Starbucks, McDonald's or Dunkin’ Donuts: Which Caters More to the Health-Conscious Consumer?

Dunkin’ Donuts must keep pace with McDonald’s and Starbucks in regards to healthy menu innovations if it wants to see increased foot traffic in the future.

Jan 10, 2014 at 6:30PM


Starbucks (NASDAQ:SBUX) and McDonald's (NYSE:MCD) are two immensely popular franchises that have made recent strides toward catering to the health-conscious consumer. This includes menus offering fewer calories than traditional menu items found at most quick-service restaurants. While this has been taking place for some time now, if we're specifically looking at a reduced-calorie menus, then Dunkin' Brands Group (NASDAQ:DNKN) struck first. 

More than five years ago, Dunkin' Brands presented its DDSMART menu, where every menu item is 400 calories or less. Every menu item also offers 25% less sugar, fat, saturated fat, or sodium than traditional menu items. Additionally, every menu item offers at least one ingredient that is nutritionally beneficial, and that ingredient is often whole grain. This ties into Dunkin' Donuts' (we'll refer to it this way from this point on, as opposed to Dunkin' Brands) recent expansion of its DDSMART menu.

Fortunately for investors, Dunkin' Donuts isn't the type of company to rely on its most recent innovation. Rather, it's constantly looking to improve. It has no other choice given stiff competition from Starbucks and McDonald's, which like Dunkin' Donuts, drive a lot of traffic thanks to coffee offerings. This is more the case for Starbucks than McDonald's, but McDonald's still has the potential to steal share from Dunkin' Donuts.

And now that Dunkin' Donuts and Starbucks are offering more menu items (as in food), they're slowly becoming closer competitors to McDonald's. Starbucks has a big advantage in this regard from a growth perspective, because unlike McDonald's and Dunkin' Donuts, it doesn't have an unhealthy image to shed.  

However, Dunkin' Donuts always seems to be moving in the right direction in regards to catering more to the health-conscious consumer. Let's take a look at its recent DDSMART menu expansions and see how this menu compares to similar offerings from McDonald's and Starbucks. Winning this battle, for the health-conscious consumer, is imperative for a company's future success and growth potential.

DDSMART menu expansion
The biggest two items to hit the DDSMART menu are the Sliced Turkey Breast Sandwich and the Whole Wheat Bagel. The former is 310 calories and has 16 grains of whole grain. These stats should attract more health-conscious consumers, assuming Dunkin' Donuts markets it correctly.

Speaking of which, Dunkin' Donuts has a Smart Start to '14 Twitter Sweepstakes to promote its new healthy menu items. Between Jan. 7 and Jan. 10, Dunkin' Donuts asked one question per day on Twitter that related to running smartly in the year ahead. If you answered the question using hashtag #DDSMART14, then you had a shot at a $100 DD mGift. And the grand prize winner received $500 in DD cards.

If you missed the promotion, apologies are in order. However, Dunkin' Donuts is likely to offer more similar promotions via Twitter in the future. Dunkin' Donuts is highly focused on its social-media exposure, which you can read more about in a recent article: "Dunkin' Brands Increases Customer Engagement Via Social Media."

Getting back to that Sliced Turkey Breast Sandwich, it would be unkind to leave you without any details. It comes with three slices of turkey, one egg, and a slice of reduced-fat cheddar cheese, all on a multigrain flatbread. The Whole Wheat Bagel is 320 calories, just 10 calories more than the Sliced Turkey Breast Sandwich, and it has 60 grams of whole grain. 

More impressive than peers?
Dunkin' Donuts is slowly changing its image. But the same can be said for McDonald's, and to a lesser extent, Starbucks. Furthermore, Starbucks is always going to try to one-up its competitors. For example, McDonald's offers a Favorites Under 400 menu. Items on this menu include a hamburger and cheeseburger (minus sauces, dressings, and other condiments), the Egg McMuffin, Fliet-o-Fish, Chicken McNuggets, French fries, as well as healthier items, including apple slices, a variety of salads, and its Fruit & Maple Oatmeal.

Not bad, but if McDonald's and Dunkin' Donuts are offering menus with items of 400 calories or less, what do you think Starbucks is going to offer? Answer: a Favorite Foods menu, where all items are 350 calories or less. This includes sandwiches, fruits, yogurts, breads, and more. The biggest knock on Starbucks from a consumer standpoint is premium pricing, not unhealthy menu items. Therefore, it should be easy for Starbucks to expand its health-conscious consumer base. By offering more food items in general, it's likely to attract a broader base of consumers, as in more families than the traditional professional or college student.

The Foolish takeaway
All three companies mentioned above are likely to be good long-term investments for shareholders. That said, McDonald's has a long way to go to rebrand itself. The most likely scenario is some difficult transitional times ahead followed by success. Therefore, given a generous dividend yield of 3.40%, long-term investors might not mind waiting for McDonald's to rebrand itself as a healthier restaurant, which would increase the potential for sales growth and stock appreciation. McDonald's isn't for the nearsighted investor. 

Starbucks is likely to methodically expand its healthy menu offerings, testing to see what does and doesn't work prior to expanding more in this area. Starbucks is also now targeting a broader market by offering more menu items, which could lead to near-term sales growth.  

Dunkin' Donuts is likely to be the most aggressive in regards to healthy menu offerings. It has to alter its image in order to keep pace with its peers, and it's using social media to its advantage. If Dunkin' Donuts can alter its image even slightly prior to its westward expansion in the United States, it could pay off in a big way. If this all played out according to plan (healthy menu offerings, westward expansion, increased social media exposure) it could lead to significant top-line growth, as well as comps growth. This would benefit investors. However, this isn't guaranteed, and you should do your own due diligence prior to making any investment decisions. 

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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