Dunkin' Donuts escalates java wars

A Dunkin' Donuts store in Cambridge, Mass.

KAI RYSSDAL: If you're one of those people who can't get enough caffeine, Coke's got the real thing for you. There are reports the soda company is set to announce a new line of premium tea and coffee. It's a business strategy kind of thing. Coffee sales have become so central to some restaurant chains that all the beverage giants are thinking big.

East Coast-based Dunkin' Donuts is planning to triple the number of its stores. And a certain Seattle-based coffee specialist has its own expansion plans. Makes you wonder how much more coffee Americans can drink. Marketplace's Steve Tripoli set out to discover where our caffeine craving taps out.


STEVE TRIPOLI: There's a coffee war on. Dunkin' Donuts wants to go from 4,400 stores to 15,000 in a decade. Starbuck's already has 12,000 and is aiming for 30,000 stores in 10 years.

It's not all about Starbuck's for Dunkin'. But the message is clear when Dunkin's John Gilbert describes his chain's target customer.
JOHN GILBERT:"They really don't care about wi-fi and couches."

Guess who's known for in-store wi-fi connections and comfy couches.

GILBERT:"We're kind of a solution for consumers who have needs beyond just energy, but don't have enough time to get out of the car to get a sandwich."

Starbuck's isn't known for Dunkin'-style drive-through windows either.

GILBERT: "It's not about a burger occasion, it's about something that just keeps 'em going for another 2-3 hours."

If you're keeping score, that one's aimed at the Golden Arches and its ilk. Burger King and McDonald's are pushing their own specialty coffees these days.

Industry analyst David Henkes of Technomic Inc. says Dunkin's main battleground is on Starbuck's turf.

DAVID HENKES:"The growth opportunity's in that "PM snack." They're really trying to move themselves further into an area that Starbuck's has already done a good job of capturing."

That's also a logical opening for a chain that now does most of its business before noon. Dunkin' stopped being a coffee-and-donuts place years ago. There are bagels, yogurt, smoothies and sandwiches now. But the more Dunkin's menu expands, the more its sales turn on one item. Coffee alone is two-thirds of sales.

[DUNKIN' DONUTS JINGLE]

Dunkin' says the always-on-the-go American lifestyle drives the coffee craze. This ad from the company's "America Runs on Dunkin'" campaign shows a busy town where everyone from the traffic cop to sunbathers sports a Dunkin' pick-me-up.

[DUNKIN' DONUTS JINGLE]

Analyst David Henkes says Dunkin' and the burger chains want something else their coffee-war competitor has perfected:

HENKES:"They really look to a company like Starbuck's to determine that, if we position ourselves a little bit more upscale, a little bit more gourmet, we can still improve same-store sales through higher price points."

In other words, get more money from the same number of customers.

That leaves Dunkin' with a balancing act between charging more and alienating its base. Marketers have long described the two rivals' loyalists as so different that they're widely referred to as distinct "tribes."

Dunkin' folks want a quick cup that's not pricey, simple and comes in small, medium or large. The Starbuck's tribe enjoys indulgences like the black-aproned "Coffee Masters" who enlighten them on what's in their ventis and grandes.

John Gilbert says it's reached the point with any type of Dunkin' fan where if you build it, they will come.

GILBERT:"That is the unique nature of coffee. The more accessible coffee is, the more it gets woven into our customer's daily routine. And it is the big, broad middle class' daily routine that we find ourselves growing with."

STORE CHATTER:"OK medium coffee, cream and sugar. And then a small regular."

As the coffee lines grow, Dunkin' is targeting markets like Chicago, Cleveland, Charlotte, Baltimore, Nashville and Indianapolis. A western push is coming soon. Starbuck's appears untroubled. The company sent a statement saying they don't comment on their competition, and touting its own plans for 2,000 new stores a year.

Both companies obviously feel that their tribe's coffee cups are, well, pretty near bottomless.

I'm Steve Tripoli for Marketplace.

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