Reference no: EM133037215

Competition is brewing in the coffee business as McDonald's Canada opened its first stand-alone McCafe in a new play for the billions Canadians spend on java every year. The cafes will sell McDonald's line of specialty coffees, fruit smoothies and baked goods, as well as the Egg McMuffin breakfast sandwich. Unlike the rest of McDonald's Canada restaurants, which switch from breakfast to burgers after the morning rush, McMuffins will be available all day at the McCafe's.

McDonald's has been looking beyond the Big Mac for growth as consumers have lost their appetite for the company's famous burgers and fries. It has introduced healthier options, including salads and wraps, to its Canadian menu, and in the U.S. it has introduced all-day breakfast.

McDonald's accounts for 11.5% of the market for coffee sales, which is dominated by Tim Horton's which has 75-80% of the market. Starbucks and the other smaller players account for the rest of the market. "Our customers have been asking for a bit more of a cafe experience, and they want more access to the product, which means more locations," McDonald's Canada CEO John Betts said. Betts said while growth in the coffee shop market is relatively flat, McDonald's has increased its share significantly since it introduced McCafe products in 2011 and has doubled its total breakfast business over the past five years. "Quite frankly, McCafe turned our business around here in Canada," he said.

Starbucks sells a sausage, cheddar and egg English muffin breakfast sandwich for $3.95 (compared with $3.59 for an egg McMuffin with meat options). Starbucks line up of cold sandwiches ranges from around $6.95 price point, as McCafe's and Starbucks' newer salads cost $8.95, versus $6.99 to $7.99 for McCafe's larger salads

Michael Mulvey, a marketing professor at the University of Ottawa's Telfer School of Management, said there is an opportunity for McDonald's to address an underserved customer segment by being faster than its direct competitors such as Tim Hortons and undercutting the premium prices of alternatives such as Starbucks. The McCafe offers a larger selection of specialty options than Tim Hortons, including espresso, and its two-step brewing machine is quicker than the process of pouring a customized Starbucks coffee.

"Some of the competitors, it's not fast food, especially when you have six or eight cars in front of you at the drive-thru," Mulvey said. "If they can do it well and do it fast, that can definitely separate them from the pack."

Mulvey said the move is a shot across the bow for Tim Hortons, a company that has seen its top ranks change after it was bought out by Restaurant Brands International earlier this year. "It's time to convene a meeting and get their best minds together," he said. "This is not something to be ignored." McDonald's has more than 1,400 restaurants across Canada, compared to more than 3,800 for Tim Hortons and around 1,200 for Starbucks.

Part 3 - Case Study - answer all questions

1. There are four types of competition in the free market. Which type of competition does McCafe face in the coffee sales market? Give reasons for your answer.

2. There are 3 major types of products that consumer buys. A specialty product is one, what are the other two? Which of the 3 types of products is coffee?

3. McCafe will be run as a franchise. List 2 advantages and 2 disadvantages of running a franchise like McCafe.

4. Use a SWOT analysis of McCafe as a new business opportunity.

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5. List 2 responsibilities a McCafe franchise owner would have for his/her employees.

6. Discuss 3 issues a McCafe franchise owner would have to consider when setting the wages for his/her employees.

7. Explain the difference between X theory & Y Theory.

8. Which theory, X or Y, would result in better customer service and morale at a McCafe? Why? Give reasons for your choice.

9. Give 2 reasons why building long term relationship with customers is important for McCafé.

10. Which pricing strategy is McCafe pursing? Why are they using this strategy?

11. Give 2 examples of sales promotions that McCafe could engage in, how they would benefit the company?

12. What type of advertising should McCafe engage in, why?