Monday, November 20, 2006

Coffee Competition

Say "biggest national chain of coffee shops" and most people will think Starbucks. They're wrong. MarketingProfs writes about America's biggest coffee retailer in terms of cups sold: Dunkin Donuts. 

The interesting part is that Starbucks and Dunkin Donuts are not really competing head on.

The campaign is a portent of the chain’s plan for national expansion over the coming decade, and in many locations in the Northeast, Dunkin’ Donut stores sit cheek by jowl with Starbucks’ stores. Media scuttlebutt has it that Dunkin’ Donuts is aiming to have about 15,000 stores nationwide by 2015, which is unconfirmed by the company. However, Mr. Rodriguez has gone on the record stating that the company has its sights set on “$10 billion in sales by 2010.”

Rather than trying to compete with Starbucks as another “Third Place,” it looks like Dunkin’ Donuts is leveraging its unique strengths to position itself in an entirely different way. Armed with its staple Original Blend that thousands of fans eagerly consume on a daily basis, and a full range of flavored coffees, espresso products, chai and hot chocolate, beverages contribute over 60% of the company’s total sales. Legions of faithful fans prefer Dunkin’ Donuts coffee over Starbucks and every other brand.

That brand loyalty is something. I'm from New England, which means that when I started drinking coffee, it was usually from the Dunkin Donuts in my hometown in Connecticut. And whenever I'm back in that part of the world, I usually find myself gravitating back to the familiar pink and orange sign. (And while there are five Dunkin Donuts locations in Houston, I've never set foot in one, and not just because they're in remote suburban locations: somehow, it just doesn't seem like a Texas thing to me.)

Maybe, as a friend once joked, they just put crack in the coffee so you're hooked for life.

Calling the market where Starbucks and Dunkin Donuts operate the "coffee shop market" misses an important point: markets can be mapped and segmented in all kinds of ways, and companies that stake out the right places in those markets don't get into difficult, profit-killing battles as much. I would guess that Starbucks and Dunkin Donuts often have the same customers - just at different times. Dunkin Donuts on your way to the office, Starbucks to sit a while and relax. It's a good approach for both companies.


Mary Schmidt said...

Isn't it sad that Krispy Kreme didn't do some similar thinking? They had a terrific cult brand. It's almost like they wanted to kill it.

I can no longer get KKs in Albuquerque. The franchisee for NM and Az declared bankruptcy. In part due to, I have to think, overexpansion.

katrog said...

As a "cradle Dunkster," I have been dismayed by the degradation of the coffee over the years--it totally depends on which franchisee you frequent--most of it is too weak to be drunk. It reminds me of the old New Yorker cartoon which has some product development geeks saying"No matter what we put into the computer the answer to how do we improve profits is "add more cereal to the hamburger". In the case of coffee it's add more water. As for Starbucks, those dreadful, inferior overroasted beans are a travesty--or a clever marketing ploy, since the only way to make them palatable is to load them up with whipped cream, sugar, and cutesy flavorings and a $4 price tag.

Bah, humbug :)


p.s. I also think there is more to the segmentation than time of day--but I have to have more caffeine in my system to figure it out;)