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Dunkin' taking on Starbucks with improved espresso drinks

October 24, 2018

First, Dunkin' dropped the "Donuts" from its name. Now it's adding fancy espresso drinks to its menu.

Dunkin' says U.S. customers will be able to buy upgraded lattes, cappuccinos and other espresso-based hot and cold drinks at most of its 9,200 U.S. stores by the holiday season.

It's part of an effort by Canton, Massachusetts-based Dunkin' to increase beverage sales—already 60 percent of its revenue—and compete more directly with Starbucks Corp. Both companies reported lower U.S. store traffic in their most recent quarters and are looking for a jolt from new products.

Still, Dunkin' has a long way to go. Starbucks controlled 56 percent of U.S. coffee cafe sales in 2017, while Dunkin's share was 27 percent, according to Technomic, a food industry research company. Starbucks has 14,443 U.S. stores, or nearly 40 percent of all coffee cafes in the U.S.

Pricing is determined by franchisees, but Dunkin' will likely undercut Starbucks. Its recommended price for the new, 16-ounce hot cappuccino is $3.39; Starbucks charges $3.85 for the same drink. Starbucks also charges more for regular brewed coffee.

Starbucks' response, so far, has been to move even further upmarket. It has opened high-end roasteries featuring rare coffees and drinks — like a whiskey barrel-aged cold brew—in Seattle, Milan and Shanghai, and will open one in New York soon. It also recently opened Princi artisanal bakeries in Seattle and Chicago.

Dunkin' has been offering espresso-based drinks since 2003. But the company felt it needed bolder flavors and improved recipes to appeal to young customers. It's spending more than $50 million to buy new espresso equipment and train its U.S. employees to make hand-crafted drinks. Many international stores already had higher-quality espresso drinks, the company said.

It's also introducing special orange cups to distinguish espresso drinks from its other beverages.

"Espresso is one of the fastest growing coffee categories, particularly among younger consumers, and with our coffee credentials we believe we have a tremendous opportunity to improve our awareness and credibility among espresso drinkers," Dunkin's Chief Marketing Officer Tony Weisman said in a company statement.

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