Dunkin' Donuts, Other Stores Profit as Starbucks Close Nationwide

For awhile, in our city and many others, it seemed like there was a Starbucks coffee shop on every corner. In fact, a former staple of our neighborhood, Dunkin' Donuts, lost so much business after Starbucks arrived in the same mall that it finally shuttered its doors. For years, the new, gorgeous Starbucks was crowded with people coming in for their daily fix of the coffee of the day, from cafe lattes to plain coffee, black, no cream. It was a bustling place. Company meetings even took place there.

Now Starbucks management has recently announced that it is closing 600 stores and business analysts and others are wondering what hit the company so hard. Did the coffee shops grow too quickly? Were there too many stores on every corner? News of the announcement about the Starbucks' closings can be seen in such publications as The Washington Post's July 2 online edition in an article called "In Venti Retreat, 600 Starbucks to Close" (see full listing of sources at the end of this article). Most of the stores closed were those opened after 2006. Perhaps opening those stores was a big "ooops" moment in Starbuck's management history.

For those who may still wonder why and how this could happen to a coffee company that once had some of the trendiest coffee shops around, here is some basic info about what happened and, possibly, why:

The pressing question: why did Starbucks close and why has Dunkin Donuts become profitable again, even in areas where Dunkin' Donuts was once forced out?

This writer has witnessed this phenomenon personally, having seen a local Dunkin' Donuts lose business when the giant Starbucks drew crowds. As long as the economy was booming, Dunkin' Donuts had to quietly shut its doors and leave, not able to make a profit next to the booming Starbucks. That particular Dunkin' Donuts was located literally across the parking lot from a Starbucks in Indianapolis, Indiana. It was a Dunkin' Donuts we frequented.

How quickly things can change! Just this May, Starbucks second-quarter profits sank 28 percent. Voting with their money, it appeared clear that American coffee drinkers decided something had to give when it came to saving precious dollars (stimulus checks or not). One of those "somethings" may have been expensive coffee. With gas prices rising, a quick trip to Starbucks seemed more a luxury than a necessity. It certainly did to us.

At this point in time, the once lowly Dunkin' Donuts franchise is now number 1, McDonalds is number 2 and Starbucks, once seemingly invincible, is number 3. Just the facts, as indicated by a the market -based research firm, Brand Keys. As for me, I'm happily drinking Dunkin' Donuts coffee and even buying bags to take home and make in my coffee maker. I guess I"m not a classic coffee snob.

Trying to change too much, Starbucks basic theme and focus may have helped Dunkin' Donuts and even McDonalds coffee sales rise again

Having visited both stores recently, there is much to recommend Dunkin' Donuts. As Starbucks made some potentially risky moves, Dunkin Donuts, the coffee shop, honed and updated its approach to customer service, providing some coffee options at reasonable prices and expanding it menu items. All of this may have helped to make Dunkin' Dunkins fit both worlds, being both familiar and new. They have low-calorie coffee drinks as well as light lunch sandwiches. Having tasted some of their new coffee drinks, I"m sold on the lighter. diet options.

Meanwhile, all the things that made Starbucks coffee chains unique, an experience as well as a place to grab gourmet coffee, were disappearing. For awhile, Starbucks had a European feel, reminiscent of one that could be found in European cafes. Plush chairs and seating groups also added to the appeal. Now those couches are leaving ( or have already left) many stores. Music and movies are taking up so much display space that customers have to jostle each other to get past the people browsing the racks of DVDs and CDs to place their order. It started to be frustrating for customers. I'd hear grumbling every time I walked into my local Starbucks, which was less crowded (a good thing for customers) ....not such a good thing for the bottom line of Starbucks.

My sentiments are echoed by market researchers, Robert Passikoff of Brand Keys, in a July 2 article for Newsday.

Starbucks stopped being just a coffee shop and became a confusing mess of various items for sale

Every time customers walked in the store, they didn't know what they'd find. There were super expensive lunch salads, fruit and cheese platters and various trendy drinks, from bottled waters to juices. Then came the onslaught of the specially produced music CDS and the racks of music and movies. All the while, the poor coffee servers seemed more and more harassed by trying to fill the orders for coffee, something that seemed easier before they were also ringing up sales and answering questions about various CDs, the latest issue of the New York Times newspaper and more. Lines grew longer - at least, in my local Starbucks.

Cost comparisons between Dunkin Donuts coffee and Starbucks coffee prices are telling

For even the simplest plain coffee at either store, the Starbucks prices is higher. At an average of at least 10 cents a cup higher - and again, that is just for a plain or straight black coffee, no flavorings or changes - Dunkin Donuts wins the coffee price war. Add up the fact that it is not unusual for people to drink 3-5 cups of coffee a day or more and those dimes can add up. Then add the cost of driving to a location. Then factor in the prices for sandwiches at Dunkin' Donuts or reduced calories drinks versus those at Starbucks. Finally, no one expected Dunkin' Donuts to resemble a European coffee house so expectations weren't dashed. The cost for a cup of coffee at McDonalds is only 99 cents and customers are often surprised by the fact that this is premium coffee. The cost difference is huge, compared to a Starbucks' latte at about 3 times the cost.

While business analysts are still deciphering all the reasons Starbucks rose so quickly - and seem to be hitting a huge bump just as quickly - the reality is that this coffee shop is taking an economic hit for now. If the economy improves and the company can win customer loyalty again, it could become popular once more. For now, however, you're likely to see crowds of people in Dunkin' Donuts or even McDonalds. That is the way it is in my corner of the world - and in many others as well, according to the latest information about Starbucks.

Sources:
Starbucks website: www.starbucks.com/
(pricing info on coffees)
Dunkin' Donutes website: www.dunkindonuts.com/
(pricing info on coffee for comparison with Starbucks, after getting price list)

Personal experience

Article: "In Venti Retreat, 600 Starbucks to Close", Washington Post, July 2, Michael S. Rosenwald

Research studies and press announcements from Starbucks Corp

Newsday.com, July 2, James Bernstein, Q & A; Why Starbucks Got Dunked ( citing research info and opinions from Robert Passikoff of Brand Keys Market Research firm)