To Investors, Dunkin’ Donuts Is Stuck Between A McRock And A Starbucks Place

Image courtesy of m01229

For those of us of a certain age, especially those of us that age who grew up in and around Boston, the Dunkin’ Donuts brand identity might seem indelible. But it’s been almost 20 years since the last time Fred the Baker intoned, “Time to make the donuts!” on TV, and those decades — and a national expansion in the face of some stiff competition — have left the iconic sugar-and-caffeine chain in a bit of a slump.

Bloomberg points out that sales at Dunkin Donuts locations are slowing down nationwide. Even though they’re still increasing slightly more quarters than not, they’re not getting big enough, fast enough, to make investors happy. And when Wall Street is unhappy, a company gets unhappy.

If it feels like you can now see a DD on nearly every corner, well, that’s true. The company is up to almost 20,000 total stores* — including an increase of 5,800 just in the last decade. That’s more than Walmart’s 5,280 total retail locations, Bloomberg points out for a sense of scale.

But the coffee market ain’t what it used to be. There’s a giant gorilla in the room, or perhaps a giant stylized mermaid: Starbucks, with its own 24,000 worldwide locations and cultural cachet. To compete with Starbucks’ omnipresence, Dunkin’s has for years been offering ever-more-complex drinks of its own, from iced lattes to hot chai.

Of course, Starbucks is generally considered a luxury good, and coffee there isn’t cheap. So DD could theoretically compete on price, and take the bottom end of the market… but McDonald’s has been horning in there, selling a small coffee for $1 to Dunkin’s average $1.59. And McD’s, too, has been rapidly, and successfully, expanding their coffee and breakfast business nationwide.

Add to that the fact that “donuts” doesn’t jibe well with the modern shopper’s health-conscious sensibilities, no matter how many spinach-and-egg-white sandwiches the chain actually sells, and it’s easy to see how the java-slinging stalwart is getting stuck in a muddled middle.

As in all kinds of retail, the squeezing of the middle class means that retailers that identify as neither high-end nor dirt-cheap are having a hard time retaining their footing and finding their customer base. It’s not as if Dunkin’ Donuts and other midrange brands are going to fall off the map right now or anything, but Bloomberg points out that it’s a hard sell to get franchisees to open new locations of anything in such a saturated climate.

*Update: A Dunkin Donuts representative reached out to Consumerist after this story was published to clarify that this total number, 19,669, includes a total of 11,941 DD locations and an additional 7,728 Baskin-Robbins stores.

Dunkin’ Donuts Is Losing Its Identity [Bloomberg Gadfly]