15/3/2016

Starbucks Vs. Dunkin' Donuts: Comparing Business Models (SBUX, DNKN) | Investopedia

Starbucks Vs. Dunkin' Donuts: Comparing
Business Models (SBUX, DNKN)
By Ryan Downie | December 02, 2015

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Starbucks Corporation (NASDAQ: SBUX
SBUX)) and Dunkin' Brands Group, Inc. (NASDAQ: DNKN
DNKN))
are the two largest eatery chains in the United States that specialize in coffee. While both
companies maintain similar menus and overall strategies, there are key differences in their
business models related to scale, store ownership and branding.
Despite being founded 20 years after Dunkin' Donuts, Starbucks grew aggressively and is a
substantially larger company. In 2014, Starbucks generated $16.4 billion in revenue while
Dunkin' Brands reported sales of $749 million. Starbucks has a larger footprint, with 22,519
stores to Dunkin' Donuts' 11,460 points of distribution. Starbucks has also expanded beyond
the U.S. more extensively, opening roughly 10,000 international stores in 65 different
countries. Dunkin' Brands has a substantial international presence, though many of its
international locations are Baskin Robbins ice cream stores rather than Dunkin' Donuts stores.
In 2014, 75% of Dunkin's consolidated revenue was generated by Dunkin' Donuts locations in
the U.S., while international revenue contributed less than 5% to Dunkin' Donuts' branded
stores revenue. More than 20% of Starbucks' consolidated revenues were attributed to markets
outside of the Americas in 2014. Dunkin' has announced aggressive international and
domestic expansion plans with the hope to challenge its main competitor's footprint, but the
difference in scale stems from variations in expansion strategy.

Franchising
Nearly all of Dunkin' Brands' locations are franchises
franchises,, while over 99% of Starbucks locations
are company operated. In the quarter ending June 2015, 62% of Dunkin' Donuts' revenue
came from franchise fees and royalties. Starbucks does not offer franchise opportunities in the
U.S.; 10% of Starbucks' global revenues were attributed to licensed stores in the quarter, most
of which are located outside of the U.S. This has major implications for revenue streams, cost
structure and capital spending. Dunkin' Donuts generates most of its revenue from franchise
fees and rental of property to franchises, while Starbucks' revenue reflects the actual sale of
beverages, food and other items.
Company-operated stores have different operational and capital expense structures from
franchised locations. Cost of goods sold (COGS) and store operating expenses are a much
larger percentage of sales for Starbucks than Dunkin' Donuts. Because COGS is so much more
prominent in Starbucks' expense structure, its profits are more severely impacted by changes
in coffee bean prices. Starbucks also has a higher capital expense burden than Dunkin'
Donuts, which is not obligated to purchase kitchen equipment for franchise locations.

Focus and Branding
Dunkin' Donuts markets itself primarily as a coffee seller that also offers donuts and foods, a
fact made apparent by a coffee cup prominently featured on the company's logo and executive
management's explicit assertion that Dunkin' Donuts is a beverage company. Despite building
an identity as a coffee seller, food is still an important element of Dunkin' Donuts' offering. In
recent years, Dunkin' Donuts has focused increasingly on nontraditional food options with the
hopes of attracting customers outside of breakfast hours. The introduction of steak to its
menu in 2014 was a step toward incorporating heartier food items alongside a growing
number of sandwich options. Dunkin' Donuts' interiors are designed differently from
Starbucks stores, with the former often resembling fast food stores in furnishings and decor.

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08 +0. Dunkin' Donuts has a lower capital expense burden than Starbucks. RELATED ARTICLES YOUR PRACTICE Why Financial Advisors Should Focus on Recruitment Here's why financial advisory firms should be putting recruiting at the forefront of their agendas to keep pace with the demand for their services. Starbucks' $2. Taken   together. Dunkin' Donuts: Comparing Business Models (SBUX.5 billion of long-term debt.com/articles/markets/120215/starbucks­vs­dunkin­donuts­comparing­business­models. Starbucks locations are designed with the comfort of their customers in mind. These include small plates and sandwiches as well as wine and beer. Dunkin' Donuts' $14. browse media or listen to music while consuming their Starbucks product. it has tighter margins than Dunkin' Donuts. focusing on the middle class. While Starbucks is undeniably impacted by the macroeconomic environment. Profit after cost of sales. This also makes going to Starbucks a potential social activity. Free Internet access and inviting decor offer a more enticing option for those looking for a place to read. people with lower disposable incomes are more likely to alter their consumption habits than people with larger financial cushions. which includes product and occupancy costs. was 83% for Search Investopedia Topics expenses Reference Simulator Newsletters Dunkin' Brands during the quarter ending June 2015. these factors form a more premium experience and command a higher price point. In economic downturns.43 DNKN 46.asp 2/4 . In company filings and earnings conference calls. downturns. Starbucks has also shifted focus to include more products aimed at afternoon and evening customers. DNKN) | Investopedia Starbucks brands itself primarily as a beverage provider that offers a more typical coffee house dining experience.4 billion of debt is only 18% of total assets. ECONOMICS What are Business Activities? Business activities are any actions in which a company engages to make a profit. Like Dunkin' Donuts.15/3/2016 Starbucks Vs. which is reinforced by writing each customer's name on the side of his cup. Dunkin' Donuts' management has described its intent to be the lowest cost provider in the market while maintaining quality above an acceptable minimum. encouraging customers to stay to socialize. As mentioned earlier. Starbucks' $944 million of capital expenses was 34% of net cash flow from operations and 19% of revenue. Sign Up Enter e-mail address Quotes by Quotes by  Partner Links Investors should also note the difference in capital structure between the two companies. these customers have higher disposable incomes and are more willing to pay extra for higher quality materials. This appeals to customers seeking a premium experience. Subscribe to receive the latest Investopedia News To Use More on SBUX from Seeking Alpha Top March Picks For A DIY DGI Portfolio by Derek Getz Is McDonald's A Better Buy Than Starbucks? by Team Money Research Quality Starbucks has built a more premium brand than Dunkin' Donuts. relax or speak with friends. Starbucks only had 60% gross margin during this period. it is firmly established with a more resilient and less price-sensitive customer base. turning the stores into a destination rather than a simple distribution location. There is a similar divergence in operating margin with Starbucks posting 17. Typically. which helps to dampen the blows brought on by economic cycles. Starbucks offers a more extensive menu and more product customization. Dunkin' Donuts has more competitive pricing.4 million in capital expense in the second quarter of 2015 was 31% of net cash flow from operations and 7% of revenue. This discrepancy is a consequence of the different store ownership structures for the two companies. Financials Chipotle: Classic Case Of Temporary Headwinds by Wolf Martin One Millennial's Doggone Dandy Dividend Growth Portfolio by Mike Nadel Starbucks' Bitter Rewards . which is more than 26 percentage points below that of Dunkin' Trading Center Brands.01 −0.investopedia. Dunkin' Donuts carries $2.Good For Investors? by Brandon Becker COMPANIES IN THIS ARTICLE Symbol Last Change SBUX 59. study. http://www. work.55 Because Starbucks operates its own stores.5% operating margin. and it has material consequences for the fundamentals available to investors. which is 74% of total assets. The company offers a comfortable and quiet environment with free wireless Internet access.