Tuesday, August 14, 2007

Another Starbucks Competitor: Proctor & Gamble?

As if Starbucks (SBUX) did not have enough problems dealing with the competition for store traffic, now they have more competition for shelf space.

Proctor & Gamble (PG) and Dunkin' Donuts are teaming up to distribute Dunkin' Donuts coffee in big retailers nationwide. They will distribute the coffee through retailers such as Wal-Mart (WMT), Kroger (KR), Costco (COST), and even CVS Caremark (CVS) across the country.

The move for Dunkin', whose stores are mostly located in the Northeast is a great way to get it's product to people when they are not out AND introduce people to it in areas Dunkin' plans to expand to. It is yet another area that Starbucks is seeing it's hold on the US coffee market dwindle, fast. The impact here on Starbucks will be felt soon as grocery shoppers are far less likely to pay the premium Starbucks wants for it's coffee without the "Starbucks experience" that presumes to still go with it and will be sorely lacking inside a Kroger supermarket. They are far more likely to go for the alternative, a very good Dunkin' coffee that will be a fraction of the price (and they will probably have a coupon in their hand for it).

Is this a huge deal? Will it single handedly wreck the next quarter for Starbucks? No, and no. BUT, and this is a very big but, it is yet another area Starbucks used to have to itself that it now must share with a competitor. So far, Starbucks has not done very well adapting to the encroachment of it's turf by a competitor. They have had no effective answer to improved coffee offerings at McDonald's (MCD) and have watched customers defect to the convenience and affordability the Golden Arches offer. Now, it must share the space in grocery chains with another quality competitor also offering their product much more affordably.

Often, several little things add up to a big one. This is one of those times.


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