Devoted to Managers and those that seek to improve their management skills

The story is getting out on not only the fact McDonalds (MCD)  is offering coffee, but a high quality coffee at lower prices than Starbucks (SBUX). As a matter of fact, a number of customers of both companies say McDonald's coffee is better; smoother and not as bitter.

McDonald's is ``being extremely aggressive,'' said Peter Kwiatkowski, who helps manage $21.9 billion, at Fifth Third Asset Management in Cincinnati. ``They're a lot cheaper than Starbucks coffee in general, and they have the high quality to go with it.''

Same-store sales for McDonalds in August grew by 8.1 percent, with coffee and the resultant breakfast sales leading the way. For sales through August for the year, McDonalds has experienced a 7 percent increase.

For coffee sales by McDonalds in the U.S., they have surged by 20 percent through June of 2007, from the time they debuted in February of 2006. If you include all their hot, iced and specialty blends, sales are much higher at a 34 percent increase for the year.

For Starbucks stores opened for a minimum of 13 months, sales grew by 4 percent for the second and third quarters this year, the slowest growth rate since 2002. Still, revenue did increase by 20 percent to finish at $4.61 billion for the six months ending in June.

Short term, this isn't a threat to Starbucks, as it controls about 52 percent of the worldwide, specialty coffee market, and a huge 87 percent of the specialty coffee market from shops in the U.S. McDonalds only is in fifth place at this time with coffee, drawing only 1.7 percent.

For the long-term, the feeling is that Starbucks is vulnerable, as they seem to be obsessing with the music industry offerings in their shops, while competitors are starting to dig into their market share in coffee.

This is a similar story to Wal-Mart and their taking their eyes off the ball by trying to force trendy clothing to their customers who rejected it. It caused a lot of problems that is still taking time to sort out for them.

The boasting about opening 40,000 locations worldwide, while growing so fast they aren't able to focus on quality and competitiveness within individuals shops, is causing a lot of problems for Starbucks.

Like Wal-Mart, I think they need to slow down growth and strengthen their existing stores before spreading themselves so thin they lose huge market share even though opening up stores faster than anybody else.

Many of their competitors already have existing stores so they don't have to focus on building new locations to increase share. All they have to do is build up a strong coffee business within their existing stores to take share away from Starbucks.

The issue isn't share though, as nobody is going to keep 87 percent share in the U.S. market no matter what product or service they represent. The issue is Starbucks has lost some of its edge. They've got to get their swagger back if they want to compete strongly over the long haul.

They are slowly becoming a commodity business, which will devastate them if they end up being that in the mind of consumers. People aren't boasting and raving about the company like they used to. That's the problem they really need to address, not signing up some new artist to sell music CDs in their store or build another 1,000 stores this a year.

Of course the music strategy was attempting to tackle the "being commoditized" issue, but it's not working, and is becoming more of a distraction than help.

They need to get back to the quality of their brew and customer service. That foundation should never change.