Hi Ted,
I'm a "Coffee Snob" finally and purchased the top of the line coffee maker, special cups, etc. and set up a special place for a coffee & tea bar.
Dunkin was #1 when I visited Florida. I haven't seen one in L.A. In California, I drink Peets. Here's there investor page:
http://investor.peets.com/stock.cfm

Peet's was the original inspiration for now-rival Starbucks. Peet's has been much slower to expand than Starbucks, but they do the expansion in style--opening in great locations.
If you can't get Dunkin try Peets. This isn't a commercial. But it needed 2 cents wotth honoring those that want coffee fresh. Thanks for enlightening us on coffee. It totally goes with using a laptop, editing a song or film, being around friends, building another website or writing you while eating your Dunkin donut at the same time.
Kathy

As a native New Englander, I have to admit I get a kick out of Dunkie's being #1. Their brand has always been a bit New Englandish: straightforward, unpretentious, practical, nothing fancy... And now they have a hip overlay with their new ad campaign, which I love.

It will be interesting to see how Dunkin Donuts goes national, but they already have gone international. I was in Budapest 6 or 7 years ago,and there was a DD there.

Being a New Englander, I knew the answer to your headline right away. What people outside of New England sometimes don't understand (Krispy Kreme comes to mind...) is that it isn't about the donuts at Dunkin', it's all about the coffee. They have, literally, built their brand on the coffee and do it quite well. I saw signage in the DC airport a few months back with a Dunkin' ad that simply said something like, "Our middle name is coffee". Perfect!

Their new slogan is great as they get ready for, what appears to be, massive expansion. They are, in my humble opinion, good marketers and should do just fine as they branch out.

Good post - love it when our first answer "Starbucks" proves wrong upon further examination!

I once had a client who had this motto: "revenue kills but margin thrills".

Being a bit slow on the uptake I had to ask him what it meant.

At the time he was in competition with another construction company whose public aspiration was to be one of the top 25 in the US.

He said being number one is great only if you can keep your profit margin high. Otherwise fulfilling clients that are generating all that revenue but not producing much profit is a drag.

My question: what is the profit margin on a cup of Starbucks vs. Dunkin'?

I'm not a coffee drinker so I am kind of out of the loop on this - but I DO love donuts!

Thanks for some great input and observations. Kathy: you're right. There are regional coffee favorites around the country, just as Dunkin' is. With a great product and the right marketing and positioning, they're ready for national expansion and a go at Starbucks now. Maureen: you've hit the nail on the head. The authentic, unpretentious Dunkin' brand offers coffee afficianados real value. Donna: you're absolutely right. Dunkin' always used to say in its ads: It's time to make the donuts. But the customers knew it was all about the coffee. From the very beginning!

Ted,

We coffee drinkers are a passionate lot, and provide great examples of brand evangelists. However, I think we are a little off on comparisons. Here are the numbers and their source:

Every week, Starbucks sells 40 million espresso drinks.--Business Week, Sept. 2006

There are about about 6,000 stores in the U.S.--Starbucks

The original owners now own Peet's and they sold Starbucks two decades ago. The current Starbucks bears no resemblence to the former, including the logo changes.-- Various sources.

Here is the primary reason the comparisonn between the two companies cannot be made:

Starbucks focus is espresso drinks; Duncan Donuts focus is cups of coffee; Starbucks is a specialty coffee company; Duncan Donuts is not. The two cannot be compared side-by-side and they compete for and target different markets.

Hope this is helpful. My disclaimer: I once worked at Starbucks corporate as a manager.

I love Dunkin Donuts' coffee!! it is the best and I do go out of my way to get it when I can. they took it out of my little town of Indiana PA - so I don't get it very often.
Now there is a new Starbucks opening up here -- which amazes me - It will be interesting to see how well it does.

Michael, again Starbucks sells cups of coffee but it specializes in espresso drinks, so its revenues and margins are driven by espresso drinks and bulk coffee sales. It is not a competitor of Duncan Donuts, and it is unlikely that it ever will be. Comparing the two is similar to comparing Target to Nordstroms. Different products, different markets.

Net revenues for the 13 weeks ended July 2, 2006, increased 23% to $2.0 billion from $1.6 billion for the corresponding period of fiscal 2005, driven by increases in both Company-operated retail revenues and specialty operations. Net revenues are expected to grow approximately 20% in fiscal 2006 compared to fiscal 2005.
During the 13-week period ended July 2, 2006, Starbucks derived 85% of total net revenues from its Company-operated retail stores. Company-operated retail revenues increased 22% to $1.7 billion for the 13 weeks ended July 2, 2006, from $1.4 billion for the same period in fiscal 2005. The increase was primarily attributable to the opening of 955 new Company-operated retail stores in the last 12 months and comparable store sales growth of 6% for the quarter. The increase in comparable store sales was due to a 4% increase in the number of customer transactions and a 2% increase in the average value per transaction.

ted, starbuck is one of those brands, you know, like apple, harley-davidson: just can't discuss with us evangelists.

Michael & Lewis,

Thanks for the provocative input, as usual. Actually, Lewis, Dunkin Donuts has been getting more and more into specialty coffee drinks. In fact, its growth is directly coming from flavored coffee, espresso and chai tea products. Starbucks had better watch out!

As a native New Englander, and huge coffee drinker, I add my vote for Dunkin Donuts, as well as Green Mountain Coffee Roasters (my absolute favorite brand). I am not a Starbucks fan; as a customer I cannot get a basic cup of coffee in those stores. The customer gets the exotic brew of the day; at Dunkin I can get their house blend. It's consistent, strong (thank God) and excellent. Dunkin Donuts has an interesting brand and I personally think it will do well as it expands into other regions of the country.

Gianandrea,
Thanks for weighing in. Competition is the best thing for every brand. Keeps every company sharp, and hopefully, the customer is the beneficiary of keen competition.

Lewis,
Beverages account for 63% of Dunkin Donuts sales, and since 2000, sales of its espresso products have jumped 68% according to the company. As Dunkin continues to expand, the espresso wars may be on!

I will let Howard know that Duncan is on his heels.

My point is actully that of Claire. People who want good, fast hot coffee, go to Duncan Donuts. Those who want coffee sourced from Arabica beans only and prefer espresso drinks made from those beans combined with the Third Place Experience go to Starbucks.

For Duncan and Starbucks to become competitors, Duncan would have to source the same beans (at a much higher price then they currently pay), and then drive their current customers away, because they would hate the coffee.

Thank goodness for choices. When I'm in my car on the way to a meeting, I can go through the Duncan Donuts drive-thru. When I have more time and want to sip my coffee, I can visit Starbucks.

Bravo for American Capitalism, hey Gianandrea. Starbucks will be at a neighborhood near the Spanish Steps before you know it.

Actually, Lewis, comparing coffee with coffee, why would a customer pay more for Starbucks' custom blend of the day vs Dunkin's custom house blend? Hard core Starbucks fans will continue to pay for it, of course, but I wonder how many other folks out there are getting tired of the cost? Is putting onself in the Third Place worth it, I wonder. . .or is it overrated? I'd like to hear from customers on that point, yea or nay. . .

Claire,

Market Research indicates there are several reasons why they prefer Starbucks. Some of them are: 1) The Third Place Experience, 2) taste, 3) the quality of the beans, 4) the espresso's similarity to Italian espresso, 4) social responsibility (Starbucks pays farmers $1.25 to $1.50 per pound, companies such as Duncan Donuts pay $.75 to $.95 per pound), 5) worker treatment (baristas make $2 to $3 more per hour plus benefits).

Actually, as I have tried to argue, the two markets are made up of two very different consumer profiles. It isn't about price for those who purchase Starbucks coffees, whether the coffee of the day or espresso drinks or a myriad of any other products offered in the stores. It is about value as perceived by Starbucks market. Starbucks does not market to nor frankly appeal to Duncan Donuts audience; on the other hand, Peets customers and Starbucks customers are similar.

Starbucks has acquired several of the coffee companies that cater to the same market to capture market share(e.g., Seattle's Best, Torrefazione Italia Coffee, and a Boston coffee company whose name currently escapes me). They have no interest in acquiring businesses, or those customers, who do not cater to their targeted market. Of course, there is some crossover.

Its customers also like the idea that Starbucks aligns itself with companies such as: Pepsi-Cola Company, Dreyer’s Grand Ice Cream, Kraft Foods Inc., CARE, Conservation International, Johnson Development Corp., Albertsons Inc., Horizon Air, HMSHost, Barnes & Noble, United Airlines, Starwood Hotel, Chapters Inc., Safeway Inc., Marriott International Inc., Hyatt Hotels Corporation, Aramark, Compass, Sodexho, TransFair USA, SYSCO, HP, T-Mobile, TransFair Canada, White Wave, Inc., Chase VISA USA, Royal Bank Canada, Hilton, Intrawest, Wyndham, Target, Kroger, Ahold, Fortune Brands, XM Satellite Radio, Borders, Westin and Radisson.

Remember, brand loyalty is not about the products and services. It is emotionally and psychologically driven. Price is seldom a major factor.

This is a great discussion, guys. I'm loving it.

At the risk of sounding like a coffee snob, I admit that I dislike DD, even as a native New Englander. It's not snobbish, and it doesn't have anything to do with Third Place, or social responsibility. Bottom line: DD coffee isn't strong enough for me - guess I've spent too many mornings with a Starbucks IV and drip pole - and their specialty drinks are full of corn syrupy yuckness. (I believe that's the correct beverage industry term -- right, Lewis or Ted?) : ) Starbucks simply has better quality product.

That being said, having spent time in LA, I'd swing into Peet's in a heartbeat if they were as ubiquitous as Starbucks in the northeast.

ted, while hoping that the self irony of my post was clear, what i appreciate in your post is that the following discussion have enlightened two kind of customers: the loyal (who seems to me more on the side of the dd customers) and the passionate (the starbucks ones). i have a question for all of you: which of the two customers do you believe is harder to retain?

Ted,
This post is pure genious. You found a subject that elicits passionate discussion around brand. Way to go, my Man.

Gianandrea,
You got it. The mantra at Starbucks is "create and embrace passion." As for loyalty, my guess is that a coffee company with comparable products but lower prices will grab some, if not much, of DD's customers.

Ann,
But it's not about price, right?

Well, I'm getting a big kick out of the level of passion this topic elicits from people. We all have our distinct preferences, likes and dislikes.

To answer Lewis, when I want to purchase great coffee for home consumption, Green Mountain Roasters not only provides Fair Trade but organic coffees; sustainability has always been the cornerstone of their business. They've been named a Corporate Good Citizen for their business practices, inside and outside of the company. Besides that, their products are excellent. While they have more limited distribution than the big players, the general public can try their sub-brand Newman's Own coffees available at many McDonald's locations.
You're right when you point out that customer experience is more important than price. However, I have been disappointed by Starbucks on more than one occasion in the past. I haven't found their "baristas" warm, inviting or particularly helpful, and, here Ann and I disagree, I don't like their products. In a case like this, ambiance can't make up for the other aspects of my experiences with Starbucks. Quite a number of people I know feel the same way. On the flip side, I must also note that I have friends who love Starbucks but are starting to object to the price increases they're experiencing. At some point, price can begin to alter the "value perception" among some customers, who may be a little less passionate about the brand.

Thanks to everyone involved in this discussion. Java brands are bound to elicit some strong opinions. One thing is certain, to paraphrase Dunkin' Donuts: that cup of Joe does keep America running!

Lewis: Right. It's not about price (for me).

To clarify: For me, the Starbucks brand isn't the best, it's the BEST AVAILABLE. I like the product -- if only because I like it better than DD, and because other options I'd prefer (Peet's) aren't local for me. I think the ambiance is so-so...it feels a little 1999 to me, and the warmth of baristas varies from shop to shop.

So yeah, I'd cross a street for Starbucks, but only because it's a reliable shot of caffeine, which, as Ted points out, we all run on!

Ann, I have to agree with you -- I too will cross the street for a cup of Starbucks coffee. In fact, I do every day. As a native Seattlite, I have a lot of java options in the morning, and there are no less than 12 coffee shops (the lion's share being SBUX) within a one and a half mile radius of my office. Yet, I always choose Starbucks. I had tried to go to another store close to my office, but found the service to be shaky (and somewhat snotty), the coffee to mediocre, and the experience to be less than fabulous.

For me, Starbucks trule is the best available, and I'm grateful for it.

Oh, and for all of the comments above, I have to agree that comparing Dunkin' Donuts to Starbucks coffee is like comparing Wal-Mart to Nordstrom's -- it's not the same at all. Sorry, folks. :-)

Let's correct a few misconceptions, shall we?

Dunkin' DOnuts uses fair trade beans. Often, some of Starbuck's blends use the exact same beqans, the only difference is that Dunkin' Donuts doesn't over roast them.

Since Dunkin' DOnuts is franchised to individual owners, the employee policies can vary, but a greta many offer health insurance to their employees, some of it paid up to 100% by the Dunkin' Donuts franchisee. Also, most franchisees pay more than Starbucks does to its employees.

Again, brand perception does indeed brianwash those with blind loyalty.

That said, I agree that the brands often serve 2 different market segments. Some Starbucks fans do not like the less inviting Dunkin' Donuts atmosphere, some Dunkin' Donuts famns cannot stand the wannabe pretentiousness of cetain Starbucks customers, or the fact that you cannot order in English.

However, they each also have the same customers, but at different times. Dunkin' Donuts gets a segment of folks every day on their way to work, and/or for their coffee breaks. These same people may go to Starbucks on a weeked or day off when they aren't in a hurry and have more time to linger, or are seeking impromptu social interaction in a lounge setting--that 3rd space that they have no time or need for the rest of the week.

Thanks, Bob, for adding a lot to this conversation. Many purveyors of coffee have Fair Trade agreements; maybe Dunkin' Donuts ought to publicize the fact they do this more. Starbucks certainly takes advantage of this as a marketing point. And you're right about this: there is some cross-over between DD and Starbucks, but I will also say there are pronounced preferences for one or the other in most of the people who have commented here. Brand passion plays a huge role among java lovers and you can see that here; in this little microcosm of coffee lovers who are weighing in!

it pains me to see Dunkin compared with Wal-Mart while *Bucks gets compared to Nordstroms. I think a more appropriate comparison would be Shaw's and Whole Foods Markets. the gap between the two is not as great as the *Bucks customers would like to believe, but I suppose I would be trying to justify that extra $1.50 per cup also if I was one of them...

talk about brand loyalty, both companies are doing something right. Maybe selling somethign addictive is the first step to good marketing :)

DD,
Has no regard for the heighborhoods they open their stores in. Their race to the bottom is not unlike Walmart's. Say goodbye to your local coffee shop.

Interesting that Starbucks takes advantage of its Fair Trade coffee as a marketing tactic, especially in light of the recent report on NPR. Apparently, Oxfam is charging Starbucks with squeezing Ethiopia's coffee farmers.

From the NPR site: Ethiopia "hopes to make more money for its coffee farmers by trademarking the area's legendary coffee beans. Many in the U.S. coffee industry, including Starbucks, say the Ethiopian plan is naive and will hurt the farmers."

I honestly don't know enough of the specifics about how the coffee trade works to be able to comment on the report....

http://www.npr.org/templates/story/story.php?storyId=6485774

...but I'd love someone who is more familiar with it to weigh in.

ann, you can find more in depth here

http://www.oxfam.org.uk/press/releases/starbucks261006.htm?searchterm=starbucks

and here

http://www.oxfam.org.uk/press/releases/starbucks031106.htm?searchterm=starbucks

they report the starbucks position indeed.

ann, get here:

http://www.oxfam.org.uk/press/releases/starbucks261006.htm?searchterm=starbucks

and here
http://www.oxfam.org.uk/press/releases/starbucks031106.htm?searchterm=starbucks

and to be fair:

http://www.starbucks.com/aboutus/pressdesc.asp?id=713

enjoy

Pie-fight!

I thought Lewis' post on Rumsfeld brought people out in the street with the pitchforks, but this coffee thing is like the Bush/Pelosi Celebrity Smackdown.

Sure, DD and Starbucks serve the same people, just at different times. This is like media planning (!) -- your mindset and immediate needs are a little different when you're at the Bond premiere in London than when you're shopping for milk at 7-11. It's still you. You don't confuse these two roles in life, though.

And for the record, if you like Big Coffee, your brand is PEETS. They should sell trans-dermal patches.

Thanks to everyone for weighing in on their favorite coffees and their opinions about DD's expansion and how it might impact the national marketplace. I think there's room for everybody! As I stated before, personal preferences and brand loyalties among java lovers are pretty passionately held. We all love what we love!

Dunkin' Donuts: more coffee sold, good price, depressing experience.

Starbucks: less coffee sold, high price, pleasant experience.

I predict that Starbucks patrons will be considerably more loyal to the brand than Dunkin' Donuts patrons in years to come. Much like Target consumers would rather pay a little more and have a better experience than at Walmart or Kmart.

As Bill said so aptly up above, in his comment of November 15th: ". . . the gap between the two is not as great as the *Bucks customers would like to believe, but I suppose I would be trying to justify that extra $1.50 per cup also if I was one of them..."

I quite agree. Not everyone's experiences at DD are "depressing", and not everyone's experiences at Starbucks are pleasant. Mine certainly haven't been on either count.

Jason,
The #1 driver for coffee sales in the US is convenience. People tend to make purchases at DD before bux because they want to be in and out quickly and have their experience elsewhere.

That said, Dunkin competes more with the true #1 coffee purveyor in this country: convenience stores. Starbux is probably sweating more about Panera recently opening its 1000th store more than DD's ambitious growth plans.

Chris,
Thanks for your comment. You've made a great point. Panera is in fact, considered another Third Place by its patrons. The coffee is great, and, unlike Starbucks, wifi is free there. Stay tuned as the coffee wars continue to heat up across the country!

Hi Chris,
Reading your comment made me think of a recent Brandchannel article about Panera. Daily Fix readers might want to take a look at it since it discusses Panera's explosive growth and how the chain may very well give Starbucks a run for its money!
http://www.brandchannel.com/features_profile.asp?pr_id=307

Trying to get some ideas on how to segment the market for a specialty coffee bar.

Here's what i'm thinking:

(1) Afficianado - customers who care about taste, they go to cafes that use the best beans, the best equipment, and have highly skilled baristas. These customers prefer espresso based drinks.

(2) Coffee Bar Experience - customers who also care about good coffee but care MORE about having a "third place" to sip coffee and linger and socialize. These customers prefer espresso based drinks.

(3) Price/Convenience - on-the-go customers who want good coffee that is fast, hot and less expensive than that of a specialty coffee shop...and in a convenient location. These customers prefer coffee drinks.

Am i missing anything?

Should i combine any of the segments?

cheers,
J

I think it is funny people saying Dunkin Donuts is comparable to Starbucks. That is like saying why pay for Chateau St. Jean Cabernet when you can have Carlo Rossi Jug red wine, Neither are Lafitte Rothschild but if you can't tell the difference you can't taste!

WOW! I am currently in a Marketing course for my MBA and we are talking about market segments and competitive strategies. I came to this site as I was looking for wo players in the coffee industry that had different business strategies. I found a bunch of great info here that coresponds to the course work. Thaks to all for the help!

Dennis,

Glad this was of help to you. You might want to stay tuned to the Daily Fix on an ongoing basis as a marketing MBA. And please let your fellow MBA candidates know about the blog, too. There are many strong contributors who have a lot of good things to say, based on their experience and knowledge of marketing issues on this blog.

Thanks again for the kind words, Dennis. Best of luck in your course work.

KNOWHOW,
Dunkin Donuts kicks Starbucks rear end.

When will Starbucks learn, their coffee is just too strong, too heavy.

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www.bocajava.com

the best coffee in the world, roasted fresh, just for you.

This is a good marketing move by Dunken' Donuts but it is not, as others have noted, really a valid comparison.

I would bet that Starbucks earns more profit per customer than DD.

I also think (but could possibly be wrong) that Starbucks offers considerably higher quality coffee, espresso, and food. I doubt that DD is much of a threat in Starbuck's segments.