From Issue 89 | December 2004

From Issue 89 | December 2004

Linda Tischler in Fast Company asks the question: Can an old New England pastry purveyor find new life as a hip coffee shop? Dunkin’ Donuts plans to give Starbucks a run for its latte.

This article was posted on the Fast Company website on Wed Dec 19, 2007 at 7:48 AM The article is is from Issue 89 which was published in December 2004.

She writes:

I’m standing in line at the counter of a Dunkin’ Donuts shop at the corner of Murray and Church in Manhattan’s gritty-but-chic Tribeca. It’s 5 p.m, the downtown hipster’s low blood sugar hour. I have a stop watch in my hand. Stepping to the counter behind a dude in pocket chains and dagger-toed boots, I announce my order: “One small skim vanilla latte, please” to the young clerk, and start the clock. The espresso machine hisses, the milk starts foaming, the counter boy hands over the goods. 2 minutes, 4 seconds, $2.16.

I travel a few blocks down the street to Starbucks at the corner of West Broadway and Chambers. I repeat the order to the register-manning barrista, making sure I specify “tall,” which means “small” in the convoluted vernacular of the chain, hit the clock, and wait. The result: 2 minutes, 55 seconds, $3.69.

Digging deep into my lizard brain for traces of what I learned about the scientific method back in Chem 101, I repeat this exercise twice, each time matching location for location, order for order, time of day for time of day. You can check my T&E for proof.

The result: Dunkin’ Donuts is the clear champ, taking less time to brew and froth, and doing it for about 40% less than Starbucks (an amount that overstates the difference between them a bit, given Starbucks’s larger cup). So, what’s the point?

If you’re going to take on Starbucks, the leviathan of the coffee business, you need an edge. And Dunkin’ Donuts, the 54-year-old New England chain famous for its Boston Crème doughnuts and award-winning beans, thinks it’s found the key to being a contender: speed and price. So this, then, is the new management team’s new strategy: be the faster, cheaper, user-friendlier alternative to Starbucks — the average Joe’s average joe.

Sounds logical, right? No silly faux Italian. No lattes that require an Amex mogul card. Just value and speed. But Dunkin’s strategy is already raising concerns among some industry observers. The idea that the latte-drinking customer will respond to speed and price is, they say, an out-moded view of the market. Sure, it worked for McDonald’s, a pit stop for customers with little time, many kids, and thin wallets. But for trendy coffee aficionados, those features may be missing the point.

“Espresso drinking is part of a lifestyle,” says Joseph Pawlak, senior principal at restaurant industry trend tracking firm Technomic. “Many of those customers are looking for atmosphere, for a place to hang out, for velvet sofas. Dunkin’ will need to address that in the longer term.”

Indeed, many would argue that Howard Schultz’s true stroke of genius was understanding just that: modern brand-building is at least as much about the customer experience as it is about the actual product. As Schultz told Fast Company last July, “We’ve known for a long time now that Starbucks is more than just a wonderful cup of coffee. It’s the experience.”

Dunkin’ Brands CEO Jon Luther and his team, however, are convinced that there’s a market to be tapped, especially among a younger audience that is enamored of Starbucks’ frothy beverage menu, but daunted by the Seattle chain’s budget-busting prices. The first move in their assault: to install super-speedy $10,000 Ambiente espresso machines in prime locations, capable of delivering a tony coffee drink in 44 seconds. The second: to design a menu that will encourage that beverage drinker to buy a little nosh to go with his drink — a bagel, a muffin, a breakfast sandwich, or even — yikes! — a doughnut in the morning, and a little snack in the afternoon.

That, says marketing vice president John Gilbert, is the company’s C+1 strategy (coffee plus something else): get ’em in, sell ’em coffee and a snack, and get ’em out. Leave the fancy CD-burning stations, moody lighting, and comfy chairs to the competition. “We won’t have wi-fi and couches and fireplaces,” he says, “We’ll have speed, speed, speed.”

Already, 57% of the chain’s sales — and the most profitable product group — are beverages, with the rest made up largely of bagels, muffins, and breakfast sandwiches. Starbucks, by comparison, does 78% of its store volume in beverages, with 12% in food, and 5% in whole beans. With the espresso-based drink market showing a 68% increase since 2000, it would appear to be an area with wide open possibilities for several players.

But where does that leave the company’s signature product, not to mention the lovable schlub who for years appeared in Dunkin’s ads blearily muttering “Time to make the donuts!” History, my friends, a victim of two juggernaut trends: the yuppification of coffee and the vilification of donuts and their high-carb brethren. Sketching on a slip of paper, Luther doesn’t even include Krispy Kreme in the map of his competitive set. “We touch Starbucks, we touch McDonald’s, we touch Tim Horton’s, we touch convenience stores,” he says, drawing a series of rings around a big circle labeled “DD”. “Krispy Kreme is over here,” he says, penciling a little ring outside the orbit, “because they’re not really in the coffee business. They’re 98% donuts, and 82% glazed, so they’re a one trick pony.”

Read more at: Fast Company