The coffee wars are on: Dunkin’ Donuts hopes to siphon at least some of Starbucks’ customers

dunkin-donutsby Dan Rafter

Dunkin’ Donuts is taking aim at Starbucks, expanding across the country — and on other continents — in an attempt to snatch business away from its higher-end rival.

Just look at the numbers: Last year, Dunkin’ Donuts opened its 12,000 restaurant, a lcation in Riverside, California. This new restaurant was important not just because of that nice, round number. It’s also evidence of just how aggressive the chain has become in launching new locations.

Dunkin’ has announced plans to open 300 new locations in the state of California alone during the next three years. Earlier this year, the chain said that it will develop as many as 69 new restaurants in Louisiana, while in December of 2016 it said it would add 65 new restaurants in the Dallas-Fort Worth area.

Nigel Travis, chairman and chief executive officer of Dunkin’ Brands, said that he isn’t ready to slow the chain’s expansion efforts anytime soon.

“Looking ahead, we plan to keep growing and innovating,” Travis said.

Randy Blankstein, president of the Boulder Group in Northbrook, Illinois, said that Dunkin’ Donuts is expanding in a strategic way. Not only is the chain adding locations, it is moving existing shops out of retail centers and replacing them with free-standing versions.

This is important, because free-standing Dunkin’ Donuts can offer drive-throughs. And it’s with these drive-through locations that Dunkin’ hopes to siphon off those Starbucks’ customers who don’t care so much about which coffee they drink in the morning as long as they can get it quickly and without getting out of their cars.

“These free-standing locations are higher-profile ones, but the key really is the ability to offer drive-through service,” Blankstein said. “When it comes to food and beverage, and breakfast, not having a drive-through for quick service is definitely a challenge.”

Is Dunkin’ Donuts’ strategy working? Is the chain picking off at least some customers with this move to free-standing locations?

According to Blankstein, it is.

Blankstein said that the new Dunkin’ free-standing locations are enjoying a higher volume of sales, and some of this business is coming from customers who might otherwise have driven a few blocks down to buy their morning coffee at Starbucks.

But this short-term increase in business doesn’t necessarily mean that Dunkin’ Donuts has found a weak spot in Starbucks’ coffee dominance, Blankstein said.

“They ae getting into some of Starbucks’ market share,” Blankstein said. “But is this sustainable? How much business can they pick up? Will they be able to make a real dent in Starbucks’ market share? That is the open question.”

For the immediate future, though, expect Dunkin’ Donuts to continue its latest strategy. Blankstein says that the chain will continue shifting to free-standing locations for the next three years, at least.

Overall, Dunkin’ Donuts plans to open 400 new locations in the United States. The company also plans to replace about 200 locations based in retail strip centers with free-standing versions. This means that Dunkin’ Donuts is, in essence, planning a sizable 600 new stores across the country, Blankstein said.

starbucksStarbucks, of course, is growing, too. And the coffee giant looks like it will remain a juggernaut in the coming years. Last year, Starbucks announced a five-year plan that will result in 12,000 new stores around the globe by 2021.

“Industry-leading innovation is driving our core business and creating further separation from competitors all around the world,” said Howard Schultz, chairman and chief executive officer of Starbucks, in a written statement. “I have never been more energized or excited about the opportunities ahead.”

There are certain Starbucks’ customers that Dunkin’ Donuts, though, will probably never be able to capture. These are the customers who treat Starbucks as a destination, a place to work, browse the Internet and meet with friends as they sip their high-priced coffee drinks.

Dunkin’ Donuts just has a different vibe that won’t appeal to these kind of customers.

“Dunkin’ is more of a transactional place,” Blankstein said. “You get your coffee and your doughnut and you leave. Starbucks is more of a meeting place. It’s not just about the transaction. It’s about spending more time. Starbucks are generally more upscale as a way to capture that audience. But there is an intersection of customers that Dunkin’ wants to get involved with, those customers who are just interested in getting a coffee quickly and moving on.”

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