Convergence and lattes
The tendency of large companies to converge is shown by the current behavior or two dominant American food and beverage giants, Dunkin' Donuts and Starbucks. These two companies would seem to be poles apart, even though they have major segments of the brewed coffee market. Dunkin' Donuts (a division of Allied Domecq), with 4,100 US stores, specializes in regular, plain old coffee (along with donuts and other pastries). Starbucks, with 5,400 US locations, sells the expensive versions: lattes, macchiatos cappuccinos and the like. (It also sells higher-cost pastries.). Each company is dominant in its niche, and each has an appeal to a different class of consumers.
But according to a Wall Street Journal article ("Latte Versus Latte," 2/10/2004), these two companies are inching towards becoming competitors. According to the article,
Starbucks increasingly is looking for growth by opening stores in blue-collar communities where Dunkin' Donuts would typically dominate. At the same time, Dunkin' Donuts…wants to lure Starbucks's well-heeled customers with a new line of Italian brews that it claims it can deliver faster, cheaper and simpler.
Both companies have maximized growth in their traditional customer segment, so they are both reaching out for new customers. According to the article, the first moves have been very encouraging for both companies.
