Starbucks' recent acquisition of Bay Bread LLC and the La Boulange bakery brand for $100 million will likely heat up the competition with Dunkin' Donuts, extending the brands' rivalry beyond coffee.
At last week's Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference in New York City, Dunkin' Brands CEO Nigel Travis said Starbucks' move was a "great compliment."
"The first thought I had was, 'they're invading our space,' but it is a compliment for us. We already have a wonderful bakery positioning. Everyone knows our donuts, and our donuts have grown in the past two years. We've revitalized that category with new innovations," he said.
Travis points to launches such as heart-shaped donuts for Valentine's Day and the Royal Wedding Donut as two examples of such innovation.
Adding to that competition is Massachusetts-based Dunkin' Donuts aggressive expansion into western markets. Starbucks is headquartered in Seattle.
"We believe in simple methodology of contiguous U.S. growth. We're not about going from our core in New England to California. We're going to see steady growth across the country," Travis said.
To complement its expansion, Dunkin' Donuts has added a national media plan for the first time, including in California where there is currently one store operating at Camp Pendleton, outside of San Diego.
Travis said the company has an advantage in that 90 percent of new store development in 2011 was with existing franchisees. "That shows the confidence they have in the brand. They like that we're opening stores with good margins," he said.
As the brand saturates more markets, there will be a heavy focus on high margin beverages and breakfast sandwiches.
"We have an intense focus on growing new market beverages sales. It's a major part of what Dunkin' Donuts is all about. People are still jumping on the beverage bandwagon for both hot and iced (items). One thing that has surprised us has been the K-Cups, which has boosted new market profitability significantly," Travis said.
Dunkin' launched K-Cups in August 2011. Last week, it added Mocha to its lineup that includes Original Blend, Dunkin' Decaf, French Vanilla, Hazelnut and Dunkin' Dark Roast. The suggested retail price for a 14-count box is $11.99. The Mocha offering is the first limited time offering for Dunkin' Donuts' K-Cup line.
Meanwhile, Starbucks launched its K-Cup offerings across the system this week. The offerings first appeared in food, drug, mass and club channels in November 2011 and 12-count packs sell for $11.95.
"We're in a highly competitive business, which I think is great. Competition makes you better. If Starbucks buys a bakery chain, we have to think how that will affect us," Travis said. "The world constantly changes. You just have to be on top of it the whole time and we have all the systems and structures in place to make sure we are."
During the conference, Travis also touched upon the following points:
- Baskin-Robbins: "We've converted Baskin U.S. into slow growth. It's a brand with huge heritage and we've invested significantly in the brand in the past two years, and have worked hard on differentiation."
- International: "We have two brands and two opportunities. What we're aiming to do is leverage the brand strengths in (existing) markets, plus find the potential in newer markets like China and India. We'll try to find large, successful franchisees with great experience."
- Coffee prices: "One of the two drivers of late has been keeping up with coffee inflation. We seem to have done that less than anyone else. Coffee prices are coming down and that benefits franchise profitability and leads to unit growth."
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