Grande Distribution.
Distribution has been overlooked in the "coffee wars." But it shouldn't, here's why;
Dunkin' Donuts has launched plans to grow beyond their core markets in the NE and Chicago.
This aggressive roll out was timed well as Dunkin' Donuts not only has
premium coffee at a value price, but also large metro distribution and
a strong breakfast food menu enjoyed by many of the same demos as
Starbucks and differentiated from McDonald's menu.
Dunkin's expansion was designed to grow new markets into a truly
national network with a very loyal customer base that follows Dunkin'
in markets where it has substantial distribution.
Dunkin' carefully aligned with blue chip franchisees with stellar
credit and cash on hand. Dunkin' did a good job of lining up favorable
financing for their best new partners, so that those partners wouldn't
have to tie up a lot of their own personal cash into market build outs,
to encourage more aggressive expansion goals.
But Dunkin's expansion credit crumbled. Some of their important
franchisee partners have gotten out their contracts and are in the
process of selling the stores they developed, simply because they
cannot operate in large metro markets without substantial scale, which
has been slowed or halted by the credit crunch.
That leaves in a national coffee war, Starbuck's and McDonald's with
Dunkin' a strong regional player in many core markets and expansion on
a more distant horizon.
McDonald's sales have surged in the recession, Starbuck's have
nosedived. McDonald's doesn't need to open new stores, they are the
heavyweight champion of distribution, they've built out McCafe's in a
good portion of their footprint and they aren't closing many if any
existing stores.
Starbuck's, who also had heavyweight distribution, has been closing
stores, lowering their prices on their super premium coffee and
reducing their already weak food offering.
The retrench moves by Starbuck's and their inability or willingness to
expand their menu beyond core coffee drinks means McDonald's is easily
the Grande of all things coffee, no matter how you order it.
If Dunkin' can get their expansion financing and partners in order,
they've got a good run in front of them, for they have alternative
morning foods McDonald's has never done well with on a national basis -
Donuts and Wraps, all of which also trump Starbuck's current
go-to-market strategy.
Starbuck's best hope is to take calculated risks and not cut back on
distribution or the price of their coffee, but instead work on their
food menu to offer differentiated, value priced food, through their
distribution channel.
Procter and Gamble uses price brands to drive category traffic and
premium brands to deliver margins. Starbuck's could use value priced
food in the same way to drive more traffic and use premium priced
coffee to deliver their margins.
The French bistro model and heavy distribution served Starbuck's well.
Why can't the value priced French bakery, with super premium coffee all
driven by sizable distribution?
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