Durable Competitive Advantage – Part 2

by Victor Cheng

Here are a few additional thoughts on the durable competitive advantage.

In today’s news, Starbucks announced it was firing its CEO and putting Howard Shultz (founder) back in as CEO.

One of the interesting tid bits of news that was mentioned was plans for McDonald’s to put  coffee bars with Barista’s inside every McDonald’s.

Clearly, McDonald’s is tired of seeing a customer spend $2 on breakfast at McDonald’s and walk across the street to spend $4 on coffee. 

So if McDonald’s actually follows through, will it work?

Let’s think about this from a competitive advantage standpoint and, in particular, the durability of such an advantage.

Starbucks has numerous advantages – high quality product, surprisingly polite and competent staff, an ability to deliver a personalized experience to every customer, and a well-placed real estate network (e.g., they have a Starbucks nearly everywhere).

Well, if McDonald’s decides to really go at Starbucks, will they win?

My prediction:  It’ll hurt Starbucks, but it won’t be fatal.

First, the minute McDonald’s rolls this out, the Starbucks real estate advantage is basically neutralized overnight. It’s not much more of an advantage given McDonald’s entire network of high-traffic locations.  In other words, to get to your local Starbucks, there’s a good chance you had to drive past a McDonald’s to get to it.  If a customer can now stop at McDonald’s and get something close to a Starbucks coffee, some (but not all) customers will.

Why won’t such a move be a death blow to Starbucks?  Because of the remaining advantages that Starbucks currently possesses.

1) Starbucks knows how to deliver a high quality, premium product.  McDonald’s doesn’t.  They’re good at cheap and fast, not good and slow.  Can they do both?

2) Starbucks knows how to employ competent employees that smile a lot and are polite. McDonald’s has cornered the market on minimum-wage employees with attitude.  Do I really want to get a venti, non-fat, latte, with a double shot from someone who wants to give me a hard time about it? 

Anyhow, it’s useful to look at your own business and others through the lens of your competitive advantage and its durability.

 

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