Episode 5: Starbucks vs Dunkin' | Business Wars | Full Episode

Dunkin Donuts' Bold Advertising Strategy

Introduction to the Campaign

• In January 2009, Dunkin Donuts executives gather at headquarters to discuss a new advertising campaign with a hefty price tag of $100 million.

• The brand marketing officer introduces the campaign's core message: "You can do it," cleverly integrated into the Dunkin logo.

Campaign Messaging and Target Audience

• The ad features relatable scenarios showcasing everyday Americans, emphasizing that Dunkin Donuts supports those who keep America running.

• The slogan "America runs on Dunkin" is highlighted as an upbeat response to the recession, positioning Dunkin as accessible compared to Starbucks.

Market Challenges and Competition

• Despite the catchy ad, Dunkin faces challenges from the Great Recession, with franchise operators filing for bankruptcy amid expansion efforts in new regions.

• Both Dunkin and Starbucks are struggling as consumers opt for homemade coffee over store-bought options during economic downturns.

Leadership Changes at Dunkin Donuts

New CEO's Arrival

• Nigel Travis becomes CEO of Dunkin Donuts amidst Starbucks' struggles, bringing experience from reviving major brands like Burger King.

Franchisee Concerns

• Travis reaches out to franchisees to understand their concerns about profitability and support from corporate during rapid expansion.

• A Texas franchisee expresses frustration over lack of menu items tailored to local tastes, highlighting a disconnect between corporate strategy and local needs.

Supply Chain Issues

• Franchisees report higher costs due to insufficient stores in the South affecting supply chain efficiency; Travis commits to nationalizing supply chains for better pricing.

Future Directions for Dunkin Donuts

Strategic Goals

• Travis acknowledges his role in preparing Dunkin for a public offering by addressing operational issues while maintaining growth through store openings.

Travis's Vision for Dunkin Donuts

Initial Meeting and Challenge Culture

• Travis holds a meeting to share his vision for Dunkin Donuts, focusing on improving operations, embracing technology, expanding food and beverage offerings, and increasing the customer base.

• He expresses a long-term goal of taking Dunkin public within two to three years but faces silence from the team, indicating their uncertainty or lack of engagement.

• Travis introduces the concept of "challenge culture," encouraging team members to challenge his ideas to foster better solutions.

• After interviewing leadership team members, he realizes most are unable or unwilling to challenge him effectively; consequently, many are let go in favor of those who embrace this culture.

• During a cost-cutting meeting, Paul (the new US president) challenges Travis’s proposal for deep cuts, emphasizing the need for strong talent to support growth.

Team Dynamics and Engagement

• Acknowledging Paul's pushback leads to more open dialogue among the team; they begin sharing ideas freely.

• By the end of his first year as CEO, Dunkin opens 350 new locations and engages customers through an online contest that garners 130,000 submissions for a new doughnut flavor.

• The winning creation is named "toffee for your coffee," showcasing successful customer engagement strategies during economic downturns.

Howard Schultz's Challenges at Starbucks

Emotional Roller Coaster

• Howard Schultz discusses with Olden Lee about his emotional struggles while trying to stabilize Starbucks amidst challenging times.

• Schultz acknowledges that maintaining confidence is crucial as it impacts employee morale during uncertain periods.

Bold Business Moves

• He proposes launching a billion-dollar instant coffee business despite skepticism about its potential success due to negative perceptions surrounding instant coffee quality.

• Schultz highlights the significant market opportunity in instant coffee globally and believes Starbucks can replicate UK success in North America.

Pre-Rollout Concerns

• Just before launching the instant coffee line, an article appears questioning Schultz's strategy as desperate; it warns against risking Starbucks' premium brand image with instant products.

Starbucks and Dunkin' Donuts: A Competitive Landscape

Introduction of Starbucks Via Instant Coffee

• In February 2009, Howard Schultz announces the launch of Starbucks' new instant coffee, Via, at a press event in a Starbucks conference room.

• Schultz emphasizes that Via is not typical instant coffee; it aims to deliver excellence even for customers on the go.

• The introduction includes a week-long advertising campaign featuring taste tests comparing Via with brewed coffee, highlighting its convenience and flavor.

• Within its first year, Via becomes the fifth best-selling brand of instant coffee in the U.S., showing significant sales growth.

Menu Innovations and Competitive Strategies

• In March 2009, Starbucks introduces new breakfast options designed to appeal to both frugal customers and regular guests, including artisan sandwiches paired with coffee.

• Dunkin' Donuts remains competitive by being rated number one in customer loyalty for three consecutive years but recognizes the need for innovation.

• Dunkin' responds with the $0.99 wakeup wrap aimed directly at Starbucks, emphasizing affordability in their marketing strategy.

Pricing Strategies and Market Dynamics

• To compete with Dunkin', Starbucks implements a pricing strategy that lowers prices on popular items while increasing prices on specialty drinks—a move seen as insufficient by many.

• By 2010, Dunkin' Donuts surpasses Starbucks in hot regular and iced coffee sales across the U.S., marking a significant shift in market dynamics.

Dunkin’ Donuts IPO Success

• On July 27, 2011, Dunkin' Donuts goes public successfully under Nigel Travis's leadership; shares initially priced between $16-$18 soar to nearly $28 by closing.

• Travis expresses concern about maintaining momentum post-IPO as competition from Starbucks intensifies.

Brand Image Challenges

• In August 2013, Travis faces backlash over an insensitive ad run by a franchise store in Thailand featuring blackface makeup—prompting immediate apologies from Dunkin'.

• This incident reinforces Travis's reluctance to engage politically while contrasting with Howard Schultz’s more socially aware approach during crises.

Social Issues Impacting Business Decisions

Starbucks and the Race Together Initiative

Context of Civil Unrest

• The discussion begins with the mention of Eric Garner's death, highlighting ongoing issues of police brutality against unarmed Black men in America. Schultz expresses his horror at the civil unrest in Ferguson, indicating a deep concern for societal issues.

• Schultz reflects on the role of corporations in society, believing they have an obligation to improve social conditions even if it negatively impacts profits. This sets the stage for Starbucks' involvement in social justice movements.

Proposal for Engagement

• During a board meeting in Costa Rica, Schultz proposes that Starbucks should publicly support the Black Lives Matter movement by having baristas write "Race Together" on coffee cups. He aims to spark conversations about race relations among customers.

• Board members express skepticism about this initiative, questioning whether customers want to discuss such serious topics while ordering their morning coffee. They worry that it could make Starbucks appear ridiculous and trivialize a volatile issue.

Backlash and Public Reaction

• Despite initial resistance from board members, Schultz moves forward with the Race Together campaign. The backlash is swift; late-night comedy shows mock the initiative, and public figures like Gayle King criticize it on air.

• Social media erupts with negative comments about Starbucks' campaign, including images of cups labeled "iced white privilege." The company quickly retracts the initiative but manages to convey its message to a targeted demographic concerned with political issues.

Financial Outcomes

• Following these events, Starbucks reports increased revenue and operating income in its second-quarter earnings report. This financial success suggests that Schultz's strategy may have resonated with upscale customers willing to pay more for coffee than those at competitors like Dunkin' Donuts.