Starbucks vs. Dunkin’: An Overview

Starbucks Corp. (SBUX) and Dunkin’ Brands are the two largest eatery chains in the U.S. that specialize in coffee. Both companies offer similar coffee options—although different food options—and both have similar overall strategies. Nonetheless, there are key differences in their business models related to scale, store ownership, and branding.

Despite being founded 20 years after Dunkin’ Donuts, Starbucks grew aggressively and is a substantially larger company. Starbucks generated over $23.5 billion in 2020, while Dunkin’ Brands’ annual revenues were $1.3 billion in 2019.

Starbucks has a larger footprint, with over 30,000 locations worldwide, compared to Dunkin’ Brands’ 13,000 locations.

Starbucks has expanded beyond the U.S. more extensively. Dunkin’ Brands has a substantial international presence, though many of its international locations are Baskin-Robbins ice cream stores rather than Dunkin’ Donuts stores.

Dunkin’ Donuts’ international revenue contributes only a small part to total sales, while over 26% of Starbucks’ revenues are generated outside the U.S. Dunkin’ has announced aggressive international and domestic expansion plans with the hope of challenging its main competitor’s footprint, but the difference in scale stems from variations in expansion strategy.

Starbucks

Starbucks brands itself primarily as a beverage provider that offers a more typical coffee house dining experience. Starbucks’ locations are designed with the comfort of customers in mind. Free internet access and inviting decor are meant to offer a more enticing option for those looking for a place to read, relax, or chat with friends. This also makes going to Starbucks a potential social activity, turning the store into a destination rather than a simple distribution location. This appeals to customers seeking a premium experience.

Typically, such customers have higher disposable incomes and are more willing to pay extra for higher quality materials. In economic downturns, people with lower disposable incomes are more likely to alter their consumption habits than people with larger financial cushions. While Starbucks is undeniably impacted by the macroeconomic environment, it is firmly established with a more resilient and less price-sensitive customer base, which helps to dampen the blows brought on by economic cycles.

Starbucks has also shifted focus to include more products aimed at afternoon and evening customers. These include small plates and sandwiches as well as wine and beer. Both companies have doubled down on strategic tech initiatives like mobile ordering and delivery, explaining Dunkin’ Donuts’ partnering with Alphabet Inc.’s (GOOG) navigation app Waze.

Just like Dunkin’, in mid-2018, Starbucks reorganized management. Starbucks announced Howard Schultz’s departure from the company in 2018. Myron E. Ullman was appointed the next chair of the Starbucks board of directors, and Mellody Hobson was appointed vice-chair. In March 2021, Ullman retired and Hobson succeeded him as chair.

Dunkin’

Dunkin’ Donuts markets itself primarily as a coffee seller that also offers donuts and food, a fact made apparent by a coffee cup prominently featured on the company’s logo and executive management’s explicit assertion that Dunkin’ Donuts is a beverage company. Despite building an identity as a coffee seller, food is still an important element of Dunkin’ Donuts’ offering.

Dunkin’ serves a variety of hearty breakfast sandwiches, such as the power breakfast sandwich and the sourdough breakfast sandwich. As of 2021, the menu features healthy options, such as avocado toast, as well as offering Stevia as a substitute for sugar, and oat milk.

The aesthetic of Dunkin’ Donuts’ interiors id designed differently from Starbucks stores, with the former often resembling fast food stores in furnishings and decor.

David Hoffman was named CEO of Dunkin’ Brands in 2018. In 2016, Hoffman joined Dunkin’ Brands as president of Dunkin’ Donuts U.S. He led the company’s U.S. business and directed the coffee chain’s new concept store. Hoffman replaced Nigel Travis, 68, who retired from his role. Travis began as CEO in 2009. Travis currently serves as chairman of the board.

Key Differences

Nearly all of Dunkin’ Brands’ locations are franchises. Licensed Starbucks stores are disproportionately located outside the U.S.

Company-operated stores have different operational and capital expense structures from franchised locations. Cost of goods sold (COGS) and store operating expenses are a much larger percentage of sales for Starbucks than Dunkin’. Because COGS is so much more prominent in Starbucks’ expense structure, its profits are more severely impacted by changes in coffee bean prices. Starbucks also has a higher capital expense burden than Dunkin’ Donuts, which is not obligated to purchase kitchen equipment for franchise locations.

Starbucks has built a more premium brand than Dunkin’ Donuts. Starbucks offers a more extensive menu and more product customization, which is reinforced by writing each customer’s name on the side of their cup. The company offers a comfortable and quiet environment with free wireless internet access, encouraging customers to stay to socialize, work, study, browse media, or listen to music while consuming their Starbucks products. Taken together, these factors form a more premium experience and command a higher price point.

Dunkin’ Donuts has more competitive pricing, focusing on the middle class. In company filings and earnings conference calls, Dunkin’ Donuts’ management has described its intent to be the lowest cost provider in the market while maintaining quality above an acceptable minimum.

Because Starbucks operates its own stores, it has tighter margins than Dunkin’ Donuts. Dunkin’ Donuts has typically had a lower capital expense burden than Starbucks.