Why Dunkin’ Is Taking On Starbucks And Betting On Coffee

Why Dunkin’ Is Taking On Starbucks And Betting On Coffee


Dunkin’ is placing a
huge bet on coffee. When you walk into a Dunkin’
today, you’ll notice way more coffee options and far fewer donuts than you
would have just a few years ago. And it’s not just drip
coffee on the menu anymore. There’s everything from Cinnamon Sugar
Pumpkin Lattes to Coolatta’s to premium espresso. At the chain’s newest stores you’ll even
find Nitro Cold Brew on tap. It’s all part of Duncan’s $100
million investment to refresh the brand and become a
major player in coffee. CEO David Hoffmann believes espresso is
key to fueling the company’s long term growth. The aggressive push into beverages comes
at a time when the coffee wars are heating up. Competitors like McDonald’s are
slashing prices through deals. While coffee giant Starbucks is taking
bets on more expensive drinks, a revamped loyalty
program and delivery. But Duncan’s rebrand strategy encompasses
more than just coffee. The company also wants to aggressively
expand across the country and revamp its restaurants
with new technology. The chain changed its name, simplified
its menu and started rolling out new store designs. It got a new CEO and made
some changes to leadership at the top. Dunkin’ needs this
strategy to work. Traffic in stores has slowed and
annual comparable store sales at Dunkin took a one
percent dip in 2017. While slow traffic and lagging same
store sales aren’t unique to Dunkin’, they are dialing up
pressure on the chain. So will that $100 million dollar
investment be enough to fuel Dunkin’s move into the big
leagues with McDonald’s and Starbucks? Or will the hit to profits just
cost the company in the end? Dunkin’ got its start
here in Quincy, Massachusetts. When Bill Rosenberg left school in
the eighth grade, he dabbled in catering but soon realized 40 percent
of his revenue came from two simple products —
coffee and pastry. In 1948, Rosenberg opened a restaurant
that sold five cent doughnuts and 10 cent cups of coffee. Two years later, Rosenberg renamed
the restaurant “Dunkin’ Donuts”. The restaurant was a hit. In 1955, the first
Dunkin’ Donuts franchise opened. That same year, the first
McDonald’s franchise opened too. By 1963, Dunkin’ Donuts
opened its 100th location. “This is one of the original
publicly traded 100 percent franchise businesses. I mean, it’s a
true asset light model. Versus, you know, McDonald’s is trending
towards its 92 or 93 percent franchise globally, moving towards 95,
Wendy’s is 95 percent, but they weren’t there five years ago. Whereas Dunkin, when it went public, I
think in 2011, it was already 100 percent franchised. And it really built the appreciation
for those types of businesses in the industry.” That growth model worked
well for Dunkin’. Franchising meant fewer actual
assets and higher profits. Dunkin’ started expanding internationally in
1970 when it opened its first overseas location in Japan. As of Q2 2019, there are over
12,800 Dunkin’ locations, in more than 40 countries. Dunkin’ Brands went public in 2011,
selling around $423 million worth of shares. For comparison, Chipotle raised
$193 million when it went public in 2006 when
adjusted to 2011 dollars. Then CEO Nigel Travis told CNBC,
the company would use profits from its IPO to expand West and
internationally and pay down its debts. Analysts said the stock was overvalued
because its price hinged on the hope that Dunkin’ would recreate
its success in the Northeast, across the rest of the country. At the time of the IPO, there was
only one Dunkin’ Donuts on the West Coast, in Portland, Oregon. The company has since expanded its
West Coast presence with 102 locations in California and 12
in Hawaii as of 2019. But even as Dunkin’ has pushed to
grow its footprint west of the Mississippi and internationally, it
hasn’t forgotten about the Northeast. Dunkin’ is the largest chain in
New York City for the tenth consecutive year, with 624
locations as of December 2018. In 2018, after 70 years of
Dunkin Donuts, the restaurant dropped the doughnuts and became just Dunkin’. “We think about it less about
dropping doughnuts then just leaning into Dunkin’. Dunkin’ is
what we’re known as for almost 20 years. We’ve been America
runs on Dunkin'”. Beverage sales make up almost 60
percent of Duncan’s revenue, so growth in the category is essential
to the company’s overall health. In 2017, Dunkin’ told Nation’s
Restaurant News, that most stores would offer fewer than
20 different donuts. That was a big decrease from
the 30 varieties it typically offers. While Dunkin’ has simplified its food
offerings, it keeps adding to its coffee menu. For about
45 years, Dunkin’s coffee offerings extended only to its
original blend drip coffee. But in 1997, Dunkin’ decided to make
a big push into the beverage market. That was the year it
rolled out the Coffee Colada slush drink. In 2000, Dunkin’ started
selling the blended Dunkaccino. And by 2003, it
began to offer espresso. Dunkin’ relaunched its espresso lineup in
2018 with new machines, new recipes and new
training for employees. It’s a move some say has a whole
lot to do with Dunkin’ angling to become a premier brand
on par with Starbucks. “I think that the initiative to
modernize would absolutely come from their largest competitor, which is
Starbucks, which it has really reinvented what coffee means to
consumers on a daily basis. So, yeah, it’s always good to kind
of have a, you know, an arch enemy, if you will, out there, a
bad guy, whatever you want to call them, because they force you
to stay on your toes.” It seems to be working. Espresso sales for Dunkin’
are on a tear. In its annual report
for fiscal year 2018, Dunkin’ U.S., said it
sells approximately 1.7 billion servings of hot and iced
coffee each year, and espresso accounts for about 10 percent
of Duncan’s overall sales mix. The company reported sales of espresso
based beverages were up 40 percent in the second quarter of
2019 when compared to the year prior. “That move into
the espresso beverages, this is a space that their key
competitor really owned and had an advantage over them. Think about the length of the
order that somebody might give a barista at a Starbucks, for example, versus,
you know, just a cup of coffee at Dunkin'”. But Dunkin’ can’t just
mimic Starbucks to succeed. It needs to stay true to its brand. Dunkin’ is all about a quick,
affordable menu and making trends accessible to everyone. That’s not necessarily a
natural fit with espresso. So analysts warn that Dunkin’ has to
be careful about its move into espresso. Customers are typically suspicious when
a brand tries to do something that doesn’t
feel authentic. But if Dunkin’s espresso based beverage
sales so far are any indicator, this product could unlock
big potential for the chain. However, coffee remains a crowded market,
and Dunkin’ is fighting for market share against
some formidable opponents. Starbucks with its vast footprint,
McDonald’s with all day breakfast and the regional but beloved
Tim Hortons and Krispy Kreme. As of September 2019,
Dunkin’ has a $6.8 billion dollar market cap and its shares
are up about 8 percent over the last 12 months. But, it still has a ways to
go to compete with giants like McDonald’s and Starbucks, which have about a
$167 billion and $115 billion market cap, respectively as
of September 2019. In fiscal year 2018, Dunkin’ U.S.’s sales were also dwarfed
by the competition. Dunkin’ reported revenues of $606.8 million dollars. McDonald’s sales were more
than 12 times that. And Starbucks brought in $16.7 billion in the Americas,
which includes the U.S., Canada and Latin America. Espresso is a premium product and
typically costs more than other beverages. That means it pushes the
average check price higher, which in turn makes up for slowing
traffic because people are spending more when they do walk through the door. In 2018, a party’s average check
at Dunkin’ was eight dollars and five cents. That’s higher than
its Canadian competitor, Tim Hortons, but lower than Starbucks. The most recent check averages don’t include
2019 data, so it may be too soon to measure Duncan’s
revamped espresso lineup, which started to roll out at the end of 2018. Dunkin’ has long struggled with how
to drive up afternoon foot traffic. It has extended cold beverage
offerings and offered deals ranging from two bagels for $4
dollars to $2 lattes. “The beverages in the
morning, that’s their core. And that’s where the
franchisees make their money. But as far as the afternoon
business is concerned, the “Dunkin’ Run” and the “Go2s”, a lot of times
those promotions, if they are on beverages, they’re usually after two
o’clock in the afternoon. So, you know, the afternoon “Run”
seems to be stabilizing the afternoon business.” Dunkin’ Brands has also tried, and
arguably failed, at using ice cream to drum up afternoon sales. Baskin Robbins and Dunkin’ are
both operated under Dunkin’ Brands, but Baskin hasn’t performed
as well as Dunkin’. Its sales growth
has been lackluster. From 2007 up until it changed
course in 2011, the chain posted negative annual comparable
store sales. Baskin Robbins again posted negative same
store sales for the fiscal year 2018. Analysts say, Baskin might not be adding
much in sales to the brand, but it’s not
really deadweight either. A dual store with both a Baskin
and a Dunkin’ is attractive to some franchisees to boost sales outside
the morning coffee rush. A dual store costs as little as
ten thousand dollars more to open than a standalone Dunkin’ and
doesn’t require extra workers or machinery. Dunkin’ is also trying to keep up
with change in the fast food industry by testing plant based meat
and a partnership with GrubHub in some locations. “The online ordering system now
is much more robust. And our guests can get products
anytime they want, anywhere they want. And, you know, we’re living
in a culture now of everything being on demand. Now you can
get your coffee on the demand.” Dunkin’ started offering Beyond Meats
sausage in Manhattan, and the company says, it’s selling well
and drawing repeat customers to Dunkin’. Dunkin’ has been testing
delivery through partnerships with GrubHub, DoorDash and
other local companies. It plans to expand the partnership
with GrubHub to other major cities in the U.S. “Consistency of experience. It’s not a big deal when you’re ordered
from a mom and pop pizza or taco place. But for us,
the consistency is really important.” But there are unique
challenges in delivering coffee. Experts say Dunkin’ and other cafes might
not be a natural fit for delivery, because coffee has to
maintain its temperature to be appealing. Think, watery iced coffee
or a room temperature latte. It’s also betting big
on store format. Part of that $100 million cash
injection went toward the rollout of an entirely new kind
of Dunkin’ shop. It’s a layout called the “Next
Generation” store and Dunkin’ hopes it will modernize the brand’s image
and keep it relevant for the next
generation of customers. Dunkin’ plans to add 200 to 250
net new restaurants a year for three years starting in 2019. “It completely changes the way the
customer interacts with our crews. There’s nothing between the crew from
the customers, so the customers can now engage with our crews and
ask questions and learn about the product.” Dunkin’ says the new store is
slightly more expensive than previous remodels because there’s more
technology in this design. The company didn’t disclose the cost
of the new layout to CNBC. “The returns are actually very exciting
and better than the previous iterations. So working very closely
with our franchisees, we’ve gotten to a place that we feel
very good, both sides on the investment that they’ll be making
for this next gen transformation.” Next gen stores are also a big
part of Dunkin’s push to digital ordering. Mobile ordering is another
area where Starbucks has Dunkin’ beat. About 4 percent of orders
at Dunkin’ are made through mobile phones. At Starbucks the number
is closer to 16 percent. Experts are optimistic that the next
gen store will improve that metric. The designs have a larger space
for people who are picking up online orders. “And the next gen store has an
even bigger area dedicated to this and we’re seeing probably twice the average
percentage of on the go orders through the next gen
stores, which is tremendous.” Some of the new stores also have
a dedicated mobile lane in the drive thru. That should help prevent bottleneck
issues like the ones seen in some Starbucks when the company
added mobile ordering in 2017. Next gen stores also have an 8
tap system for cold drinks, just like the doughnut cases it’s all about getting products in
front of customers to increase how much they spend. With drinks on
tap, crew members function more like bartenders than baristas. “Bartenders are quick
on their feet, they know your name, they
know how to sample drinks. But most importantly, they’re great
at serving the customer.” As of 2019, customers rated the barista
expertise at Dunkin’ at a 90 out of 100. Starbucks scored
at 94 out of 100. While McDonalds was lower at 78. In its next gen stores Dunkin’
hopes that number will go up. Dunkin’ has been a reliable
brand throughout its existence, growing at a slow and steady rate. It hasn’t had any major scandals like
some of its competitors and its franchisee relationship is strong. So how has Dunkin’ maintained
solid and steady growth? One expert says, it all
comes down to loyalty. Dunkin’ ranks pretty high in
satisfaction, slightly below Starbucks, but above McDonald’s, according to
the American Consumer Satisfaction Index. But if satisfaction is a
moment in time, loyalty tells the future. And, it is in
metric where Dunkin’ shines. For 13 years through 2019, Dunkin’
has ranked number one in consumer loyalty in the out-of-home
coffee provider category. In the packaged coffee category, it’s
been number one for eight years. That’s no easy task in
a field as competitive as coffee. Robert Pascal, whose firm measures
consumer loyalty, says having highly loyal customers ensures that they’ll
come back again and again and again. “When we look at all the metrics
against old rivals, against all the expectations is up at
about 95 percent. That’s pretty good. You look at someone like Starbucks and
they are a little bit lower.” And loyalty is valuable to a brand
for more than just its bottom line. Loyal customers are more likely
to buy products associated with the brand. Recommend the brand to
others and invest in publicly traded stocks. Despite low traffic
and intense coffee competition, Dunkin’ is betting that new
logos, sparkling espresso machines and trendy partnerships will be enough
to help it grow up.

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About the Author: Oren Garnes

91 Comments

  1. I went to Dunkin's once for coffee (basic black coffee) and it took an eternity and the store was not even that busy. I'll stick with Starbucks, because of less wait time.

  2. y’all for the last few days i have been thinking about trying dunkin donuts coffee to see if it’s better than starbucks and then this video shows up in my recommendations… i’m not saying it’s not a coincidence but, it’s not a coincidence

  3. Not sure about what other people experience is like, but every employee I've come across at Dunkin has been rude. Starbucks is overpriced but their service is awesome.

  4. I work at Dunkin. I left a full time job in a hospital as a housekeeper just to work close to college. I have been yelled at so many times that sales are down and have been pressured to sell espresso drinks…. It all makes sense now. It is the employees too that are the problem. They hire people that are immature. I often feel like I lead people better than a shift leader. I can’t believe we are being pressured to beat Starbucks.

  5. haha Espresso pushing up the bill just sounds funny when you live in italy, they are like 30-60p, here it's the cakes that push up the price.

  6. Dunking Doughnuts just isn’t as classy as Starbucks. They appeal to your average joe while Starbucks is more upscale in its nature. Just the brands colors are reminiscent of hippies and tie die shirts. They would have to start over with the basic to better compete with Starbucks. I also want the tuna fish back on the menu.

  7. I respect Dunkin' for this. I guess that's the reason for the name change. I never hated Dunkin but I'm okay with giving them even more of my business.

  8. The winner for me will be the 1st one to offer low calorie frozen coffee drinks. Gotta get it in the low 200 calorie range for a medium.

  9. Dunkin’ Donuts actual donuts aren’t good at all ! So maybe coffee being their new focus can help however invest in the primary reason people are coming !

  10. FUN FACT: The day our new Gen store opened, an old lady came up to me YELLING with a complaint saying I SHOULD CHANGE THE LOGO outside, ME, a teen trying to work a job… not own a store. Old people I swear lmfao.

  11. Not to be harsh, but I always used to wish Dunkin Donuts served better coffee. I definitely want to try them out now. I don't eat donuts because they're not healthy. A coffee in the morning is enough sugar for me, after that maybe a bagel, croissant, egg ect.

  12. Literally prefer Dunkin Donuts over their prices and the obvious. THEY HAVE DONUTS. Starbucks barely offers any snackage as it is and I ain't having it.

  13. Not gonna lie, the DD in my country taste so nice. Though when I was in the US I tried their Boston Cremè and it tasted so bad. Though their coffee was amazing and it hit me in a “why are they focusing on coffee more than donuts” and this explains a lot.

  14. That so cool! I like drinking espresso ☕️ . Will try Dunkin, unfortunately it’s doesn’t have Dunkin in Cambodia 🇰🇭!

  15. That so cool! I like drinking espresso ☕️ . Will try Dunkin, unfortunately it’s doesn’t have Dunkin in Cambodia 🇰🇭!

  16. That so cool! I like drinking espresso ☕️ . Will try Dunkin, unfortunately it’s doesn’t have Dunkin in Cambodia 🇰🇭!

  17. Dunkin Donuts is more reasonably priced with a better flavor but I'll still brew my own coffee and put in a thermos or non spill mug. If I burn my lips I'm the only one I can sue and I won't pay if I lose but oh well 🙂

  18. I have a Dunkin card and love the ice coffee when mixed right. I almost always use the drive thru. However, I have experienced the store computer "off line" several times and a general inconsistency in the coffee taste at different locations. Without a computer to connect to, I cannot use my mobile app to order. The inconsistent taste has driven me to a competitor (Mc) which has the same taste with every cup. I'd say these are two areas needing improvement.

  19. Please don’t compare dunkin to Starbucks , that’s like comparing dollar tree with Nordstrom stores . Dunkin has a lot improvements to work on starting with their worthless employees

  20. I love the Dunkin’ Donuts in my home town. The coffee is so good and so are the donuts. Every other dunkin I’ve been to has been pretty ghetto. I typically go to Starbucks more. It’s nicer and their lattes, and speciality drinks are better.

  21. I like the dunkin cold coffee in the plastic bottle, please keep up the awesome coffee, one thing I'd like to ask is that through each sale the coffee farmers make a grant to live better, please?

  22. Papa murphy's is winning vs most resturants , taco time is hurting the menu catagory when you go against the founder's idea you lose money

  23. CNBC THE LIBERAL Kiss butt news station has lost its logic , forgot that Mcdonalds started in reality in the late to mid 1940's , Dunkin Donuts has no chance against McDonalds , Starbucks simply because McDonalds , StarBucks did not drop the things that they are more then well known for , what they have been doing since day one of the first franchise but Dunkin has stupidly dropped what they are well known for just to try to comete against those that they think they can get a better leverage , handle at -That was a illogical , bad business move along with the dropping the donut name in what they are known for so in logical business sense Dunkin will fade out gradually , StarBucks & McDonalds will keep going strong , able to comete in other ventures as well along the way so if Dunkin does not bring back what they are most known for since its Inception into the business world of franchised businesses they will fade faster then Winchell's Donuts did. This I know to be more the logic, fact because I have a better focuse , sense in & of business the CNBC Will ever -I am known as a Business Advocate since 2004.

  24. I go on 0-2 coffee dates a week with my husband and it’s never to Dunkin, only Starbucks. Dunkin is an old brand. It doesn’t evoke the same sophistication and cool that Starbucks does. Granted, if I need a quick breakfast for a road trip and I’m not near a McDonald’s, I’ll probably go to Dunkin. But I don’t like spending frivolous money on coffee to begin with, so I get the best of both worlds when I go on a coffee date (instead of a dinner date) to Starbucks. The Dunkin brand is not appealing to me.

  25. A friend of mine recently went to Starbucks in Belgrade that recently opened, a first in my country. He was disappointed 5$ for a cup full of ice with barely any coffee in it and they asked him does he want coffee in his frappuccino (I think that's what he took) he was shocked because he doesn't understand how can you sell coffee with no coffee, I don't understand it also but I assume they actually sell drinks that have coffee in them but are not coffee.
    I wanted to go and try their coffee but he told me it was nothing special so I never went.

  26. Dunkin's employees in my neighborhood are too obese, therefore  they can not walk and the line get too long. 15-20 customer wait on line even 6am in the morning.

  27. Dunkin if you are watching this please train your employees to make better coffee. Also your donuts are horrible they are the same donuts of my childhood.

  28. "Yeah, nah. We're not dropping the Donuts, we're Leaning into Dunkin".. Yeah, I'm sure it has nothing to do with the fact that the younger generations love coffee shops, yet are very health conscious. And donuts are pretty much the poster child for what is considered unhealthful these days.

  29. I am a TEA Drinker, I rarely drink Coffee.But, Some of both franchises Food Items are Delicious!!!😛 WAWA is another competitor that was NOT Mentioned in this Video!!

  30. Dunkin won't ever catch Starbucks because they care catered to different kinds of customers. Dunkin is more like a pitstop middle class brand. They can't make rich coffee because their customer base prefers medium roast and milder flavors. They sell a dark roast which end up costing more $ than starbucks coffee. The problem with DD is the training and consistency is terrible. The espresso tastes different from each store. The ice coffee they make is as weak as black teas and too much ice. This is why a typical DD drinker has to drink a 32oz while a smaller grande cup of starbucks has more caffeine. The roast DD uses just doesn't give much buzz compare to Starbucks or any other Italian or French style coffee.

    In Europe it's all about the roast, this is why many Europeans drink espressos for the burnt and deep rich flavors. Now many DD drinkers can't stand the burnt and sour taste because they prefer milder flavors and espresso is very bitter and burnt taste. Espresso is not a great seller at DD for that reason.

  31. Order your coffee black and you'll see why Starbucks is winning and why I pay little xtra to make sure I don't get water down coffee.

  32. Starbucks. Crap coffee for Snowflakes, Progressives, and Antifa. Most of it harvested by child labor and peasants that live in straw huts. But liberals, ony care about that caramel macchiato . Dunkin' (Crappin') Donuts? Horrible! Most of the time, donuts are hard, stale, frosting completely crumbles away onto your lap. Coffee is nuclear hot and resembles a flavor of kerosene and guano tea from a Chinese herbal shop.
    Stick with your local convenience store/diner coffee. Stick with coffee, you make yourself. We always travel with our coffee pot (EVERYWHERE). Hotel coffee (No matter the chain of hotel), is just revolting & has less caffeine in it than bottled tap water.

  33. So where in the game is Mister Donut? I used to work across the street from one and I enjoyed their glazed old-fashioneds.

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