Dunkin’ is competing with Starbucks by going after its core customer.
On Wednesday, the company announced the installation of better espresso equipment, an improved espresso recipe and a new espresso cup, plus training and espresso certification for employees. The espresso drinks will be ready for the holiday season.
A month after the company announced that it is dropping “donuts” from its name, Dunkin’ is hoping that to lure young customers and build up its beverage-led brand by leaning into fancy coffee.
There’s “no doubt” that Dunkin’ is trying to compete with Starbucks, said Beverage Digest executive editor Duane Stanford. But it’s also up against McDonald’s (MCD) McCafe products.
Selling premium coffee is “probably a necessity in this environment,” Stanford said. He noted that there are already devoted Dunkin’ coffee drinkers. But as the market gets more competitive, Dunkin’ can’t rely on its super fans.
“You need to make sure you’re offering better espresso and some of those more premium coffees that consumers are demanding now, too,” he said. “You want to be seen by more people as a coffee destination.”
Scott Murphy, the chief operating officer for Dunkin’ US, described the plan as a “tremendous undertaking.”
Earlier this year, the company said it would invest about $100 million into Dunkin’s US business. On Wednesday, the company said that more than half of that money is going toward new restaurant equipment, including high-end espresso machines.
Dunkin’ says that beverages, especially coffee, make up 60% of the company’s US sales. And “espresso is one of the fastest growing coffee categories,” especially for young people, said Tony Weisman, chief marketing officer for Dunkin’ U.S.
The company has been moving toward more serious coffee drinks over the past few years. Last year the brand ditched its Coolatta iced coffee beverage for the “more authentic” Frozen Dunkin’ Coffee and tried out nitrogen-infused cold brew.
Others are betting that coffee is the future. Earlier this month, activist investor Bill Ackman’s hedge fund invested about $900 million in Starbucks (SBUX). And over the summer, Coca-Cola (KO) agreed to buy UK coffee chain Costa Coffee for about $5.1 billion.
Coke has said it isn’t planning on bringing Costa stores to the United States, but Stanford noted that Dunkin’ may be thinking about competition from Costa down the line.
“You don’t want to be Dunkin’ and wake up five, ten years from now and the Costa brand is becoming a more meaningful retail force” in the United States, he said.