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On the Margin
McDonalds and Starbucks logos

Can Starbucks catch McDonald’s?

This post is part of the On the Margin blog.

McDonald’s Corp. is the largest restaurant chain on the planet, and in the U.S., and it’s almost comical by how much.

It is more than twice as big as the next largest chain, Starbucks, and is larger than the next three chains combined, Starbucks, Subway and Burger King. Or how about this: McDonald’s is bigger than the cumulative sales of the 100 restaurant chains on our upcoming Second 100 ranking.

McDonald’s has a massive lead, and has had it for so long, that it seems inconceivable that someone will catch them.

But it’s not that inconceivable. In fact, it’s entirely plausible Starbucks could one day overtake the Oak Brook, Ill.-based burger giant, and do so faster than you think.

Consider the chains’ previous fiscal year. McDonald’s system sales grew 1.1 percent (after declining the year before). Starbucks’ system sales rose 14 percent.

Based on that rate of growth, Starbucks could overtake McDonald’s by 2023, or less than a decade.

To be sure, I wouldn’t necessarily bet on Starbucks catching McDonald’s by 2023, or even 2033.

This is, after all, an extrapolation based purely on one year’s worth of growth. Starbucks will not grow by 14 percent every year for the next eight years. And McDonald’s, of course, is going to work very hard to generate more sales.

McDonald’s also has a lot of advantages that will be difficult for Starbucks to overcome. It has a fuller menu that works well in smaller communities and with a larger cross section of the U.S. And it has done little recently in the way of major national product introductions that could pull its sales higher.

And while McDonald’s doesn’t do well on consumer satisfaction surveys, Starbucks doesn’t do much better due in large part to price. Oh, and McDonald’s itself sells a lot of coffee, and it wasn’t that long ago that Starbucks itself had to close locations in the U.S. A deep recession could change the look of this graphic.

But the Seattle coffee giant has its own advantages. McDonald’s has not had much in the way of unit growth in the U.S. for a long time, and so the chain has had to rely on same-store sales increases to grow. But with $2.5 million in average unit volumes, doing so gets tougher every year.

Starbucks still has plenty of room to grow. It has 12,521 locations, and will likely surpass McDonald’s 14,259 some time in the next few years. The chain’s beverage focus and its convenience orientation could give it room for more locations in the U.S. than McDonald’s.

There’s also Starbucks' effort to increase food sales, which might also help bolster unit economics and driver overall chain growth.

None of this is to say that Starbucks is definitely going to be No. 1. But some chain at some point is going to knock the Golden Arches off of its perch atop the U.S. restaurant world. At the moment, Starbucks is the most likely candidate.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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