Occupying the “murky middle” — Starbucks on one side and low-price fast-food options on the other — is a tough spot for the doughnut purveyor to be.
Imitation is the sincerest form of flattery and also one of the easiest ways to lose your identity.
Traditionally lowbrow Dunkin’ Donuts has been pushing into tonier offerings, such as espresso, cold brew coffee and Rainforest Alliance-certified coffee beans — so much so that it’s beginning to look a lot like Starbucks.
On the Dunkin’ earnings call last week, in fact, one Wall Street analyst asked, in a tone of confusion: “Can I just ask … I guess … just what the tagline is to the consumer …” With its higher-end coffees, he suggested, the new Dunkin’ motto could be “Starbucks quality at Dunkin’ prices.”
CEO Nigel Travis punted the question to a senior marketing executive, who responded, “We’re trying to be the best Dunkin’ that we can be.”
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He probably should have been able to come up with something better than that.
Dunkin’ has been trying to jump-start sales and traffic after reporting in February its first year-over-year quarterly sales decline since it went public in 2011. Comparable-store sales growth returned in the latest two quarters, but still fell short of Wall Street expectations.
Dunkin’ stock has been dunked by 16 percent this year, compared with roughly 2 percent gains for the S&P 500 and Starbucks.
Dunkin’ is having its identity crisis at a time where it is pushing to open more than 400 new U.S. locations this year.
As it operates very few of its own stores, its growth relies heavily on whether current or potential franchisees feel jazzed enough to open additional locations.
To keep in franchisees’ good graces, Dunkin’ not only has to make the case that opening a location is a good investment — which means keeping both profit and sales growing — but that it has a long-term vision.
Dunkin’ execs said franchisees are already “concerned” about the tumultuous political climate and rising minimum wages, hindering its ability to provide an outlook for how many locations it will open in 2017. (It has said it plans to open 8,000 locations over the “long term,” whatever that means.)
Slowing store growth may not be such a bad thing. It could force the company to rethink how it sets itself apart from other restaurants.
But being a cheap alternative to Starbucks doesn’t exactly cut it, in an industry faced with fickle consumers and restaurant players that regularly jiggle prices to attract customers.
It’s a tenuous time for the whole restaurant industry, as price wars abound despite rising labor costs. Meanwhile, fast-food joints such as McDonald’s and Burger King are going deeper into coffee and breakfast items, creating even cheaper Starbucks alternatives.
A small coffee now runs about $1 at McDonald’s, compared with $1.59 at Dunkin’ and $1.85 at Starbucks.
As retailers such as Macy’s and the Gap have discovered, the murky middle is never a good place to be when consumers are increasingly choosing either the cheapest option or the one with the highest quality. Unfortunately for Dunkin’, it can claim to be neither.