Please ensure Javascript is enabled for purposes of website accessibility

Dunkin' Donuts, Coca-Cola Team Up to Take On Starbucks

By Daniel B. Kline – Updated Sep 30, 2016 at 9:23AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The coffee chain is launching a line of ready-to-drink coffee beverages to be available in grocery and other stores.

Dunkin' Donuts is bringing one of its signature products to grocery stores. Image source: Dunkin' Donuts.

Dunkin' Donuts (DNKN) used to pride itself on people having to visit its locations in order to buy its signature products.

The chain even had a jingle that celebrated making the public come into one of its shops in order to have its doughnuts, which a Chowhound reader wrote out as follows:

Dunkin' Donuts, you can't buy 'em in a grocery store. Dunkin Donuts, you can't buy 'em in a bakery. Dunkin Donuts, they're not for sale in a restaurant... you have to get 'em at Dunkin Donuts, it's worth the trip.

Dunkin' still requires people to visit its stores to pick up a doughnut. Unlike rival Krispy Kreme, the chain does not package doughnuts for sale in grocery stores. And the same has always been true for the company's famous coffee. Getting a cup required either brewing it yourself or stopping by a Dunkin' location to pick some up.

But now, Dunkin' has teamed with Coca-Cola (KO -2.15%) to bring a bottled line of ready-to-drink coffees to grocery stores, convenience stores, mass merchandisers, and Dunkin' Donuts locations nationwide in early 2017. It's a direct shot at rival Starbucks (SBUX -0.85%), which has been the sole restaurant brand of cold coffee drinks sold nationally in those stores.

What is Dunkin' doing?

Through this deal, where Coca-Cola will manufacture, distribute, and sell the product, Dunkin' will make its first attempt to conquer the ready-to-drink coffee category. That's a $2.3 billion market, according to the company, which Starbucks has been a strong player in for years.

"We are delighted to be working with The Coca-Cola Company, a world-class partner that will provide us with world-class consumer access, by bringing ready-to-drink Dunkin' Donuts coffee to the refrigerator cases of grocery, convenience stores and mass merchandisers, as well as inside Dunkin' Donuts restaurants, across the United States," said Dunkin' Brands CEO Nigel Travis in a press release.

The CEO believes that this deal will be a game changer for his company, not only helping it sell more coffee in alternative locations, but also building its brand and increasing store traffic.

"This new product introduction will increase consumption of Dunkin' Donuts coffee and increase our brand relevance with existing and new consumers, including many younger customers, which we believe will in turn, drive incremental visits to our restaurants," he said.

Franchisees will profit, too

Unlike Starbucks, where the company owns most locations, Dunkin' uses a franchise model. Because of that, the company had to take steps to make sure that franchisees benefit from any sales made in their market, but not in their stores.

The company plans to equally share its net profits from these new outside-the-restaurant sales with qualified U.S. Dunkin' Donuts franchisees.

Will this work?

Dunkin' should have a built-in market for its ready-to-drink line. Its existing customer base may have been forced to buy packaged Starbucks products or other brands when in grocery or convenience stores. This deal should end that by bringing people who prefer Dunkin' Donuts coffee the option to buy it outside its restaurant stores.

In addition, this move should add sampling from people who enjoy coffee but have not frequented a Dunkin' location. It's hard to see how this move won't be successful and the biggest surprise is actually that the company waited this long to make it happen.

Daniel Kline has no position in any stocks mentioned. He drinks a lot of coffee and while he prefers Starbucks, he will try these. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends Coca-Cola. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
$55.03 (-2.15%) $-1.21
Dunkin Brands Group Stock Quote
Dunkin Brands Group
Starbucks Corporation Stock Quote
Starbucks Corporation
$89.35 (-0.85%) $0.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.