Coffee wars, sometimes referred to as caffeine wars, involve a variety of sales and marketing tactics by coffeehouse chains and espresso machine manufacturers to increase brand and consumer market share. In North America belligerents in these wars typically include large coffeehouses, such as Starbucks, Dunkin', McDonald's, and Tim Hortons. According to The Economist, the largest coffee war of the late 2000s was between Starbucks and McDonalds in the United States. The U.S. market has, since the early 2010s, been primarily contested by its two largest players, Starbucks and Dunkin'. Since 2020, competition over the Chinese coffee market has intensified between Starbucks and Luckin Coffee. Periods of low economic activity and business recessions – which contribute to diminished consumer demand – have been linked to an increase in coffee wars. Major innovations in the coffee industry, particularly the advent of single-serve espresso pods, have lowered the market's barrier to entry. Although store count has been traditionally seen as gauging market share, both firms and analysts have incorporated revenue, balance sheets, organic growth, operating margin, and stock market performance as comparable indicators.
United States
According to The Economist, the largest coffee war of the late 2000s has been between Starbucks and McDonalds in the United States. This dynamic between the two coffeehouses was shared by the Financial Times. During the 2008 financial crisis, Starbucks' market share tapered after consumer spending dropped. McDonald's launched a marketing blitz to capitalize on this from 2008 to 2009. In December 2008 McDonald's erected a billboard that read "four bucks is dumb" a play on words for "Starbucks is dumb" for selling coffee at higher price points than McDonalds. Another billboard read "large is the new grande", a jab at the social and cultural perceptions of Starbucks. However Starbucks chief executiveHoward Schultz, a major proponent of coffee wars, voiced his concern about market saturation and vocally opposed the comparison between the McCafé and his firm's products. "We are up for the defense and we are going to get on the offense," Schultz told investors in late-2008. John Moore, the firm's marketing head, denounced McDonald's as "selling hot, brown liquid masquerading as coffee" in 2003, in reference to recent market gains. In line with this the spread of instant coffee has also intensified competition in the packed coffee markets, particularly at lower price points. In 2009, McDonald's was seen to formally "kick off the coffee war" with Starbucks, particularly, by offering specialty espresso drinks. However, coffee accounted for 6% of domestic sales for McDonald's during this time. The Wall Street Journal reported in 2011 that the closer price points were for coffee the more competitive coffeehouses were with each other, in spite of different demographic markets. The U.S. coffee market has since the early 2010s been primarily contested by its two largest players, Starbucks and Dunkin', which make up most of the country's commercial coffee shops. In 2014 The Guardian reported that "There is a war going on in America, and the battleground is coffee." In July 2011 Dunkin' Donuts went public on the U.S. stock market, raising $427.5 million to "heat up the fast-food java battle." In 2011 Dunkin' Donuts controlled more than half of the New England coffee market. Around 60% of the company's domestic sales were attributable to coffee and beverages. In 2016, Dunkin' Donuts revamped their iced coffee offering, a departure from their portfolio of warm drop coffee and basic espresso-based drinks. Two years later, in 2019, the donut company dropped "donuts" from its name in order to better compete in the beverage industry. In September 2019, Dunkin' committed $100 million to position itself against Starbucks and McDonalds, calling the former coffeeshop its "arch enemy". By June, both companies registered record, yet comparable stock market growth, Dunkin' rising by 24%, Starbucks by 29%. A 2017 CNN analysis found that Dunkin' was "particularly aggressive in the coffee wars." During that year's Starbucks annual meeting Schultz responded to Dunkin' market gains by telling shareholders to metaphorically bring the "sabers out." Tim Hortons, a Canadian chain which historically had only a limited presence in the U.S., made a major expansion into the U.S. in the early part of the 21st century, culminating in its corporate merger with established U.S. fast food chainBurger King in 2014. In 2013, The Motley Fool speculated that the spread of Starbucks' gift cards and national loyalty program was a primary driver in coffee-driven market gains. A year later, McDonalds conceded that Starbucks was "winning the coffee wars" by cornering the caffe latte market. Competing firms have retooled their market expansion by spinning off divisions to finance store openings. In 2018 Starbucks sold its packaged coffee business to Nestlé in order to free up $7.2 billion for their stores. In an effort to undercut its competition, Starbucks released its signature Pumpkin Spice Lattee in August 2019 – instead of its typical Autumn release. In March 2020, Panera Bread launched a coffee subscription service to compete directly with Starbucks' national loyalty program. The COVID-19 pandemic led to severe backsliding in market share for the largest coffeeshops, with smaller cafés closing permanently due to lack of demand. Most of the major players initiated distribution deals with delivery platforms during the pandemic to sustain growth: Uber Eats, GrubHub, and DoorDash.
Canada
Coffee chains that originated in Canada includes Blenz Coffee, Coffee Time, Second Cup, Tim Horton's, and Timothy's World Coffee. Tim Horton's is the largest coffee chain in the country by number of stores, with 4,613 stores in Canada on December 31, 2016. Several American coffee and fast food chains have also entered the Canadian market, including McDonald's, and Starbucks. McDonald's, and Starbucks both operate over 1,400 stores in Canada. In 2014, Canada has more Starbucks per capita than any other country in the world, with 39.54 Starbucks stores for every million residents in Canada. In an effort to gain further market share in the Canadian coffee market, McDonald's began opening standalone McCafés in Canada in 2015. In addition to coffee, several of these fast food retailers, including Country Style, McDonald's, Starbucks, and Tim Horton's also compete for the country's fast food breakfast market, referred to as the "breakfast wars". McDonald's tripled its sales of brewed coffee in Canada from the 1970s to 2018, doubling its market share to 13%.
China
Since 2017, competition over the Chinese coffee market has intensified between Starbucks and Luckin Coffee. From the early 1990s to the late 2010s, Starbucks was the largest coffeehouse in China. In August 2018, they signed a distribution deal with e-commerce group Alibaba to increase their online retail presence in China. In January 2020, Luckin Coffee overtook Starbucks in store count in China, by 500 retail spaces. Luckin had 4,500 stores in China while Starbucks had 4,200. However, the Chinese firms' entry into the U.S. capital markets faltered in early April 2020 after reports surfaced of fraudulent accounting and inflating market share projections. Luckin Coffee's stock was halted on the U.S. stock market, meaning it could no longer trade, after a corporate fraud investigation was initiated by U.S. and Chinese authorities. The 2018 trade war between the U.S. and China, with the two companies serving as respective proxies, led to a resurgence of Luckin Coffee in China during late-April 2020. Chinese consumers were boosting Luckin Coffee's market share as a rejection of American-led companies, specifically Starbucks. The Chinese government cautioned domestic investors from doing this soon-after, writing "Luckin’s actions harm the reputation of Chinese companies overseas." Fearing a possible bankruptcy, Luckin Coffee customers flooded their online app with orders redeeming free drink vouchers leading to a temporary rise in market share.
Europe
The coffee wars in the U.S. and Canada have promoted a rise in mergers and acquisitions in the European coffee market to better compete in coffee wars. In October 2018, the Italian coffee proprietor Illy merged with the German JAB Holding Company to reconfigure its market share. The two respective companies also announced that they will be producing espresso pods, to compete with Nestlé's Nespresso brand. European, and particularly Italian, brands struggle to compete in U.S.-based coffee wars due to their cultural rejection of third-wave coffee culture. However, their Italian identity is "a big advantage over the multinationals" with respect to espresso. The 2018 entrance of Starbucks and Nestlé into the Italian coffee market had Lavazza and Illy increase their merger and acquisition activity. In October 2018 Lavazza acquried Mars Inc.’s coffee business for $650 million while Illy signed a distribution deal with JAB. The Wall Street Journal reported that the European coffee market was worth $83 billion in 2018, estimating a 16% increase in 2019. The vice chairman of Lavazza, Giuseppe Lavazza, conceded in 2018 that Starbucks was competitive in the Italian market.
Along with the competition between coffeehouses, the manufactures of espresso machines have also competed to enlarge their respective shares. Typically coming in three styles, manual, automatic, and super-automatic, the advent of espresso pods, have lowered the market's barrier to entry. In 2010, Nespresso launched a home-brew method of pulling espresso shots by inventing a compact single-use coffee container. Typically contrasted with the more traditional ground coffee served by most major coffeeshops, the use of espresso pods have proliferated. In March 2014 Nespresso's patent expired, allowing Keurig and Green Mountain Coffee to market their own brands. From 2014 to 2018, Green Mountain was acquired by Keurig who was in turn acquired by Dr Pepper to create Keurig Dr Pepper. In March 2016, Starbucks announced a partnership with Keurig to distribute Starbucks-branded pods in their brewers officially entering the market. In April 2019 Starbucks launched a large suite of espresso pods, featuring all of their branded-espresso, with Nestlé. This linked the world largest coffeehouse with the largest pod-manufacturer. Since then many companies – including Italian manufactures Lavazza and Illy – have launched their own brands.
