Dunkin’ Donuts and Starbucks Want Your Lunch Money

Dunkin’ Brands Group Inc. (DNKN) and Starbucks Corp. (SBUX) want a bigger chunk of your lunch money.

Dunkin’ Donuts is introducing a new $3.99 grilled-chicken flatbread today, following Starbucks’s move last month to test seven new hot lunch sandwiches in some cafes. It’s part of an effort to boost afternoon sales and entice the lunch crowd after the morning java business subsides.

“The biggest challenge is generating awareness,” John Costello, global marketing and innovation president at Dunkin’ Brands, said in an interview. There’s customer demand for more food in the p.m. hours, he said, but Dunkin’ is best known for coffee and doughnuts. “Our mission is to get people running in the morning and to keep them running all day.”

Lunch is the latest battleground in an increasingly competitive industry. Chains like McDonald’s Corp. have attacked the coffee business, increasing pressure to fire back at traditional fast-food bastions. At the same time, coffee chains are challenging sitdown restaurants by revamping their decor and -- in Starbucks’ case -- offering alcohol and tapas.

At coffee and doughnut shops, about 65 percent of customer traffic happens in the morning, according to NPD Group Inc. Lunch and afternoon snack time is about a third of traffic, while dinner is just 2 percent, NPD data show.

Photographer: Krisztian Bocsi/Bloomberg

Customers with bagels, doughnuts and drinks at a Dunkin' Donuts store. Close

Customers with bagels, doughnuts and drinks at a Dunkin' Donuts store.

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Photographer: Krisztian Bocsi/Bloomberg

Customers with bagels, doughnuts and drinks at a Dunkin' Donuts store.

Dunkin’ Donuts embarked on a more cafe-style store redesign last year, complete with earth-toned walls, jazz music and cozy booths, to encourage diners to hang out in the afternoon. In the past year, it’s also added nonbreakfast food items, such as a bacon-ranch breaded-chicken sandwich, and introduced a nationwide loyalty program.

Sandwich Test

Starbucks also is gunning for the lunch customer. It began offering new sandwiches in 178 cafes in Phoenix and Richmond, Virginia, on May 6. The test includes a grilled-chicken sandwich, topped with bacon and swiss, for $5.95, a grilled cheese for $5.25, and a beef brisket and cheddar baguette for $6.95. The sandwiches are prepackaged and heated in stores, similar to the Seattle-based chain’s panini lineup. Starbucks plans to introduce new lunch sandwiches nationwide in fiscal 2015, which starts near the end of September.

“Starbucks stores across the U.S. will increasingly be seen as a destination for a quick, delicious and high-quality lunch,” Chief Operating Officer Troy Alstead said during a conference call in April.

Coffee-selling chains have long experimented with ways to draw more customers after noon: softer seats, free Wi-Fi, hot foods. The results so far have been mixed. About 40 percent of sales at Dunkin’ Donuts are generated after 11 a.m. -- little changed from a year ago. Starbucks, however, has been more successful in shifting some dollars to the post-breakfast slump. About 60 percent of sales now come after 11 a.m., compared with about 50 percent a year ago.

Pursuing Growth

“It’s a slow-growth environment, so everybody is going after all the different dayparts,” said Sara Senatore, a New York-based analyst Sanford C. Bernstein & Co. “Food is definitely an opportunity.”

Still, selling afternoon bites often requires an investment, said Darren Tristano, executive vice president at Chicago-based restaurant research firm Technomic Inc. Then there’s the challenge of persuading Dunkin’ and Starbucks customers to break their usual routine and try a ham sandwich or salad.

“They have to have the proper equipment -- whether that’s a panini press or toaster,” he said.

Starbucks, which first began selling sandwiches in 2003, bought the owner of La Boulange bakery in 2012 to improve its selection of scones, muffins and cookies. Earlier this year, it retooled its breakfast menu with ham-and-swiss croissants and turkey-bacon sandwiches.

Odor Incident

The chain has struggled with getting its food right over the years. Chief Executive Officer Howard Schultz changed the chain’s breakfast sandwiches in 2008 after their aroma overpowered the scent of coffee.

Dunkin’, meanwhile, aims to impress customers with the marinade on its new chicken sandwich, said Jeff Miller, head chef of the Canton, Massachusetts-based company. He declined to disclose the marinade’s ingredients, saying it has grilled and rotisserie flavors. The 360-calorie sandwich is topped with cheddar cheese and ancho chipotle sauce. Dunkin’ also tested ranch and honey mustard.

Starbucks is taking its food a step further. The world’s largest coffee-shop operator is debuting a new restaurant this month in Los Angeles that will serve dinner items such as burgers and cocktails.

Don’t expect the same at Dunkin’, Costello said. While the chain is experimenting with proteins, “I don’t think you’ll see hamburgers,” he said.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Kevin Orland

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