McDonald's Corporation (NYSE:MCD) has fared extremely well in many overseas markets, but not in Greece. Why? Competition from local upstart Goodys.
Goodys has replicated McDonalds’ franchise concept of efficiency and convenience, but localized the menu and service—offering an array of Mediterranean products rather than burgers and fries. The rest is history. McDonalds has been closing stores in several locations, having 19 stores in the country with 11 of those in Athens.
To be fair, McDonalds tried to localize its product offerings and service, replicating part of Goodys menu. But it was too little too late, as both companies face a host of new problems -- competition from bakery and deli stores and a shrinking economy, due to prolonged austerity.
Nonetheless, the message is clear: McDonalds’ model of a standardized menu doesn’t work in countries with a strong local food menu.
Starbucks has fared better than McDonalds in Greece, maintaining most its stores around the country. But lately, it has faced intense competition by local upstart Mikel.
Launched in 2008 in Larisa—a northern Greek city where coffee drinking is a daily ritual— Mikel replicated Starbucks’ “third place” model in many respects: comfortable stores in central locations, a variety of coffee and juice drinks, and well-trained employees in black uniforms.
Most notably, Mikel seems to be a popular destination for young people, helping the company spread buzz and grow by leaps and bounds, beating Starbucks by a big margin.
In the northern city of Thessaloniki, for instance, Mikel already has 20 stores and Starbucks only 4—with some Mikel stores located right next to Starbucks. Worse, the rapid spread of the new chain seems to have put Starbucks on the defensive, fueling a price war not seen in other overseas markets.
Mikel’s success is fueled by five factors, according to entrepreneur Sakis Dionisopolos, who amassed a small fortune early on in his life starting and operating coffee shops in the Thessaloniki area. First, low commercial property values helped the chain open stores at an affordable rent in central locations. Second, soaring youth unemployment rates helped the chain recruit university graduates at low wages. Third, the rise of nationalistic sentiment among Greek consumers—a “buy Greek mentality” as a way of expressing their solidarity with fellow Greeks during the crisis.
Fourth, pricing—Mikel offers all sorts of discounts that entice price-conscious customers. And fifth, fashion and faddism.
Mikel is something new for the young people. “Young people get tired easily of the old,” Dionisopoulos added. “They got tired of Starbucks, and they will get tired of Mikel.”
They probably will. But the message again is clear: Starbucks’ business model is facing stiff competition in Greece and may end up going the McDonalds way.
But why should anyone care? After all, Greece is a tiny market, for both McDonalds and Starbucks. A complete exit from this market will barely make a dent in their overseas revenues.
Still, the Greek experience demonstrates the limits franchise chains face as they try to compete in a diverse world market environment -- where local upstarts can do what the franchise chains do, but better, by adding a local flavor to the value proposition. This trend is expected to intensify in a slow-growth world market environment -- which lowers barriers to entry through lower property values and wages, and revives nationalist sentiments among consumers.
