Dunkin' Donuts, the discount coffee-shop chain, recently announced plans to increase the number of its U.S. stores to 15,000 by 2020. Starbucks, meanwhile, is in the process of downsizing and is closing 600 non-performing locations in an effort to consolidate its operations.
In explaining his company's decision, Will Kussell, president and chief brand officer of Dunkin' Donuts Worldwide said that "it's fair to say that we expect to be a growth company and a growth brand for many years to come."
Dunkin' Donuts parent company Dunkin' Brands was bought by a partnership of private equity firms in 2005. Dunkin' Donuts, which is based in Canton, Massachusetts plans on adding roughly 9,000 U.S. stores by the year 2020.
Dunkin' Donuts is not allowing the tough economic conditions to hamper its expansionary efforts. Although lenders are now demanding between 10 percent and 30 percent down payments to secure new franchise deals, Dunkin' Donuts plans on significantly expanding its operations in Las Vegas, Phoenix and the Dallas area, which alone will see 100 new locations over the next three years. However, it will be at least three years before Dunkin' Donuts attempts to expand into California, which has been the most successful market for Starbucks.
Although like Starbucks, Dunkin' Donuts has faced increasing competition from McDonalds, its revenue and profits continue to increase. In 2007, Dunkin' Donuts' 8,000 global stores generated $5.3 billion in revenue, up from $4.7 billion in 2006. One factor that has added to Dunkin' Donuts' growth is the decline of Krispy Kreme, one of its main rivals.
Dunkin' Donuts gets about 65 percent of its revenue from the sales of beverages including its espressos, lattes and cappuccinos, which each cost approximately $1 less that similar beverages at Starbucks.
Acknowledging the effect that the rising cost of living is having on Americans, Kussell announced a new value promotion that will be unveiled in October to enable consumers to keep on buying coffee at Dunkin' Donuts. "We are very much a middle-class brand," explained Kussell, and "we will be a bit more aggressive as we move into fall and winter."
Starbucks for its part has attempted to grab business from Dunkin' Donuts' core brewed coffee business. When asked whether Starbucks' new Pike Place Coffee Blend had hurt drip coffee sales at Dunkin' Donuts, Kussell simply responded that "we've been fine."
To compete with the health conscious foods being offered at Starbucks, Dunkin' Donuts has introduced a line of health-oriented items called the DDSmart. The DDSmart line includes multigrain bagels, coffee made with skim milk, egg white flatbread sandwiches, and a lower-calorie smoothie. In the future, customers can expect to find more cold drinks and DDSmart muffins, which Kussell says will soon be offered in stores.
Based onReuters.com article written by Lisa Baertlein.
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