Watch Out, Starbucks; Dunkin' Donuts Joins The Dark Side

| About: Starbucks Corporation (SBUX)
This article is now exclusive for PRO subscribers.


Dunkin’ Donuts to launch its own hot dark roast coffee.

This could be somewhat of a threat to Starbucks’ dominance.

Dunkin’ Donuts' uninspiring growth could get jump-started again.

Starbucks (NASDAQ:SBUX) lately has been eating Dunkin' Donuts (NASDAQ:DNKN) lunch then washing it down with their own dark and rich coffee. While Starbucks continues to defy gravity, punching in its 18th consecutive quarter of global same-store sales growth greater than 5%, Dunkin' Donuts seems stuck in the mud, crying foul about the weather and the economy. Last quarter its same-store sales in the United States rose by a disappointing 1.8%, while internationally they tumbled down by 3.1%.

Few unimportant things can be more polarizing than who has the best coffee. Some pledge loyal allegiance to Dunkin' Donuts' light and sweet brew and swear off the "bitter" taste of Starbucks, while others claim they cannot survive without it. In a classic move of "if you can't beat 'em, join 'em," Dunkin' Donuts is launching its own hot dark-roast coffee. Perhaps it's in response to Starbucks' blonde roast launched back in 2011.

What took Dunkin' Donuts so long? 64 years without a Starbucks-like dark roast and only now they woke up and smelled Starbucks' coffee. Perhaps it's because they are now public and making gob-loads of money is no longer enough - investors want growth and lots of it.

Will the dark roast for Dunkin' Donuts magically clear up the bad weather and improve the economy? Probably not, but it may spark curiosity and bring in new customers, especially from those who normally like a dark roast in the first place. It's often if you want it your choice is Starbucks or bust. That will now change for those near a Dunkin' Donuts.

In a publicly traded java world where a 5% same-store sales gain or more is viewed as success and a 2% same-store sales gain or less is viewed as failure, it doesn't take much to get the townsmen shareholders to put away their pitchforks and put out their torches. Just as Starbucks' blonde roast probably stole some customers away from Dunkin' Donuts, I'd expect some Starbucks regulars to head on back over to the new dark side.

How long has Dunkin' Donuts been planning its Darkin' Donuts assault? No idea, but maybe Starbucks accidentally let the cat out of the bag back in late 2011 when it announced its blonde roast. Back then, the company thought it was a great idea to make it publicly known through its research that 42% of coffee drinkers prefer a light roast like Dunkin' Donuts has. Put yourself in Dunkin' Donuts' shoes - that means 58% prefer a dark roast like Dunkin' Donuts does not have. Smells like the opportunity is wide open.

Disclosure: The author is long DNKN.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.