Dunkin' Donuts Teams With P&G for Distribution Deal

National Rollout Comes as Arch Coffee Rival Starbucks Ponders Brand Erosion

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LAS VEGAS (AdAge.com) -- Dunkin' Donuts and Procter & Gamble Co. are taking a page from the playbook of their rivals Starbucks and Kraft Foods, announcing a deal today to launch a national packaged coffee brand to be sold in supermarkets, supercenters and club stores.
A P&G spokesman said the Dunkin' Donuts brand will be distributed nationally, though its strength is expected to lie primarily in the same Northeast markets as the Dunkin' Donuts chain.
A P&G spokesman said the Dunkin' Donuts brand will be distributed nationally, though its strength is expected to lie primarily in the same Northeast markets as the Dunkin' Donuts chain.

Dunkin' Donuts "gourmet coffee" will be produced and distributed by P&G, the nation's largest coffee roaster and marketer of the No. 1 supermarket brand Folgers as well as its existing gourmet brand Millstone.

Northeast markets
A P&G spokesman said the Dunkin' Donuts brand will be distributed nationally, though its strength is expected to lie primarily in the same Northeast markets as the Dunkin' Donuts chain. Geographically, Dunkin' Donuts should nicely complement P&G's Millstone business, which skews heavily toward West Coast and Midwest markets and is relatively weak in the Northeast.

Several details remain to be worked out, he said, noting that the brand should hit store shelves "sometime within the next 12 months." Marketing plans have yet to be finished, including an agency assignment, and those decisions will be reached jointly by P&G and Dunkin' Brands.

The heavily Northeast-focused chain, with its Canton, Mass., headquarters and blue-collar ambiance, has for years had trouble winning the respect accorded to its very hip Seattle-based rival, even though Dunkin' Donuts sells more coffee by the cup. But having beaten back a challenge in recent years from doughnut upstart turned flameout Krispy Kreme, Dunkin' Donuts may be gaining some ground on its more formidable foe.

The deal arguably couldn't come at a better time for Dunkin' Donuts or a worse time for Starbucks, whose chairman, Howard Schultz, has been engaging in some highly public navel gazing lately about the erosion of the fast-growing chain's brand experience.

Tops in customer loyalty
On the same day the deal with P&G was announced, brand consultancy Brand Keys released results of its annual Customer Loyalty Engagement Survey showing Dunkin' Donuts had bested Starbucks in brand loyalty within the coffee-and-doughnut food-service segment for the first time in five years.

"Apparently it's true these days that 'America runs on Dunkin'," Robert Passikoff, president of Brand Keys, said in a statement, alluding to Dunkin' Donuts advertising tagline.

The so-called "watering down of the Starbucks experience" cited by Mr. Schultz in a widely publicized memo, including new automatic espresso machines that don't require barista intervention, may have played a role in Starbucks slipping, he said. But he also noted that Krispy Kreme lost its edge when it traded its "fresh made and hot" equity for expanded retail distribution, a la Kraft's Entenmann's (or Starbucks for that matter).

Distribution eroding the experience?
Kraft began distributing Starbucks in stores in the 1990s, competing against -- and often supplanting -- P&G's Millstone in supermarkets' gourmet coffee merchandising mix. Yet slapping the Starbucks brand on packaged coffee sold outside its own exquisitely designed stores could also be eroding the Starbucks experience.

"Brands that sacrifice a good deal of their originality and differentiation, along with the crispness of the brand experience, for pure growth, are sure to see a dilution of values," Mr. Passikoff said in a statement. "That's a certain way of watering down a brand."

Mr. Passikoff couldn't immediately be reached for comment on whether Dunkin' Donuts could risk a similar fate by expanding into broader retail distribution.
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