February 09, 2004
It's a problem
I like the coffee at Dunkin Donuts, but the ambience (and the WiFi) at Starbucks.
Don't it always seem to go that you don't know what you've got til it's gone.
My paradise that got paved was that I didn't appreciate the Dunkin Donuts on every corner. I miss that place so much. No one makes 420 varieties of donuts out here. Powdered lemon-filled. Or crullers! God, i miss crullers.
Um, Sherm, Dunkin' Donuts doesn't make crullers anymore, either - they stopped last year. Yes, it's a crull, crull world!.
Get what?
A very timely article (believe it or not) from today's Wall Street Journal:
Latte Versus Latte
Starbucks, Dunkin' Donuts
Seek Growth by Capturing
Each Other's Customers
By DEBORAH BALL and SHIRLEY LEUNG
Staff Reporters of THE WALL STREET JOURNAL
There's a new brew-haha in Latte-land.
For years, the product lines of the major U.S. brewed coffee sellers have been well defined. On the high end there is Starbucks Corp., with 5,439 locations in the U.S. During the past decade, the chain has made its expensive cappuccinos, frappuccinos, espressos and lattes part of the regular lexicon. On the other end, there is Dunkin' Donuts, which has 4,100 stores. Although concentrated in the Northeast, Dunkin' Donuts is the nation's largest seller of regular, nonflavored brewed coffee through fast-food outlets, with a 17% market share, compared with 15% for McDonald's Corp. and 6% for Starbucks, according to market-research organization NPD Group.
Now, both companies are seeking to stir things up. Starbucks increasingly is looking for growth by opening stores in blue-collar communities where Dunkin' Donuts would typically dominate. Last month, when the Seattle coffee chain reported fiscal first-quarter earnings, executives gave much of the credit to its 10% jump in sales at stores open more than a year to this broadening demographic. Its coffee, explains Howard Schultz, Starbucks chairman and founder, is "an affordable luxury."
At the same time, Dunkin' Donuts, a unit of United Kingdom spirits group Allied Domecq PLC, wants to lure Starbucks's well-heeled customers with a new line of Italian brews that it claims it can deliver faster, cheaper and simpler.
"Espresso has become mainstream in America," says Jon L. Luther, chief executive of Allied Domecq's restaurant division, which also includes Baskin Robbins and Togo's. "And who does mainstream better than Dunkin' Donuts?" Its advertisements tout the same idea. One billboard reads: "Latte for Every Tom, Dick and Lucciano."
Last September, Dunkin' Donuts introduced its new cappuccinos and lattes in New England and is now launching the line in other stores in the U.S. A major ad blitz started in New York City last week. The company had expected the espresso products to represent 5% to 10% of store sales, and New England stores are already inside that range.
On average, the new Dunkin' Donut drinks cost at least 20% less than Starbucks's offerings -- and an espresso shot is just 99 cents, compared with $1.45 at Starbucks. The Dunkin' Donut drinks are labeled a no-nonsense "small," "medium" and "large" as opposed to Starbucks's "tall," "grande" and "venti." And Dunkin' Donuts has trained its staff to serve them quickly; the company worked with a Swiss manufacturer to develop equipment that makes a real espresso and fresh steamed milk in less than a minute.
"I can order a plain medium caramel latte and not deal with all that fancy stuff," says Kathleen Brown, a 30-year-old Boston lawyer who used to treat herself to a $4 Starbucks Caramel Macchiato but has switched to Dunkin' Donuts, where it costs much less.
To some Dunkin' Donuts regulars, though, the new sophistication is a little too much. Pat Kelly, a 26-year-old Boston police recruit who drinks Dunkin' Donuts coffee daily, refuses to try the new Dunkin' products (and never goes to Starbucks). The only guy in his group of police buddies who tried a Dunkin' latte got a razzing. "I'm not really a latte sort of guy," he says. "Those are yuppie drinks."
"I'm sure there are a number of folks who might be embarrassed" about buying a latte, Mr. Luther admits. "But espresso has gone mainstream, and for us to ignore it would be irresponsible."
So far, Starbucks's Mr. Schultz is taking a high-minded approach to the threat from his downscale competition. In an interview, he says he feels no pressure to lower the chain's famously high prices. "If Dunkin' Donuts is going to spend millions of dollars [in advertising] on coffee and espresso, that is really beneficial to Starbucks business," he says. "I wouldn't be surprised if our business goes up as a result."
Meanwhile, Starbucks, where regular drip coffee starts at $1.50 a cup, is pushing into Dunkin' Donuts' traditional territory. Mr. Schultz says the idea that Starbucks could appeal to any income level came on a visit to a Chicago store several years ago. He noticed limousine drivers running in to pick up coffee for passengers. No surprise there. But he also saw a driver of a United Parcel Service truck running in, too. "I think he's going to make a delivery. No, he gets in line," recalls Mr. Schultz. "He has a 10-year-old thermos. He gets in line and asks, 'Can you fill up my thermos with two double lattes?' "
Starbucks formalized its march to open stores in low-income communities in 1998, establishing a partnership with former Los Angeles Lakers player Magic Johnson to open stores primarily in black and Hispanic communities. Mr. Johnson's Johnson Development Corp. operates theaters, T.G.I. Friday's restaurants and other retail businesses in urban areas.
To date, Johnson Development has opened 57 Starbucks, from New York's Harlem and Staten Island to Inglewood, Calif., with plans to open up 68 more over the next several years. Starbucks has already taken lessons learned from the Johnson partnership to apply them across the system, influencing the site selection of hundreds of other stores.
Sales at these Johnson stores mirror the robust performance of the rest of the North America, which reported a 12% increase in same-store sales for January. These stores charge the same prices as any other Starbucks.
Marketing focuses on reaching out to local pastors and serving Starbucks at church coffee hours. "When you come into minority communities, church plays a very significant role," explains Ken Lombard, president of Johnson Development in Beverly Hills, Calif.
At a Starbucks that opened in the largely blue-collar South Side of Chicago, the upscale coffee house stands out among its neighbors: a check-cashing outfit, a Dunkin' Donuts, a McDonald's and JJ Fish & Chicken. So rare is a Starbucks in this locale that it's a popular first-date place, says store manager Monica Perez.
The price doesn't seem to be an issue. Last week, Jose Bahena, a 20-year-old Chicago metal shop foreman, plunked down $4.02 for a grande Frappuccino, the chain's signature creamy coffee drink. Mr. Bahena, who says he makes about $20,000 a year, comes to Starbucks four times a week. "It's so good," he says. "You have to pay for something good."
Write to Deborah Ball at deborah.ball@wsj.com and Shirley Leung at shirley.leung@wsj.com
Yah, what's with Starbucks? Geesh, they are the coffee company that ate the planet. I remember their little carts on the street corners in Seattle back in the late 80's. Ahh... those were the days... back when Starbucks and Nirvana could only be found in Seattle.
To me, Starbucks will always be a city coffee and Dunkin' Donuts will always be a suburban coffee.
While working in The Hancock building, I would pass 3 Starbucks on my walk to the Bookstore in the Prudential mall.
Now, on my way to work from Brighton to Walpole, I pass 5 Dunkin Donuts and those are just the ones on MY side of the road during a reverse commute. Not one Starbucks.