Shorter Lines at Starbucks and Dunkin' Donuts

Several weeks ago, The Street reported the following news regarding Starbucks: " Starbucks also seems to be having trouble dealing with the rapid rise and popularity of its mobile order and pay technology.  On a conference call with analysts, executives said there has been significant uptick in the usage of mobile order and pay. The jump created operational challenges, especially at its highest volume stores at peak traffic hours. The congestion at the beverage hand-off counter resulted in some customers who entered stores or considered visiting a location, but decided not to complete a transaction, the company said."  

Meanwhile, this week The Street reported that Dunkin' Donuts would be trimming its menu to improve wait times:  "We have thousands of combinations of drinks and sandwiches on our menu, in some cases more than McDonald's (MCD) and other competitors -- we have perhaps gotten too complex," acknowledged Dunkin' Brands Chairman and CEO Nigel Travis in an interview with TheStreet. Travis believes simplifying the menu will help speed up lines both in stores and via drive-thrus."  

The issues facing both Starbucks and Dunkin' are not unique.  As retail chains mature, they face formidable challenges regarding same-store sales increases.  How can they continue to increase comps year after year, even as their industry and their chain matures?   Many restaurants resort to "menu innovation" as a means of jumpstarting growth.   However, menu innovation inevitably means menu expansion at many restaurant chains.   Therefore, operations become substantially more complex.  Operating efficiencies diminish, and wait times increase.  Customer service begins to suffer.  The best chains prune their menus from time to time, so as to regain efficiencies and reduce wait times.  Of course, some customers will miss certain items that they have grown to love.  Chains need to be prepared for such complaints and train their staff members as to how to handle this pushback appropriately.   The chains that are most successful are ready and able to discuss the changes with customers, and they provide a consistent and effective response to customer questions across all locations.  

Starbucks vs. Dunkin - The Challenge of Strategy Convergence

Bloomberg reports today that Dunkin' Donuts has launched a mobile ordering and delivery initiative.  In Maine, they are testing a service that enables customers to order drinks and food through a smartphone app.  Meanwhile, in Texas, they are testing a delivery service.  Dunkin's move follows the launch of mobile ordering several months ago by rival Starbucks.  

The competitive dynamic between these two coffee chains reminds us of the perils of strategy convergence.  Think about these two chains twenty years ago.  They were quite different.  Each had a very unique competitive position.  Today, their positions are more similar (though clearly not alike).   Twenty years ago, Starbucks did not offer drive-thru service, while Dunkin' did.   Starbucks offered wi-fi many years ago, while Dunkin' added that service later.  Starbucks has offered lattes from the start, while Dunkin' added that product more recently.  Dunkin' has had a lucrative food business to go along with its coffee from the start, while Starbucks has struggled with its food lineup and made changes numerous times to improve it.  For many years, Starbucks has sold its packaged coffee in supermarkets for customers to brew at home.  Dunkin' started doing that as well in recent years.  

What's my point?  Well, the strategies of these two firms have converged in recent years.  Yes, they are still quite distinct, but not as different as they once were.  As markets become more mature, strategy convergence tends to occur.  However, the worry is when strategies converge to the point where company positions begin to blur.   The challenge is to remain distinctive even as markets mature.  Gary Hamel put it best when he wrote, 

In nearly every industry, strategies tend to cluster around some central tendency of industry orthodoxy.  Strategies converge because success recipes get lavishly imitated…Aiding and abetting strategy convergence is an ever-growing army of eager young consultants transferring best practice from leaders to laggards…  The challenge of maintaining any sort of competitive differentiation goes up proportionately with the number of consultants moving management wisdom around the world.