintaining or saving a business.
McDonald’s (MCD) plans to march into Europe and will have 1,300 McCafe locations within the next few years. McCafe only has one significant competitor and that is Starbucks (SBUX) which has already been beaten by McDonald’s at every turn in the US.
Starbucks has done its best to fight back. It has gone “down market” with inexpensive instant coffee. It offers combinations of food and coffee as part of a new breakfast menu. But, so far, the only thing that has helped keep Starbucks earnings at anything other than a dismal level is its ability to close stores and fire people.
McDonald’s will press the advantage of its brand and financial might in Europe. The region is already one McDonald’s best in terms of sales growth. It can afford to finance the rent and construction costs for new locations. It has a nearly bottomless marketing budget. And, in most cases it can and will undercut Starbucks on price.
Starbucks has been in trouble because the recession has hurt its sales and McDonald’s has been a formidable competitor. Its troubles are getting worse and the solutions are non-existent.
Douglas A. McIntyre
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