McDonald’s started turning up the heat on Starbucks almost two years ago, when the quick-service restaurant chain planned McCafe coffee bars in many of its locations. Specialty drinks bring in huge profits, and McDonald’s thinking was that it could bring the price down and steal Starbucks’ business in tighter economic times.
It’s not entirely clear whether McDonald’s has made inroads. One suspects ambience is a big part of what Starbucks sells, and a venti latte with extras may be the splurge of someone’s day. Nevertheless, in recent weeks, Starbucks introduced an inexpensive brewed coffee, rejiggered its food menu, and made other changes to make its prices more competitive.
The latest salvo in this war is over Wi-Fi. McDonald’s said on Tuesday that it would stop charging for Internet access in the 11,000 out of 14,000 U.S. stores that offer wireless service in mid-January 2010. Currently, McDonald’s charges $3 for two hours of access, although AT&T—which operates the McDonald’s hotspots—provides free access to its wired and wireless broadband subscribers and smartphone users. (iPhone users can only access the network via iPhone, but all DSL, fiber, and laptop 3G subscribers can log in via laptops.)
Starbucks introduced a qualified form of free Wi-Fi in 2008 when it switched its hotspot provider from T-Mobile to AT&T. Starbucks’ deal was two consecutive hours on its hotspot network each day for 30 days following any purchase on a Starbucks stored-value card.
Last month, Starbucks updated its various card deals, and changed the Wi-Fi offer. Now, you have to make five purchases to reach the “Green” level before you qualify for the 30 days’ free Wi-Fi service. (Existing Starbucks Card users are grandfathered in without making additional purchases.)
Now, many people will not step foot in a McDonald’s for love nor money, and the draw of free Wi-Fi may not change that equation. And McDonald’s conspicuously posts time-limit signs in many stores. Unlimited free Wi-Fi would conflict with 20 minutes and get out.
Nonetheless, Starbucks told me many times since they first partnered with a Wi-Fi hotspot operator in 2001—the firm is on its third partner—that stores are busy from roughly 5 am to 9 am and relatively quiet the rest of the day. Wi-Fi was partly a tool to boost revenue the rest of the time.
McDonald’s is pursuing a similar strategy. The stores have rush periods of varying intensities, and lots of idle time in between.
Will Mickey D’s offensive force Starbucks’ hand? Starbucks has been trying to maintain its reputation as a premium brand and a unique experience. It lost its way and Howard Schulz has been hard on the tiller to get the company back on course, though that course has meant more head-to-head competition with McDonald’s. Starbucks may be obliged to give up the revenue (and the restrictions) to keep parity.
