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[18 comments]

Dunkin' and Starbucks go after the lunchtime crowd

June 4, 2014

All's fair in love and retail. With a growing list of restaurants, including Burger King, McDonald's, Panera Bread, Taco Bell, Subway and Wendy's, looking to grab share of the out-of-home breakfast market, who could blame Dunkin' Donuts and Starbucks for going after the lunchtime opportunity.

With the vast majority of their sales in the morning hours, both Dunkin' Donuts and Starbucks have made menu and d├ęcor changes to attract patrons during other day-parts.

"The biggest challenge is generating awareness," said John Costello, global marketing and innovation president at Dunkin' Brands, via Bloomberg News. "Our mission is to get people running in the morning and to keep them running all day."

Dunkin' Donuts debuted a new $3.99 grilled chicken flatbread sandwich this week.

Starbucks, which saw comp sales grow six percent in its last quarter, sees food as a means to grow its revenues and profits. Speaking on the company's earnings conference call in April, COO Troy Alstead said food represented two percent of the chain's comp growth.

During the same call, Mr. Alstead said, "We have significantly advanced our lunch program of bistro boxes, paninis and salads over the past few years, but there is a much larger price here and we're ready to go after it. We began testing different lunch options and are narrowing our focus to the best performance based on the results thus far."

Last month, Starbucks added a number of lunch sandwiches to its menu at cafes in the Phoenix and Richmond, VA markets including a beef brisket and cheddar baguette for $6.95, grilled chicken with bacon and Swiss for $5.99 and grilled cheese for $5.25. The company plans to introduce new sandwiches for the lunchtime crowd across the U.S. later this year.

Discussion Questions:

What do you think of the prospects for Dunkin' Donuts and Starbucks to be successful during the lunch day-part? What will be key to each chain's success or failure going after this market opportunity?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Which chain do you think is more likely to achieve lunchtime success?

Comments:

Dunkin' Donuts makes (IMHO) great donuts - I go there when I want coffee and an donut. Not what I'm thinking re: lunch and I'm not sure any amount of advertising is going to make their products look better than the typical lunch place. Starbuck's is a little different - more social, more any time of day, so a better chance for success with the right set of products.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

The biggest challenge isn't generating "awareness" as Mr. Costello asserts...it's the ability and capacity to serve customers. At least at the Starbucks around Phoenix, it takes ten minutes in a single line just to place a coffee order. Can't imagine what it will take to get a cup of soup and a sandwich. Dunkin' seems to be a lot better at timeliness of service because it's a less complicated offering.

The second biggest challenge - unless they expect people to take out everything - is where to sit. Dunkin', it seems to me, isn't America's cheapest office space like Starbucks is. Those who claim a table for four for hours at a time will have to be moved! I'm not sure if squatter's rights apply or not.

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Ian Percy, President, The Ian Percy Corporation

The prospects are good as we are all so busy and stressed for time. We MUST have our coffee so if we can grab something for lunch in the same trip, all the better. The challenge will be offering food that is healthy and most of what is offered at these two establishments are not. Starbucks has a few that are relatively healthy, but check the calories and you decide. Some may say that having the calories on display (NYC) is annoying but I think it helps you to make better decisions.

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Zel Bianco, President, founder and CEO, Interactive Edge

The interesting questions will be whether lunch a) disrupts the service for core items, and b) will it be consistent with the brand experience.

Both Dunkin' Donuts and Starbucks certainly have the experience and capabilities to deliver lunch items. However, it is far different delivering fresh grilled sandwiches versus donuts and pastries. All solvable IF the lunch menu stays very focused. While Starbucks has as many as 200 items on its Secret Menu, its going to be much more difficult to execute that with lunch items that have to be customized in store.

The bigger question would seem to be consumer perceptions of the brands and experience. Based on the name and core products, Dunkin' Donuts would seem to have an identity more consistent with the lunch day-part.

Starbucks has literally created the "the third place" as part of its brand experience ... that place is going to get very crowded if customers stick around to eat lunch!

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Chris Petersen, PhD, President, Integrated Marketing Solutions

Since there are so many loyal customers for both Dunkin' Donuts and Starbucks, they will be successful during the lunch part of the day. Many Dunkin' stores now have Baskin Robins outlets so that will help with the lunch crowd. Starbucks is an all-day-long attraction for their customers, so lunch is a natural for them as well.

All is fine when it comes to these quick service restaurants going from breakfast to lunch; will the burger stores go from lunch to breakfast? It's the fast casual group that now needs to step it up!

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Frank Riso, Principal, Frank Riso Associates, LLC

Yes, this makes sense and they know it does from their own store data by time of day. The thing to realize is that Starbucks for lunch is almost like a line extension of the Starbucks brand...it needs its own sub-brand strategy. The same goes for DD.

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Joel Rubinson, President, Rubinson Partners, Inc.

Own the morning - own the day. While this mantra has not yet proven out for Dunkin' or Starbucks, it still may. They both have great traffic and therefore their lunch menu gets greater exposure to a large potential customer base. Now it is all about getting trial and conversion. The biggest issue they will face is that their facilities are not constructed to handle the "third place" group, e.g. those who want to sit for lunch.

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Steve Montgomery, President, b2b Solutions, LLC

Reaching out to serve your existing customers into another day-part makes perfect sense - on paper at least. The challenge is execution. It's not just adding an additional menu item, but all of the infrastructure that is needed to serve those items. Ovens, utensils, refrigerators, staff training, and processes all need to be introduced.

The success of these initiatives is largely predicated on the menu items. Prepackaged salads and sandwiches could work at Starbucks whereas DD, given their existing retail environment may have success with their grilled sandwiches.

I dread the day that I'm behind the person who orders a soy latte, half decaf, macchiato, no whipped cream AND a grande beef brisket, no butter, almond cheese baguette, etc....ARRGGHH!

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Adrian Weidmann, Principal, StoreStream Metrics, LLC

The key? How about good food? Both suffer from their offerings.

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Gene Detroyer, Professor, Independent

Assuming the offerings fit their customer promises, lunch is an obvious workable line extension for both companies. The key is to build on their noted strengths, namely coffee and related beverages. In fact, lunch entrees may boost the sales of their chilled beverages.

The key is to stay under the umbrella that each has established. Recall Starbucks' failure with pasta-based dinners. Also, the offering has to be better than that offered by the competitive offerings of the QSRs and on a par with the fast casual providers like Panera, Chipotle, etc.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

I just had a great salad for lunch at a Starbucks. I grabbed it out of the refrigerated case while I was in line to give my coffee order. It was quick and convenient.

Although lines can be long at Starbucks at certain times of the day, most stores have well-trained staff that can plow through orders very efficiently and keep things moving. In the Seattle area, Starbucks are everywhere, even multiple stores in the same complex. They already have loyal customers for whom it is easy to promote new lunch offerings. For those located in office buildings, lunch offerings will probably do well with existing customers.

Dunkin' Donuts, on the other hand, are fewer and farther between, and not usually as conveniently located for office workers. They seem more like a place that you grab something on the way to work in the morning, but less likely to go to for lunch. I'm not sure they are as well positioned as Starbucks to take advantage of the lunch crowd.

'RetailRetell'

We've seen a lot of this...with Starbucks planning to offer wine in the evenings. Restaurants that are blessed with convenient locations might as well leverage them all day, to boost profits and expand the brand.

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Cathy Hotka, Principal, Cathy Hotka & Associates

I've been impressed for several years now with the way Dunkin' has cautiously experimented with and delivered tasty and inexpensive breakfast sandwiches prepared quickly and with a tightly controlled process. Their recent move to do the same thing with a lunch menu is a smart move. Dunkin' has WiFi, as far as I have seen, and may have solved the squatter issue with their moderately Spartan eat-in space. So, assuming each can develop quality fare, I expect Dunkin' to win the service speed and price metrics versus Starbucks.

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Dan Raftery, President, Raftery Resource Network Inc.

It's gonna take some big-time marketing to get folks to think of Dunkin' Donuts or Starbucks as great lunch spots. People do love their latte mocha triple shot what have you, but not exactly what they would drink with their lunch. So now these retailers will have to start pushing the value of something else to get people in during the lunch hour.

For my 2 cents, the dessert crowd would be a much easier and interesting transition. Hmmmm?

Lee Kent, Brings Retail Executives Together to Meet.Learn.Profit, RetailConnections

Prospects are excellent for both. If the food is decent, quick, and has value for the money, they are a perfectly good alternative to the other surrounding "30 minutes to grab lunch" spots.

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Peter J. Charness, SVP America, Global CMO, TXT Group

It's not just lunch. Two factors seem relevant for both Dunkin' and 'Bucky's:

First, it makes eminent sense to provide profitable offerings for every time slot in the business day. You pay for the real estate 24/7; every serving occasion has capacity for a limited number of transactions. Add more occasions and add more revenue. Ask C-store standouts Wawa and Sheetz how well that reasoning has paid off for them.

Second, the existing stores at both chains are not really built for complex meal service. The menus will need to reflect present operational limitations or re-fitting may be needed. Where do you put the kitchens? At least Starbucks owns its stores. Most Dunkin' Donuts are franchises, which may mean different thinking about the capital investment.

Promising idea, but no slam-dunk in a hotly competitive quick serve market.

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James Tenser, Principal, VSN Strategies

Starbucks will clearly be the winner in this race as they've set themselves up as the "third place" in many people's minds, including myself. Although SBUX is busier in the a.m., from my experience, they're still hopping in the afternoons as well. The same logic also gives them plenty of permission to sell alcoholic beverages in the evening. Win-win-win for them, IMO.

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Lee Peterson, EVP Creative Services, WD Partners

My sense is that grabbing lunchtime market share will be easier for Starbucks. The brand is more solidly positioned as the anytime-of-day destination, while the recent launch of Teavana beverages and freshly prepared and expanded food items are gaining traction.

The lunch day-part is a more natural fit for Starbucks, and after that, they'll become serious about evening market share. Recent store remodels are creating a more locally-inspired, authentic, thoughtfully furnished all-day space, with the wine and beer offerings the first step toward becoming a more serious destination in late afternoons and evenings.

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Jeff Hall, President, Second To None

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