McDonald’s Is Great, Starbucks Is in Trouble

Forget about what has been described as poor service at Starbucks Corp. (NASDAQ: SBUX) and that McDonald’s Corp. (NYSE: MCD) has become too expensive. Leave aside the fact that Starbucks baristas have a new dress code or that McDonald’s revenue is slipping. Leave aside the fact that Starbucks bathrooms are only open to paying customers. McDonald’s menu items are available all day. Starbucks often runs out of them.

Visit a Starbucks around 5 PM, at least in New York, Connecticut, or New Jersey. Baristas say they are out of menu items as early as noon. By 5 PM, the food sections are almost empty. At that point, Starbucks is a “drinks only” operation. Go to a McDonald’s at 11 PM. The story is different.

Which One Is Having a Better Year?

Neither of the huge fast-food companies is having its best year. McDonald’s revenue in the most recent quarter was $5.96 billion, down 3%. Per-share earnings slipped 2% to $2.60. Chair and CEO Chris Kempczinski did not have much of an explanation: “Consumers today are grappling with uncertainty, but they can always count on McDonald’s for both exciting new menu items and delicious favorites for exceptional value, from a brand they love.” The Washington Post had a different take, that the menu items had become too expensive: “Budget conscious people are going elsewhere.”

New Starbucks CEO Brian Niccol is off to a rough start, even though he considers himself a turnaround specialist. He has implemented a system with fewer menu items, trimmed corporate staff, and published a manifesto outlining how he plans to improve customers’ experiences and wait times.

Niccol turned in a mediocre quarter recently. Revenue was up 2% to $8.76 billion, compared to the same quarter last year. Earnings dropped by half to $0.34 a share. Speaking of his plans, Niccol said, “We are on track and if anything, I see more opportunity than I imagined.”

The market has been unhappy with both stocks, but Starbucks in particular has taken a beating, down 24% in the past three months.

A note to Starbucks management: Don’t run out of food.

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