Starbucks shareholders wake up and smell the competition
NEW YORK — As Starbucks Corp. investors met in Seattle for the chain’s highly anticipated annual shareholders meeting, coffee drinkers around the country lined up Wednesday for a cup of joe from one of the coffee giant’s competitors.
In a promotion the company said was timed to celebrate the first day of Spring, Dunkin’ Donuts gave away free 16 ounce cups of iced coffee all day — a coincidence that only seemed to highlight Starbucks’ latest woes.
The Seattle chain, which virtually pioneered the now exploding specialty coffee market, has been faced with concerns from investors and its own management that if it continues to grow at its current rapid pace, the brand will be diluted enough to allow competitors to gain a stronger foothold.
At the same time, competitors like Dunkin’ Donuts and McDonald’s have been expanding their offerings to compete.
“There’s no question in my mind that the competitive juices in the coffee area have grown exponentially,” said Dunkin’ Donuts brand president Robert Rodriguez.
The free coffee day — which follows a hot coffee giveaway at Starbucks last week — is one way Rodriguez is trying to focus more attention on Dunkin’ beverages. For years, consumers associated the name Dunkin’ Donuts with its doughnut counters rather than its coffee. To change that, Dunkin’ has been aggressively promoting its new line of espresso drinks and menu offerings by TV chef Rachel Ray and launching a national advertising campaign in May with the tagline “America Runs on Dunkin”.
Soon, the privately-held chain will also undergo a makeover at its stores reminiscent of a certain competitor, complete with earthy walls, waiting areas for espresso drinks, and coffee beans on display.
Rodriguez said the new look is designed to make the stores “warmer to customers” while also highlighting beverages.
“Consumers want to see a much deeper lineup of beverages” at the stores, he said.
Dunkin’ first introduced a line of espresso drinks in 2003, directly competing with a Starbucks staple. The line now makes up more than 5 percent of sales. In total, the chain had worldwide sales of $4.7 billion in 2006, meaning their espresso drinks came in at about $235,000.
In comparison, Starbucks company-owned stores had $6.58 billion in revenue during its 2006 fiscal year. About 77 percent of those sales — around $5 billion— were drinks. The rest of store sales came from food, whole coffee beans, coffee-making equipment and other merchandise, according its annual report.
Now McDonald’s is branching out into espresso drinks. The fast food chain, based in Oak Brook, Illinois, has begun introducing McCafe concept restaurants in select locations in the U.S.
To those naysayers who question whether a burger joint can serve a good cup of coffee, spokesman Bill Whitman said “for those who haven’t been in a McDonald’s lately, it’s time to come back and take another look.”