Dunkin’ Is Challenging Starbucks Where It Hurts: Espresso

October 24, 2018, 9:22 AM UTC

The coffee chain formerly known as Dunkin’ Donuts is beefing up its espresso offerings and lowering some prices in a challenge to the coffee chain still known as Starbucks (SBUX).

While Dunkin’ (DNKN) has offered espresso-based drinks for years, and chased Starbucks into mobile order-ahead payments in 2016, this year it has accelerated its new offerings, ranging from donut fries to gluten-free items to beer. Late last month it announced an even bigger change, dropping “Donuts” from its name. It has also followed other trends such as serving cold-brew coffee and selling branded coffee via grocery stores.

Dunkin’ reported $860 million in sales last year while Starbucks reported $22 billion. While both are international chains, Dunkin’ operates on a mainly franchise model, so it has a different cost structure. Dunkin’ executives recently traveled to Europe to test new espresso machines and announced that the company will invest $100 million in installing them along with other technology and unspecified investments by its franchisees.

The brands target overlapping but slightly different markets: Starbucks provides a somewhat more premium experience while Dunkin’ aims to offer a more affordable quality coffee: Dunkin’s new 16-ounce hot latte, served will cost $3.59 with tax while the competing drink at Starbucks costs $4.19. Dunkin’ will serve the new espresso drinks in orange cups to distinguish them from older drink offerings.

That’s probably a good thing because in blind tests, even regular coffee junkies can barely tell apart the main commercial offerings.

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