McDonald’s proved to be no threat to Starbucks
It seems silly now, but about six years ago, people viewed McDonald’s effort to push into the coffee business as posing a legitimate threat to Starbucks’ empire. A Bloomberg article from 2007 was titled “McDonald’s Challenging Starbucks with Cheaper Lattes.”
That “challenge” never materialized. McDonald’s McCafe line proved to be a hit, but it didn’t take away from Starbucks (following the financial crisis, Starbucks shares set a new all-time high just last year).
Even though it tried by remodeling some restaurants and offering wifi, the fast food giant could never truly replicate the appeal of Starbucks. Perhaps Starbucks’ customers simply couldn’t be swayed with cheaper drinks, or perhaps it just wasn’t possible to replicate the feel of a real coffee shop with the smell of french fries wafting through the air.
At any rate, McDonald’s expansion into coffee proved that there was room for another major player in the space. Likewise, its entrance into the chicken wing market won’t force Buffalo Wild Wings out.
Buffalo Wild Wings has a number of issues that might keep investors away: For example, it’s a bit of an expensive stock; its PE ratio (a common measure of relative cheapness) is 25, more than the S&P 500’s 17. Meanwhile, creeping food inflation could curtail the company’s bottom line.
But investors shouldn’t shy away from the stock simply because they fear McDonald’s. Anyone who sold Starbucks for that reason likely regrets that decision today.
The article McDonald’s is No Threat to Buffalo Wild Wings, Starbucks originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.
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