In Oh, Sweet Revenge, an oldish Newsweek article, Dunkin’ Donuts’ chief Jon Luther says his company is helped by its rivalry with Starbucks: “[It’s] created an awareness for the category, and we’re benefiting.”
The chain’s success illustrates a little-advertised truth of business. Too often the financial pages read like the sports section, filled with winners and losers. Reality is more complex. In many markets, business is not a zero-sum game, and competitors create opportunities.
The article includes some lessons on playing “business defense”...
Markets Have More Niches Than You Think: Dunkin’ Donuts, Starbucks and Krispy Kreme all sell pastries and caffeinated beverages, so they’re obvious competitors. But beneath that similarity, they’re serving different markets. Krispy Kreme’s customers visit only occasionally but buy dozens of donuts; that chain is peddling a dietary splurge, not daily sustenance…Starbucks chief Howard Schultz has always seen his stores as neighborhood hangouts, a sort of nonalcoholic “Cheers” setting with comfy chairs, porcelain cups and, increasingly, wireless Internet access. Dunkin’ Donuts, in contrast, is increasingly built on speed. Most of its new stores feature drive-throughs, and the chain bills itself as a pit stop for harried commuters…
Grow at Your Own Speed: If Starbucks seems ubiquitous, that’s because national expansion was part of Schultz’s game plan when he began reinventing the coffeehouse in the mid-1980s. But that fast-growth strategy caused growing pains early on. Dunkin’ Donuts, by contrast, is still concentrated on the East Coast; it has just a few dozen locations west of the Mississippi. Instead of conquering new lands, Dunkin’s managers have spent much of their energy exploring how deeply the brand could penetrate existing markets. The result: in Massachusetts, where the quickest way to get someone lost is to give directions that include the phrase “Turn left at Dunkin’ Donuts,” there’s one store for every 7,389 residents, compared with one Starbucks for every 15,383 in its home state of Washington.
Chad
on 06 Feb 07I’ve read about this rivalry before, but I think a Dunkin’ Donuts/Starbucks comparison is a bit odd. There is some competition I suppose, but a huge gap exists between the person who wants a ‘donut and coffee’ and someone who wants premium coffee.
It’s like comparing Wal-Mart to Neiman Marcus.
Dan Boland
on 06 Feb 07Interesting stats on the density of DD vs. Starbucks.
Chad, I disagree with you — most Starbucks locations I see in a given morning are packed. DD wants those people. Premium or not, they both sell coffee.
Is it French, or is it Italian? Perhaps Fritalian? =D
TeesMyBody.com T-shirts
on 06 Feb 07Back in business school they always taught us that McDonalds and Burger King do better business when they are across the street from one another, so this sort of obeys the same principle.
Dennis
on 06 Feb 07Calling Starbucks coffee “premium” is disingenuous – it’s no more so than McDonald’s – unless you’re talking about the price, and therein it certainly is!
Chad
on 06 Feb 07Dan – Of course DD wants those people, but they aren’t going to compete based on coffee variety and the number of store locations. These are important, but Starbucks succeeds because of the experience created when purchasing a drink from their stores. The store design, the music selection, and even the higher prices play into that. There is nothing unique about DD. It’s a typical fast food joint with donuts instead of hamburgers.
Dennis – you’re right… it’s perceived to be premium though
Jamie Stephens
on 06 Feb 07There is no doubt other companies are benefitting from Starbucks’ ability to raise the awareness of the coffee market. Some people believe that they are even being beat by the unlikeliest of competitors, but I’m not so sure. I heard another study that put DD, not McDonalds, above Starbucks (conducted on the East coast?).
The great thing about these surveys (for the companies) is not who is on top, but that they are occurring at all. These companies were not even compared to one another five or ten years ago. I even see 7-11 competing on coffee now with big signs by the pump. It’s not “better gasoline” or “more convenient,” but rather “get your gourmet coffee here.”
dandan
on 06 Feb 07Instead of conquering new lands, Dunkin’s managers have spent much of their energy exploring how deeply the brand could penetrate existing markets. The result: in Massachusetts, where the quickest way to get someone lost is to give directions that include the phrase “Turn left at Dunkin’ Donuts,” there’s one store for every 7,389 residents, compared with one Starbucks for every 15,383 in its home state of Washington.
That explains the monthly BBC documentarys about the weight problem across the pond then :D
Raymond Brigleb
on 06 Feb 07Quite true. I saw a quote yesterday, with someone at Wufoo, that made me do a double-take:
It’s natural to think that it would be harder to make money at something others are already doing pretty well. But it seems that it never occurred to the Wufoo guys, and that’s a good thing.
On a related note, the founder of the very successful Stumptown Coffee Roasters here in Portland often attributes much of his success and opportunity to Starbucks. He credits them with starting the “gourmet coffee revolution” that paved the way for smaller businesses like his to really take off. I’ve always felt that was very smart – too many of the “little guys” are bent on blaming places like Starbucks for the evils of this world, rather than looking for new opportunities they might create.
Andrew
on 06 Feb 07Only thing Dunkin needs to get right is it’s donuts! – Krispy Kreme donuts are great, dunkins taste like crap!
brad
on 06 Feb 07It’s also interesting to see small high-quality coffee shops thriving when a Starbucks can be found just around the corner—the anti-Starbucks sentiment has created a whole new business niche to exploit.
Really I think what the example above shows is not competition but rather niche development. Competition is a drain on energy and resources: you can see the same thing happening in nature, where species that compete for the same food end up evolving over time to occupy different niches. Look at sandpipers and other shorebirds along the beach: some species have very short beaks for getting the critters that lie near the surface of the sand, while others have much longer beaks for finding food deeper down. They all coexist and spend less time competing because they’re occupying different niches. Same principle applies to business. Think of the millions of dollars Coke and Pepsi have wasted by competing against each other. They would have been better off financially if they had found different niches.
I don’t think Dunkin’ Donuts wants those Starbucks customers: they know they’re not going to get them. People who go to Starbucks are simply not the same kind of people who go to Dunkin’ Donuts, and vice versa. That’s not going to change. And if they’re smart, they’ll realize that. They’ll do better by not directly competing with each other, but rather by exploiting their respective niches to the fullest.
Dr. Pete
on 06 Feb 07As great as it sounds to be the only one in your market niche, it’s lonely sometimes, too. Competition not only motivates us as entrepreneurs, but gives us competitive intelligence, including ideas to “borrow”, benchmarks to compare ourselves to, and the chance to let someone else make some of the mistakes.
Nivi
on 06 Feb 07Peter Drucker: “The market standing to aim at is not the maximum but the optimum… the dominant supplier in a rapidly expanding, especially a new, market is likely to do less well than if it shared that market with one or two other major and competing suppliers… a new market, especially a new major market, tends to expand much more rapidly when there are several suppliers rather than only one… A new market that has only one supplier is likely to become static at 100. It will be limited by the imagination of one supplier who always knows what his product or service cannot or should not be used for. If there are several suppliers, they are likely to uncover and promote markets and end uses the single supplier never dreams of. And the market might grow rapidly to 250. Du Pont seems to have grasped this. In its most successful innovations, Du Pont retains a sole-supplier position only until the product has paid for the original investment. Then Du Pont licenses the innovation and launches competitors deliberately.”
Dan Boland
on 06 Feb 07Chad, I didn’t explain it very well. What I meant was that Starbucks is packed in the morning — not necessarily because they want Starbucks but because they want coffee to start their day. DD wants those folks.
Benjy
on 06 Feb 07There’s only 1 Starbucks for every 15,383 in Washington state? I think in some parts of Chicago it’s approaching 1 Starbucks for every 10 people.
Jeff L
on 06 Feb 07It does get a bit crazy with Dunkin Donuts out here, especially in Southern NH.
Here’s a stretch of road that has six in only a few miles.
and here is a map of Greater Nashua – I wish you could see all of the first three pages on the map at once.
dandan above is correct – it’s no wonder we are such an obese society.
and do people forget that caffeine is a drug?
Bryce
on 06 Feb 07The result: in Massachusetts, where the quickest way to get someone lost is to give directions that include the phrase “Turn left at Dunkin’ Donuts”
It was “Turn left at Bruegger’s” when I lived near Boston about 10 years ago…
Leith @ Birth of a Startup
on 07 Feb 07Its interesting what commercial buildings are used as landmarks for giving directions. I lived in London for a few years, and was initially perplexed and eventually understanding to find they use ‘M&S’ as their landmark. ‘M&S’ I found out eventually stood for ‘Marks & Spencers’, which holds a dear place in the heart and consciousness of English people. Its interesting to consider what commercial buildings are considered landmarks in other countries… in Australia I don’t think its as prolific, no shop is so ubiquitous to serve in this capacity. What are examples in other countries?
John
on 07 Feb 07FYI if you’ve ever driven a cab to pay for a design education (if not, lucky you, speaking of Boston) DD is the best place to roll over counterfeit 20’s should you be the lucky recipient thereof. Speed kills as they say.
Zoli
on 10 Feb 07Life creates opportunities as well. Life is a competitor of yours. orly.
alek
on 13 Feb 07I was a customer of starbucks for 10 years before i became an employee. As a customer, I didn’t go back for the best cup of coffee in the world, but i went for the experience. There are very few coffee consumers who actually know what type of coffee they are drinking. I was one of them. One thing that continually helps me with providing amazing customer service is the way my company takes care of me. I have yet to walk into a McDonalds, Burger King or a Dunkin Donuts and be greeted by a person who is genuinely happy to see me. I will spend a buck or 5 bucks for a donut – i just want it to be a happy donut. It’s all about the experience, and noone does it better than starbucks.
This discussion is closed.