Jim Hickey’s American Politics

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Dunkin’ Donuts Seeks Angry Starbucks Rewards Customers

Dunkin’ Donuts (DNKN) is hoping to grab a portion of the Starbucks (SBUX.O) customers upset with the revision to the loyalty program. Starbucks customers voiced their displeasure with the program that gives greater consideration to high-priced beverage drinkers over frequent purchases.

Dunkin’ Brands Group Inc. chief executive, Nigel Travis, commented to Reuters, “We feel excited about the change to Starbucks’ loyalty program.” He believes that angry Starbucks customers are a group that Dunkin’ Donuts can capture and retain. Travis remarked, “We’ve been targeting customers with $5 gift cards,” though he wouldn’t speculate on the promotion’s potential impact on the overall business.

The current Starbucks program rewards customers with redeemable points based on visits made to Starbucks instead of the dollar value of every purchase. The new program, which starts in April, will favor customers that spend more money per visit.

There is speculation Starbucks is revising the program to weed out those that took advantage of the rewards system. Sending low-value customers to Dunkin’ Donuts may benefit Starbucks as lines will shorten, but positive customer experiences will increase, with high price beverage purchases. It could be a win-win situation for Starbucks and Dunkin’ Donuts. Starbucks unloads low-value customers and Dunkin’ Donuts can cultivate loyal buyers.

According to Stephen Anderson, Maxim Group analyst, with the Dunkin’ Donuts loyalty program, customers would receive their first reward before the $40 threshold is reached. Customers with the Starbucks rewards program would have to buy $62.50 before receiving a beverage perk.

Anderson suggests Starbucks customer jumping ship could increase Dunkin’ Donuts sales growth by 0.25 to 0.4 percent. Such an increase would be embraced by Dunkin’ Donuts management, which saw last quarter U.S. same-store sales drop 0.8 percent. Dunkin’ Donuts attributes this drop to McDonald’s (MCD) all-day breakfast promotion introduction and value meal offers from Wendy’s (WEN) and Burger King (BKW).

Canton, Massachusetts-based Dunkin’ Donuts opened 55 franchised European locations in 2015 and continues to expand in Germany and Great Britain. The donut retailer believes that Great Britain is a viable market, after abandoning the country in 1996. Germany with 70 locations plans an ambitious expansion, with 20 grand openings over the next few years.

Madison Street Capital is a leading global banking and finance organization. Headquartered in Chicago, Illinois, Madison Street Capital offers clients consultation and advisory services with acquisitions and mergers, private and public business valuations and financial opinions.

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