Starbucks Credits McD's, Cost Savings for Sales Improvement

CEO Says Golden Arches' McCafe Launch Drew More Customers to Coffee Category

By Published on .

CHICAGO ( -- Starbucks Coffee Co. appears to be coming out of freefall -- thanks, in part, to marketing by McDonald's.

Howard Schultz
Howard Schultz Credit: AP
In a third-quarter-earnings call this afternoon, Starbucks CEO Howard Schultz credited margin improvements, cost savings and attention brought to the category by its rival's big-budget McCafe launch with helping to improve Starbucks' same-store sales. The chain's same-store sales fell 6% during its fiscal third quarter in the U.S., but that still bests the prior quarter, when same-store sales were down 8%.

'Unprecedented awareness'
"As you know, extraordinary advertising dollars have been spent by fast-food companies trying to attract coffee consumers during this quarter," Mr. Schultz said. "Many commentators and industry watchers have been concerned that this marketing spend would have a negative adverse impact on Starbucks." But on the contrary, he said, the "various marketing campaigns," including Starbucks' own first branding campaign, have "created unprecedented awareness for the coffee category overall and has actually had a positive result on Starbucks' business."

Of course, though McDonald's advertising may have benefited Starbucks, the push is likely to have cast a far bigger halo on the Golden Arches itself. McDonald's is expected to report U.S. same-store sales up as much as 4% Thursday when it announces earnings.

McDonald's launched its McCafe ad push, estimated at $100 million, in May. By comparison, TNS Media Intelligence figures put Starbucks spending at just $26 million in measured media throughout 2008. Competitors such as Dunkin' Donuts have also stayed in the mix with aggressive value-menu advertising.

'Meaningful' investment for Via
Starbucks' next big marketing push will be for Via, the instant-coffee product released in test markets in February. Mr. Shultz said to anticipate a meaningful marketing investment for the national launch this fall. "We are going to create a very creative campaign that will be different than what we've done to date and will take advantage of the social media that we become very good at as well as traditional levels of media," he said. "Via, I think, has given us an opportunity to recognize we've got a very big category without a lot of innovation." He added that since "people have so much trust in our brand and the coffee delivers, we have something I think that people want to hear about, and the three test markets justify the expense and the commitment that we're going to make."

Mr. Schultz also used the call to underscore the brand's social-media successes, including 3.5 million fans on Facebook and 250,000 followers on Twitter. "The key here is we are connecting directly with our loyal customers who will be driving our future growth," he said.

In this article:

Comments (14)