McDonald's Upgrades Its Story by Upgrading Its Competitive Set

That tremor you felt when you read your WSJ this morning was caused by Janet Adamy's page-one story on McDonald's getting into the high(er)-end coffee game, a story that represents a tectonic shift in the news context beneath the feet of two of the biggest names in American commerce.

The story itself has all the earmarks of a classically engineered exclusive, with the McDonald's flacks delivering access to senior executives, a peek at an internal strategy memo and a preview look-see at zippy new coffee machines. But the story made it to page-one because it has three irresistible elements.

1. Big, symbolic names. McDonald's and Starbucks are not just major business players. Their brand names actually symbolize social trends. McDonald's symbolizes America's challenge in dealing with obesity and other health issues. Starbucks symbolizes consumer desire to trade up to something perceived as "better."

2. A new conflict. Until now, Starbucks and McDonald's were considered to be fishing in two different consumer ponds, and the battles were framed as McDonald's-vs-BK/Wendy's, and Starbucks-vs-Independents. Those narratives had grown relatively boring long ago, and nothing smells more alluring than freshly brewed conflict.

3. An underlying trend. The move by McDonald's made it easy for the reporter to peg the initiative to broad consumer trends, giving the piece a greater sense of importance.

Jack Flack assumes that the Journal story will effectively reset the framing of not just one, but possibly even three, ongoing business news stories.

1. The McDonald's story. Placing this story was strategically critical for the McDonald's crew because it sets the foundation for waging an ongoing battle in which their perceived competitor is now the more-upscale Starbucks, as opposed to simply smaller replicas of themselves (BK, Wendy's, etc.). Up until now, the McDonald's story has been focused on how to grow amidst growing dietary concerns. Now it's also about up-scaling, the central tenet of the McDonald's turn-around plan.

2. The Starbucks story. Before, the tension in the Starbucks narrative was, "How many people will pay $3.50 for a cup of coffee?" Now, it's, "How can Starbucks defend its position now that major restaurant chains are trying to move onto their turf?" Thus, the Journal story represents a major blow, as it draws the company into a conflict that will only further erode its image as the provider of a premium brand, both with consumers and investors.

(Interestingly, Adamy gives little coverage to the success of Dunkin' Donuts coffee push of the past few years, an initiative that undoubtedly caught attention in Oak Brook.)

3. The U.S. Restaurant Industry Story. The indusry narrative has long been dominated by a simple theme: "The big three struggle against a changing world, while smaller players exploit thriving niches." For most of its history, Starbucks was not even included in that story, given that's its principle offering was a beverage. But with 10,000 U.S. stores, and a growing reliance on food, those days are gone. So now the industry story says that all the major chains have stretched their traditional business models so far that they now must infringe on each others' turf.

In other words, the story will likely evolve into "Because they're both running out of new consumers, Starbucks must act more like McDonald's, and McDonald's must act more like Starbucks."

It's understandable if that conventional thinking drives the industry narrative. But if the Starbucks bosses allow it to also drive their business strategy, then disastrous days loom ahead. And that's why Howard Schultz seems to be in real need of a Rescue Memo.

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