Is Starbucks Diluting Its Business Brew Too Much?
Starbucks is the big boy of coffee. With 11,000 units, it's the world's largest coffee chain. With a focused brand, consistent customer experience and brilliant marketing, Starbucks has persuaded me and millions of others to trade up from our 50-cent cup of joe to a $3 cup of indulgence.
So what's next? At Starbucks plans are brewing to triple its
size and become the world's largest fast-food brand. And then
there's the music and movie businesses the chain has gotten
It's the same old story. A company narrows its focus and becomes a big brand and a big success. Then it gets arrogant, cocky and greedy and decides it can take over the world and be all things to everybody. Wrong.
When will company leaders learn? Starbucks is a strong coffee brand because its brew packs a powerful punch. Dilute the thing with too much water and you'll end up with a lousy brand and a terrible cup of coffee.
Starbucks is a monster global "coffee" brand with lots more
potential to grow in both the U.S. and abroad. I just don't think
it can be a global "fast-food" brand. Why try to be everything to
everybody? It adds costs, cuts profits and weakens the brand.
Starbucks should have learned a lesson from McDonald's, a brand that has resurrected itself not by adding things to the menu, but by getting back to basics. They talk fruit and salads, but it's the simplicity of the dollar menu and the appeal of the double cheeseburger that has brought the dollars back to the bottom line.
In spite of a number of stupid line extensions by Starbucks (remember Cafe Starbucks featuring chicken pot-pie?) the company has managed to grow rapidly because no one has been able to compete effectively against them. Why do we not see a strong No. 2 brand of coffee, such as Pepsi in cola, Lowe's in home improvement warehouses and Target in mass merchandisers?
'Same but cheaper'
Because all the major coffee competitors have used the "same but
cheaper strategy," which never works against the "real thing." Ever
since Avis did "We try harder," every other also-ran thinks they
can say the same thing and succeed. What they forget is that most
people want to buy from the leader unless No. 2 can provide a real
Today, Avis flounders, because trying harder just isn't enough. In fact, Enterprise is now No. 1 in rent-a-cars because they successfully exploited the insurance-replacement market against No. 2 Hertz, which focuses on airport rentals.
In the coffee category, I think there is one brand that has a shot at owning a strong No. 2 position if they do some reformulating of their brand strategy.
The brand is Dunkin' Donuts, a 55-year-old company that was acquired last month by a consortium of private equity firms. With 4,400 units nationwide, the brand has a major presence but without a strong brand focus. The new owners have launched what they call the "most significant repositioning effort in company's history focusing on American values of hard work and fun." The campaign carries the tagline "America Runs on Dunkin'."
Tripling Dunkin' Donuts' size
In the next decade, Dunkin' Donuts wants to triple in size by
entering new markets (they are most prevalent on the Eastern
seaboard) and by expanding the menu beyond breakfast. Oh boy, there
is that nasty "expansion" word! Their idea sounded great until they
started talking about expanding the menu.
Dunkin' Donuts built its brand on donuts. But expanding waistlines have moved people away from donut shops and into Starbucks' coffee culture. Dunkin' Donuts, of course, was also well known for coffee. It must drive them nuts to see Starbucks pre-empt a product that Dunkin' Donuts pioneered.
In the past few years, Dunkin' Donuts has been chasing the latest trends, adding bagels, muffins, hot sandwiches, high-end coffee and a variety of, non-fat, low-carb items. All products for which they have no credibility.
What should the new owners of Dunkin' Donuts do with the brand? Well, I believe they do have credibility in coffee, but not the Starbucks stuff. They need their own coffee twist. They need to be the opposite of Starbucks. Strong No. 2 brands don't emulate the leaders, they become the opposite.
Listerine was the bad-tasting mouthwash, so Scope became the good-tasting mouthwash. Home Depot was male and messy, so Lowe's became female and neat.
Expensive, slow and snobby
Starbucks is expensive, slow and snobby. Some people like that.
But there are always opportunities to be the opposite.
Dunkin' Donuts is affordable, fast and down-to-earth. A place without pretense, a place where hard-working Americans feel appreciated. I believe that some of that is coming across in the new campaign, but it's not strong enough. They need to hammer the idea that Starbucks is the enemy. To truly succeed, they need to focus on "fast."
(Forget about "affordable." People already know that. Furthermore, affordable is not a benefit. It tells consumers that the coffee at Dunkin' Donuts is not as good as the coffee at Starbucks.)
"Fast" has another benefit. It tells consumers their time is valuable. It especially appeals to the upscale crowd who typically head for Starbucks.
Having to wait at Starbucks has got to be consumers' No. 1 complaint, with cost right behind it. (This is certainly what my friends and I feel.) Positioning Dunkin' Donuts as the fast coffee is going to require getting rid of a number of menu items. Furthermore, the whole store design should reflect speed, with drive-thru windows, fast-ordering lanes, etc. Unless Dunkin' Donuts nails the speed position, they will never beat Starbucks. Consumers are willing to wait in a Starbucks, not in a Dunkin' Donuts.
Not exactly brand poetry
Of course, we have a little problem with the name. It says
Donuts. The brand's new slogan (America runs on Dunkin') reinforces
the donut idea. They cleverly try to leave donuts out of the
slogan, but you think about running on food, not coffee. Americans
running on Dunkin' just brings an image of a overweight guy
stuffing chocolate covered donuts into his mouth while running to
catch a bus. Not exactly brand poetry.
I don't think the brand can totally walk away from donuts or change the name to Dunkin' Ds to hide the donuts (like Kentucky Fried Chicken's name change to KFC to hide the Fried.) The brand is what it is. Sometimes it's too late and too costly to change a brand name. Besides, what do you think the customer was supposed to "dunk" the donut in? Orange juice? The brand has always been strongly tied to coffee.
What's really going to get the brand in trouble is expanding the menu into hot sandwiches to compete with Panera Bread and expensive coffees to compete with Starbucks. That will leave Dunkin' Donuts trapped in the mushy middle, serving neither good sandwiches nor gourmet coffee nor having fast service. Doing everything sounds great in the boardroom, but is almost never possible in the marketplace.
Sometimes the best ideas are the ones you borrow. Dunkin' Donuts should use the same strategy that made Miller beer famous many years ago. At 5:00 p.m., after a long, hard day on the job, it's Miller Time.
What Miller did for the evening, Dunkin' Donuts can do for the morning. Make Dunkin' Donuts your first stop. Your quick stop. Your only stop.
It's Dunkin' Donuts' Time. The place to stop for busy Americans who don't have the time (or money) to waste at Starbucks.