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Can You Guess Which Coffee Chain Has the Most Loyal Customers? You Might Be Surprised!

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As a resident in the far suburbs of Seattle, I can tell you that two things are a certainty around here: People will complain that the weather is too hot or too cold year round, and there will be a Starbucks (NASDAQ: SBUX  ) on practically every corner.

Coffee is a way of life around here in the Northwest, and it's where Starbucks got its start more than four decades ago. Similarly, every time I head to New York on vacation I find a Dunkin' Donuts, owned by Dunkin Brands (NASDAQ: DNKN  ) , everywhere I turn.

A primary descriptor of the coffee industry is that it's highly competitive, but fast-paced and fast-growing. It may seem as if we have an oversaturation of Starbucks in Washington state, but you'll find just as many independently run mom-and-pop stores, as well as branded goods within chain stores and grocery stores, such as Keurig Green Mountain (NASDAQ: GMCR  ) products.

Source: PDPics, Pixabay.

The battle for customer engagement and loyalty
This fight for your dollar between coffee stores and packaged coffee makers is a multibillion-dollar industry, and it all starts with engaging customers, drawing them into the brand, and keeping them loyal to the brand.

Sometimes it's not easy figuring out which companies have the biggest edge when it comes to customer engagement and loyalty. Thankfully, we have Brand Keys, a research firm kind enough to do the hard work for us each year. It recently came out with its 2014 rankings for 555 brands over 64 different categories. Today, we're going to squeeze the coffee and packaged coffee sectors together and see what brand really stands atop the heap with regard to customer engagement and loyalty. 

Why customer engagement and loyalty are important
But before we even get into the individual companies, let's talk about why customer engagement and loyalty matter in the first place.

Customer engagement is paramount to a brand's well-being, as it's the trigger that draws new consumers to a brand. This means a brand has to be relatable, viewed well by consumers, family, and friends, and often priced competitively to its peers, just to name a few factors.

In addition, once companies drive consumers to try their product, they have to fight tooth-and-nail to keep them. The way that happens is through consistently meeting or exceeding consumer expectations with a superior product or superior service (or a combination of both). As you can see, combining the two can give a business a steady inflow of new customers while retaining the steady cash flow of existing consumers.

Now that we have a better bead on why this matters, let's highlight the two top performers as it relates to the Brand Keys Customer Loyalty Engagement Index for coffee and packaged coffee.

The battle of two behemoths
As shouldn't come as a surprise, the two industry behemoths, Dunkin' Donuts and Starbucks, lead the group. For you fans of Keurig Green Mountain coffee, don't feel too disappointed. While the brand does offer a number of unique flavors and a moat of convenience with at-home coffee brewing, it doesn't yet have the in-store physical presence of Dunkin' Donuts or Starbucks. As that improves it could easily move up the list.

Before I unveil which of the coffee chains took the top spot in Brand Keys' Customer Loyalty Engagement Index, I want you to take a guess which one you believe garnered the top spot.

Got your answer?

If you answered Starbucks you would be wrong! In spite of the almost cult-like following of Starbucks, Dunkin Brands' Dunkin' Donuts took the top honor for the eighth consecutive year among coffee products and the second straight year among packaged coffee, with Starbucks coming in second in both categories.

Why Dunkin' Donuts has the edge
There are a number of key factors that I suspect have given Dunkin' Donuts the edge over its national rival Starbucks.

I believe one factor that often goes unnoticed is that Dunkin' Brands is predominantly an East Coast company while Starbucks can be found throughout the United States. By focusing on that core East Coast customer and saturating this geographic region, Dunkin' has been able to hone in on the wants and needs of consumers. Starbucks, on the other hand, can have a completely different vibe and feel based on the part of the country you're in, making it a little less flexible, literally and perceptually, to changing consumer habits.

Dunkin' Brands has also been able to match Starbucks with reward programs for its customers. Starbucks offers its customers loyalty card points, which they can then choose to trade in for drinks or food. Similarly, Dunkin' Donuts' DD Perks Reward Program gives consumers the opportunity to build up points with purchases in order to receive a free beverage. Offering loyalty rewards is a smart maneuver to keep customers coming back to a brand, but businesses still have to be careful that these rewards don't eat into margins too much.

Dunkin' was also the first of the coffee makers to extend its hand to Keurig Green Mountain, which has been a disruptive force in the single-serve business for years. In February 2011, the two companies reached a deal to allow Dunkin' Donuts' coffee to be sold in K-Cup versions for Keurig's single-serve brewing system, while 14-count boxes were to be sold within Dunkin's stores. Just weeks later, Starbucks had no choice but to concede and form its own partnership with Keurig Green Mountain.

Dunkin' Brands' challenges ahead
Of course, investors should keep in mind that Dunkin' Brands is going to have to deal with two major challenges if it's to repeat for a ninth straight year in 2015.

First, everyone is seemingly holding its breath as Dunkin' Donuts once again dips its toes into the water on the West Coast. Dunkin' tried to enter California in the late 1990s but failed, with the brand simply not exuding the same pizazz as you see on the East Coast. With a new menu and better branding, Dunkin' believes it can now succeed in California and on the West Coast. Although I believe Dunkin' is better positioned than it was more than 15 years ago, I'm still not convinced it can infiltrate California with ease.

Secondly, Dunkin' Brands has a tall order to contend with when going up against Starbucks with regard to healthier eating. Let's be clear: Dunkin' has done a really good job of creating and expanding on its DDSMART menu, which features a number of breakfast sandwiches and drinks designed to invite consumers looking to eat more nutritious foods into its stores. Still, Starbucks was the progenitor of coffee chains when it comes to introducing organic and natural food products. Dunkin' will have quite the challenge on its hands growing its food business on the West Coast when up against Starbucks.

They're both winners
Ultimately, I believe both companies are doing what needs to be done to succeed over the long run, and that's good news for investors. Starbucks has incredible branding power and Dunkin' understands its customers very well. That's a combination that, with steady growth in the coffee business coupled with addicted customers like me, should translate into solid long-term gains.

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Read/Post Comments (29) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 20, 2014, at 10:55 AM, ChuckXX wrote:

    Starbucks has the absolute best coffee bar none. Plus I love the fact that they offer so many "different kinds of coffee". Something that will please every coffee drinker. I love their "skinny mocha cold".

  • Report this Comment On April 20, 2014, at 12:31 PM, bandit1946 wrote:

    I remember a time that Dunkin Donuts was a dominate force in the NW and West. (not to mention the Rockies. Than they disappeared. There is also Seattle's Best and Portland's Best. Good brands. I am not a fan of all these various coffee flavors, unlike my kids. I like a nice black, hot cup of coffee. I have had Arabic and Turkish coffee, and I understand why it is in a very small cup. (I think there maybe a age limit, too :) ) Believe it or not, our local McDonald's has some good coffee. One of our gas station stores has good coffee as well. I guess it all depends on where you live as to who has great coffee, locally.

  • Report this Comment On April 20, 2014, at 1:09 PM, Lissab23 wrote:

    I love Starbucks as their drinks are delicious, maybe more so than any other chain I've been to. Yet rarely do I go there due to the unbelievably high prices - for mere coffee! Not to mention many of their specialty of their drinks are loaded with calories, even their small or 'talll' sized drinks. I don't really go to Dunkin Donuts as there are few around where I live but I've heard it's good. I usually go to Tim Hortons as there is one nearby, but the service at the one I go to for convienence sake is terrible. About three quarters of the time they are just plain rude or snobby.

  • Report this Comment On April 20, 2014, at 1:26 PM, kmtominey wrote:

    I started on Starbucks when they were two little stores in Pike's Place Market - a long time ago. I stick with their bold and extra bold (don't care for the lighter bodied, lighter roasted high acid coffees.

    Always reliable and I like their food offerings - always fresh and tasty and I can always get a banana if I want one.

    Going to dog shows I can always ask a hotel where is the closest Starbucks and they know, Even in Canada.

    Dunkin Donuts is definitely east coast - high acid, lighter bodied coffee - just not my preference.

  • Report this Comment On April 20, 2014, at 3:07 PM, chetsinvegas wrote:

    The COFFEE BEAN & TEA LEAF is the ONLY coffee outlet that uses 100% organic ingredients in ALL of their drinks. Seriously, if you are a Starbuck's or Seattle's Best customer, you have to try COFFEE BEAN& TEA LEAF. Phenomenal drinks!

  • Report this Comment On April 20, 2014, at 3:12 PM, vet212 wrote:

    How on Earth did Starbucks think they could make it selling Coffee and no doughnuts?

  • Report this Comment On April 20, 2014, at 3:39 PM, spinach wrote:

    A couple years ago, I was in the northeast and stopped at a Dunkin Donuts. I asked the woman behind the counter where the coffee beans came from. She looked at the bag and said, "Rhode Island."

  • Report this Comment On April 20, 2014, at 3:43 PM, lnxguy wrote:

    Here's the truth: Dunkin tastes better. Coffee snobs can convince themselves that Starbucks isn't nasty coffee, but the bottom line proves who sells the better product. Oh, and DOUGHNUTS!

  • Report this Comment On April 20, 2014, at 4:07 PM, Dallas13 wrote:

    Starbucks is probably the last coffee I would drink, had it once (everybody was raving about it) so I gave it a try - It tasted scalded burnt, I spit it right back into the cup. I go to Dunkin Donuts regularly, but not for their coffee, but for their vanilla chia tea and doughnuts.☺

  • Report this Comment On April 20, 2014, at 4:56 PM, bpster wrote:

    I've been a starbucks fan for a long time. Dunkin donuts coffee I am not a fan of at all. Peets is good it's my go to if they are out of starbucks. I love that I can drive through get my coffee grind it would be even better if they sold creamer and sugar. I don't pay much attention to those that say they hate starbucks because they lie. Yeah I said that. They want to be cool because they hate starbucks. They aren't.

  • Report this Comment On April 20, 2014, at 5:52 PM, joshuarayborn wrote:

    Buy from local roasters and local coffee shops, not these corporate deicks

  • Report this Comment On April 20, 2014, at 5:57 PM, 82cutty wrote:

    Tim Hortons has the best coffee .

  • Report this Comment On April 21, 2014, at 12:07 AM, lala23692003 wrote:

    If any of you people had good sense, I do not care how good the coffee is, not til recently did they begin to support our military,. Their words exactly " we do not support the war". Wow how mind blowing is your cup of giddy-up now? My husband served in the military. The sorry people would not send our troops coffee. Now all of a sudden we want to be seen and recognized for donating a few million dollars for PTSD. Really. Give me a break! My family nor myself will even stand near one of their little stations. That just shows you what you really know about the products you live with and swear by. The last idiot that walked through my front door with a cup of coffee for a bridal lingerie shower brunch got it slapped out of their hand! Cannot stand Starbucks. That fool that founded that company wouldn't even have any rights if it weren't for those men and women paying the piper for them to live in the land of the free and lay down in peace and quiet at night. I would rather die of thirst or hunger than to put one dollar in their revenue! They really turned me off. Not to mention my dad and brother work at the military part of the airport where they unload the body of one of those that are fighting for us and have to stand in silence and watch as one of them arrives back that got a one way ticket delivered to us deceased. It sucks!

  • Report this Comment On April 21, 2014, at 10:51 AM, daytona7 wrote:

    I'll take my WaWa's or Panera's coffee over all the others, thank you! The Only coffee's that do not break down after sitting for 20-30 minutes. Plus the Only coffee's that can be drunk black and with no sugar either hot or cold. At least this goes for their Light Roasted coffee.

  • Report this Comment On April 21, 2014, at 11:05 AM, daytona7 wrote:

    Just reread some of the post. For those who have tried Turkish or Arabic coffee but did not like the strong taste. Try adding a small amount of Anisette or Ouzo to the coffee. Makes a big difference. Would also helps make Dunkin Donuts, 7-11 and Starbucks coffee drinkably, but you would need an ounce or two.

  • Report this Comment On April 21, 2014, at 2:34 PM, emmy wrote:

    Starbucks is a pleasure I splurge on once in a while. And it is always a treat. I love their café mistos. I had dunkin d when I visited NY city but it was not a coffee that I remember as very enjoyable or special. I think starbucks is better imo.

  • Report this Comment On April 21, 2014, at 5:25 PM, mtkk2318 wrote:

    As mentioned earlier, the key is freshness and the fact it begins to breakdown after 20-30 minutes. Other factors are bean selection and type of roast. If an establishment leaves the pot on the burner then it gets the old burnt taste.

    That's the problem with a lot of establishments. They aren't going to throw away a half pot of coffee because it sits for 20 minutes.

    Not certain who actually roasts Starbucks coffee but I know that New England Coffee roasts the Dunkin Donut brand. They also have their on private brand they sell under the same name

    My favorite is Starbucks but I do drink and brew other brands simply due to costs.

  • Report this Comment On April 21, 2014, at 8:59 PM, sccoast1700 wrote:

    Starbucks coffee tastes burnt . I prefer Dunkin doughnuts. Starbucks is overpriced . McDonalds has good coffee too.And priced right at about $1 a cup.

    At home I like Lousian coffee with chickory. It's the best.

  • Report this Comment On April 21, 2014, at 10:24 PM, nurseinbuff wrote:

    I have a theory I call the "Starbucks Economy". I believe that the $5.00 cup of coffee has contributed to an overall collapse of the economy in the U.S. When people began paying $5.00 for a cup of coffee, and thinking it was "ok", the "end" was near. I feel it contributed to over pricing goods and services, and "made people believe" that it was a "bargain" to overpay for other things as well. We now have 2 generations of people who have bought into the notion that $5.00 for one cup of coffee is reasonable. It certainly is not, and never has been. Starbucks marketing has always been genius. Tim Hortons coffee is better than "bucky's", but I do enjoy both WHEN i have extra money, which isn't often.

  • Report this Comment On April 21, 2014, at 11:09 PM, tannerose5 wrote:

    I don't prefer either one. I am loyal to Dutch Bro. Coffee.Starbucks tastes burnt, and Donut coffee is too strong. I truly think you should try Dutch Bro. coffee. You'd never go back.

    An old, loyal fan,

  • Report this Comment On April 21, 2014, at 11:52 PM, acabal wrote:

    Sadly, Dunkin Donuts left these parts long ago. However, Dutch Bros got its start here in Oregon, and I definitely like dealing with the baristas and their overly chipper attitudes over Starbucks ' more dreary ones.

  • Report this Comment On April 22, 2014, at 12:04 PM, mgseeley wrote:

    To someone who has spent the majority of their life in the Northeast, the answer is obvious. Dunkin' Donuts is the clear winner.

    They are everywhere! We have far less of a selection of independent coffee shops, too which is certainly caused by DD overwhelming presence.

    Personally, I don't enjoy their coffee. It is weak and acidic. I would occasionally get coffee there in the past when some stores brewed a french roast. However, it was often stale and burnt from sitting un-used in the pot for so long.

    Coffee brewed to order is so much better. I understand that many people don't like Starbucks due the strength and darker roast. However, they should learn the difference between burnt coffee - coffee that is continually heated after brewing - and coffee that is brewed strong and/or with darker roasted beans.

  • Report this Comment On April 22, 2014, at 7:03 PM, cmalek wrote:

    Since I did not develop the wasteful habit of drinking Starbucks, I saved up enough money to buy Starbucks stock. I hope the entire world decides to overpay for Starbucks coffee!

  • Report this Comment On April 23, 2014, at 11:44 AM, irvsa wrote:

    What about MaxwellHouse coffee. It's good to the last drop.

  • Report this Comment On April 23, 2014, at 11:57 AM, SkepikI wrote:

    cmalek, you never cease to entertain me.....I would NEVER invest in something as fatuous as premium coffee purveyors, but the thought of profiting from the stupidity of the masses is both drolly amusing and the source of a good belly laugh when I read your comment. Not to mention food? for thought, no pun intended. Maybe if I changed my attitude about what is worthy investing I would have more sunshine from the dunces of the world and less ground tooth enamel....

    I wonder what happens when I start the rumor that Starbucks uses GMO coffee beans....

  • Report this Comment On April 23, 2014, at 2:21 PM, dickieduck wrote:

    In that department of attentiveness and apparent concern for customers, Dunkin Donuts may have changed in recent years. I would not know. Years ago, they gave a senior discount. And then, one day, without any notice, they abandoned it. This senior turned around, walked out the door and never returned. Customer loyalty is a two way street, as far as I am concerned. It involves both the customer's loyalty to the company and the company's loyalty to its customers. It's not about the money, it's about the flippant "take it or leave it" way they went about it when they discontinued the discount.

  • Report this Comment On April 26, 2014, at 3:03 PM, LeeG3 wrote:

    When I go for coffee, it is usually because I want something to eat and the coffee is to wash the food down. That is why I go to DD, Panera, or a local donut shop before Starbucks. Starbucks does have the variety of coffees but not for food. But then again, I was always more interested in the food even when I was starting out driving to work/school.

    I understand that there are people who are snobs about coffee and they can have their special blends/creations. I just want something that tastes good to go with my meal. I do fall into that group when I brew coffee at home (Kona is my favorite) but when I am in a hurry/on the road, I want it hot, quick and not burned.

  • Report this Comment On October 23, 2014, at 11:16 PM, notyouagain wrote:

    Gee, I think I'll have a cup of coffee. One cup of water in the microwave for one minute. One thin teaspoon of instant anybrand...five sweeteners....


    Now....what were all you snobs saying?

    Oh, never mind.

    My coffee is so much better than yours, that's because it costs probably nickel or less!


  • Report this Comment On October 23, 2014, at 11:33 PM, jon364 wrote:

    People complain about the cost of starbucks coffee vs other coffe place. I can see that its expensive only if you buy their fancy schmancy drinks.

    I just go for the regular brewed medium roast coffee which is about the same as Dunkin's regular coffee.

    Plus, Starbucks has much better customer service and decor than dunkin

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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