Quality Vs. Quick Service: The Difference Between Starbucks And McDonald’s

by Trefis Team
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Starbucks‘ (NYSE:SBUX) recently acknowledged that it is facing operating issues in handling the huge volume of orders generated by the success of its Mobile Order & Pay app. The average number of daily customers at a Starbucks store is less than a third of what McDonald’s handles every day and, despite this significant difference, Starbucks’ annual revenues are higher than McDonald’s.

The reason for Starbucks’ higher revenues despite a lower volume of customers is that the average spend per customer visit at a Starbucks store is almost three times that of a customer at a McDonald’s restaurant.

Starbucks’ business model is aimed at high spending customers and, hence, its stores are geared for a lower daily volume, compared to McDonald’s quick service format. McDonald’s is working on a transformation and introducing more “gourmet” menu items, which should increase the average customer spend per visit.  That said, its model is not comparable with Starbucks. Both companies acknowledge that a significant change in the model impacts their revenues. For instance McDonald’s serving fresh patties is an operating issue because it increases the time spent to serve a customer order, impacting its volumes and revenues negatively. Similarly, Starbucks faced a decline in comparable sales in its latest reported quarter, primarily because it could not manage the huge volume caused by the success of mobile order and pay.

Starbucks’ strategy to grow via its premium Reserve Roasteries will ensure that the company is able to retain its model and grow revenues. The Reserve stores encourage higher customer spending through “gourmet” coffee and the model will ensure that volumes are manageable and revenues grow at the same time. This will enable Starbucks to leverage its strengths and deliver growth. McDonald’s is still struggling to find its identity and the company is experimenting with various options. However, if it is able to attract customers with innovations within the quick service model, the company should see steady growth over the long term.

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