Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Imitation is the sincerest form of flattery and also one of the easiest ways to lose your identity.

Traditionally lowbrow Dunkin' Donuts has been pushing into tonier offerings such as espresso, cold brew coffee and Rainforest Alliance-certified coffee beans -- so much so that it's beginning to look a lot like Starbucks.

On the Dunkin' earnings call on Thursday, in fact, one Wall Street analyst asked, in a tone of confusion: "Can I just ask ... I guess ... just what the tag line is to the consumer ..."  With its higher-end coffees, he suggested, the new Dunkin' motto could be "Starbucks quality at Dunkin' prices." 

CEO Nigel Travis punted the question to a senior marketing executive, who responded, "We're trying to be the best Dunkin' that we can be."

He probably should have been able to come up with something better than that. 

Dunkin' has been trying to jump-start sales and traffic after reporting in February its first year-over-year quarterly sales decline since it went public back in 2011. Comparable-store sales growth returned in the latest two quarters, but still fell short of Wall Street expectations. 

Caffeine Crash
Sales at Dunkin Donuts U.S. locations are slowing
Source: Bloomberg

Dunkin' stock has been dunked by 16 percent this year, compared to roughly 2 percent gains for the S&P 500 and Starbucks. 

Donut Hole
Shares in Dunkin Brands have dropped 16% in the last year, compared to a 2% rise at Starbucks
Source: Bloomberg

Dunkin' is having its identity crisis at a time it is pushing to open more than 400 new U.S. restaurants this year. As it operates very few of its own stores, its growth relies heavily on whether current or potential franchisees feel jazzed enough to open additional locations. To keep in franchisees' good graces, Dunkin' not only has to make the case that opening a location is a good investment -- which means keeping both profits and sales growing -- but that it has a long-term vision.

Dunkin' execs said Thursday that franchisees are already "concerned" about the tumultuous political climate and rising minimum wages, hindering its ability to provide an outlook for how many locations it will open in 2017. (It has said it plans to open 8,000 locations over the "long term," whatever that means.) 

As I pointed out in February, slowing store growth may not be such a bad thing. It could force the company to re-think how it sets itself apart from other restaurants. 

Brewing Growth
Dunkin' Brand has added 5,800 stores since 2007, more than the entire fleet of Walmart U.S. stores
Source: Bloomberg Intelligence

But being a cheap alternative to Starbucks doesn't exactly cut it, in an industry faced with fickle consumers and restaurant players that regularly jiggle prices to attract customers.

It's a particularly tenuous time for the whole restaurant industry, as price wars abound despite rising labor costs. Meanwhile, fast food joints such as McDonald's and Burger King are wading deeper into coffee and breakfast items, creating even more cheap Starbucks alternatives. 

small coffee now runs about $1 at McDonald's, compared to $1.59 at Dunkin' and $1.85 at Starbucks. As retailers such as Macy's and the Gap have discovered, the murky middle is never a good place to be when consumers are increasingly choosing either the cheapest option or the one with the highest quality. Unfortunately for Dunkin', it can claim to be neither. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net