By Michael S. Rosenwald and Chris Kirkham
Washington Post Staff Writers
Thursday, September 7, 2006
At the corner of Eighth Street SE near Pennsylvania Avenue, just steps from the busy Eastern Market Metro station and not far from a pet store called Pawticulars, there is a Starbucks, naturally. Lots of foot traffic. People walking their dogs. Going to work. Coming home. Stopping for tall lattes.
Now, 40 steps away from Starbucks, there is a Dunkin' Donuts just 10 days old -- making this corner not just any corner but the host of a brewing battle: Medium vs. grande. Good, quick and hot vs. Colombia Nariño Supremo. Metal frame chairs vs. comfy couches.
As part of its plans to expand from ubiquitous New England doughnut chain to ubiquitous American coffee chain, Dunkin' Donuts will announce plans today to add 325 stores in Washington and Baltimore by 2010, marking the region as a focal point of its effort to open more than 10,000 new stores around the country by 2020. A similar announcement has already been made in Chicago, and several more are in the works around the country.
The brash expansion by the average joe Dunkin' Donuts, which has 4,400 stores compared with 8,600 for the more upscale Starbucks, has been the talk of the coffee and franchising worlds in recent months. The discussion has been helped in part by the company's carefully orchestrated media and advertising blitz, and also by the question that now seems to be on the tip of coffee drinkers' tongues everywhere: How much more do we need?
"People have been predicting that we'd hit a saturation point two years out for as long as a decade," said Bill Hulkower, a food analyst for Mintel International Group, a Chicago market research firm. "At some point, you can't have a coffee shop for every man, woman and child."
But with Dunkin' Donuts going nose-to-nose with Starbucks, it could come close. "This is gonna sound sort of loose, but we want to be where there are people," said Patrick George, the company's regional vice president for Washington and Baltimore.
As it stands now, there is about one coffee or doughnut shop for every 10,000 people in the United States, according to Mintel. And that's not counting fast-food chains and gas stations, which are upgrading their coffee offerings, or companies such as Coca-Cola, which is now infusing a new cola with coffee.
In New England, where Canton, Mass.-based Dunkin' Donuts is strongest, there is one Dunkin' Donuts for every 5,000 to 6,000 people. But in the D.C. area, as in many other major metropolitan regions, it is much more sparse. Dunkin' Donuts has just 200 stores around here, 89 of them in the District. There are 382 Starbucks locations in Maryland, Virginia and the District.
Dunkin' Donuts executives said the new strategy was well under way before three private equity firms -- including the District's Carlyle Group -- bought the company last year for $2.43 billion. "It was certainly the company's idea, but we fully endorsed the growth strategy and it was absolutely one of the reasons we pursued the company," said Sandra J. Horbach, a managing director for Carlyle.
Dunkin' Donuts reported revenue of $3.8 billion for 2005.
A Starbucks spokeswoman said the company doesn't comment on its competition. It released a statement that said in part: "Starbucks is proud to be credited with creating the specialty coffee industry in which a variety of coffeehouses thrive today. As Starbucks continues to generate awareness for specialty coffee around the world, the category grows and others may wish to enter the market."
Michael Coles, chief executive of Caribou Coffee, a national coffee chain based in Minneapolis, said, "I just don't think Dunkin' Donuts compares to what we offer. It's a good entry point for gourmet coffee, but people don't wind up landing there. Once they are introduced to gourmet coffee, they are going to look to other places to expand their horizons. I think Dunkin' Donuts makes the market that much bigger."
He added, "It's a big country."
Martin Mayorga, founder of a small Rockville coffee chain, said Washington is still comparatively "virgin territory" for the major chains. "The big guys are making their push before small independents pick up the areas they have overlooked," he said.
The recent housing expansion in and around the District, where young, sophisticated, well-paid people are now living, has changed the area's reputation as just a place to do business and conduct the affairs of government. "You see the development in Adams Morgan and Silver Spring," Mayorga said. "You see more community development, meaning more neighborhood-type anchor locations."
One such area is Eastern Market, where the debate was joined yesterday.
"For them to compete against Starbucks would be ridiculous in my mind," Dennis Washington, 29, said as he walked out of the Starbucks at Eighth and D streets SE. "Dunkin' Donuts -- that's part of the name. I wouldn't advertise that as the main thing you're trying to sell."
Ali Fishlinger, a sophomore at George Washington University, stood up for Dunkin' Donuts. "For the people who don't get all the crazy, jazzy drinks, it's better coffee," Fishlinger said, just leaving the store near campus.
Chris Wood, 40, sipped a Dunkin' Donuts iced coffee as she pushed her baby stroller toward Pennsylvania Avenue. "In a very busy location like this, I think they both can make it," she said.
Wood and her husband, who live just a few blocks away on Capitol Hill, have been waiting for this moment for the three years they've been in Washington. Both native New Yorkers and Dunkin' Donuts loyalists, they appreciate the lighter roast and flavor of Dunkin' Donuts coffee. Before the Eastern Market store opened, Wood drove to Virginia every month to pick up a few pounds of the Dunkin' Donuts roast.
As part of the expansion, Dunkin' Donuts is modernizing its stores and increasing its food offerings, with more choices for afternoon eating. The one in Eastern Market is typical of the new approach: an urban, loft-style interior with exposed pipes and ventilation ducts. The second story, enclosed by glass all around, offers a panorama of Pennsylvania Avenue and the Starbucks across the street. There's a red-yellow-and-orange color scheme that looks more inviting than the typical cramped, streetside Dunkin' Donuts stores. Coffee is more prominently displayed than the doughnuts and bagels, with a case full of coffee mugs and pounds of Dunkin' Decaf and Cinnamon & Spice roast greeting customers before they make it to the register.
"This is the new image," said manager Farzad Mogharabi, 61, who mentioned that they hope to attract business crowds and students with a wireless network. "It's about becoming a very beautiful, comfortable, inviting environment."
Staff researcher Richard Drezen contributed to this report.