Dunkin' turns up the mobile tech, but beating Starbucks is a tall order

In the battle to quench consumers’ thirst for coffee, Dunkin’ Brands is pulling out all the stops to battle Starbucks in mobile, boosting incentive marketing and adding Alexa for purchases.

But Starbucks' huge lead in mobile makes Dunkin's task difficult at best.

Dunkin’s recent announcement that it would add Alexa as a purchase option for its On-the-Go Mobile Ordering is an indication of its deepening commitment to the mobile channel.

Dunkin’ DD Perks Rewards members can now place an order on an Alexa-enabled device. Consumers link their DD Perks Rewards account to their Amazon account in the Alexa app. All of the ordering is done with the Dunkin’ Donuts mobile platform and consumers can choose from saved favorites they have previously ordered through the Dunkin’ Mobile app.

In addition to the Alexa feature, Dunkin also recently extended its mobile app development deal CardFree, to take greater control of its own. technology. It was a recognition that without further mobile investment, Dunkin’ could fall further behind its archrival, Starbucks, who has already built a massive mobile following.

“The CardFree deal will accelerate our digital technology efforts, especially in the areas of On-the-Go Mobile Ordering, catering, delivery and curbside pick-up by giving us greater control of the technology enabling these initiatives. We’ll also be able to leverage data from these programs to better cater to our guests and make our brand even more relevant, accessible and convenient for them,” stated Stephanie Meltzer-Paul, vice president, digital and loyalty marketing, Dunkin’ Brands.

Dunkin' is testing both curbside pickup and catering at a select number of Dunkin’ Donuts restaurants in an effort to offer more convenience to consumers. Dunkin' also continues to test its delivery, which launched in mid-2016 through a partnership with DoorDash mostly in urban areas in several markets such as Atlanta, Boston, Chicago, Dallas, Los Angeles, Miami, New York and Washington, said Jack Clare, chief information and strategy officer of Dunkin' Brands.

The challenges for Dunkin’ Brands are twofold. First, as more consumers adopt and create a habit of using Starbucks' mobile app, the more difficult it becomes for Dunkin' to create a loyal customer following. Second, as its mobile app becomes a greater part of Dunkin’s sales, how does it evolve its store format, delivery, and loyalty programs?

In its fiscal 2018 third quarter, the Starbucks mobile app generated 35% of the transactions in its U.S. company-operated retail stores, up from 30% a year earlier. Similarly, the mobile order ahead feature grew to 13% of transactions, up from 9% a year earlier. A request to Dunkin’ Brands for a mobile app sales breakout was declined.

Supporting Starbucks’ mobile app adoption has been the Starbucks card, which can be used as a standalone payment form or included in the mobile app. It represented 45% of transactions in U.S. and Canadian company-operated retail stores in the third quarter, up from 40% in the same period a year earlier.

Just as the pressure is on for Dunkin’ Brands, owner of the Dunkin’ Donuts chain, to deliver financially, so is the pressure on Starbucks. When longtime boss, Howard Schultz stepped down from the helm, questions began to mount as to whether Starbucks could stay at the forefront of payments innovation. The company has recently responded by joining a cryptocurrency initiative that will allow its customers to use bitcoin for purchases later this year.

While most mobile wallets continue to struggle for relevance among the consumer population, the Starbucks app has been able to strike the right balance, giving it a dominant position in mobile proximity payments. According to Marketer, Starbucks is the most used mobile proximity payment app and is expected to remain in that dominant position through 2022.

Recent growth in Dunkin’s mobile app has been dramatic with it having nearly 9 million members in its DD Perks Rewards Program, which is up from 2015 when it had just 3.6 million rewards members. In contrast Starbucks announced in its third-quarter earnings release that it added 1.9 million active U.S. rewards members for the quarter, totaling 15.1 million active, and U.S. rewards members now represent 40% of its U.S. company-operated sales. Each quarter, Starbucks adds to its active reward members, which is up by 2.8 million since third quarter 2016.

Dunkin’s mobile app is also influencing its “NextGen” store design. It's testing an On-the-Go drive-thru lane at NextGen store designs that lets DD Perks members who order ahead via the Dunkin’ mobile app to bypass the ordering lane and merge straight into the line for the pickup window.

As Dunkin’ expands to the U.S. South and West, its mobile app is expected to play an important role in supporting new market entry. “The Dunkin’ mobile app gives us another avenue to reach our guests and offer them local, personalized and highly relevant offers to drive them into our stores more often," Meltzer-Paul said.

In newer and emerging markets, this may take the form of a “Team Wins, You Win” promotion for DD Perks members with a free or discounted coffee after their local sports team wins a game. An example of this is an Arizona Cardinals promotion in which local DD Perks members can score a free medium hot or iced coffee the day after each Cardinals win this upcoming NFL season, Meltzer-Paul said.