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Coffee chains dip their toes into delivery

Starbucks and Dunkin’ are both promising more beverage delivery, says RB’s The Bottom Line. Will it work?
Photograph courtesy of Dunkin'

the bottom line

Delivery is arguably the biggest trend in the restaurant industry today, with concepts in just about every segment working deals with third-party providers or even adding the service themselves.

Coffee chains, however, have been a lot more careful—until recently, that is.

Last week, for instance, Dunkin’ announced the launch of its Dunkin’ Delivers service at 400 locations in New York City through Grubhub’s Seamless service. The chain then plans to expand that service into other markets, such as Boston, Chicago and Philadelphia—ultimately rolling it out nationwide.

Grubhub will use a geofencing technology that sends in orders when drivers get a certain distance from the location to ensure the beverages are as fresh as possible when picked up and delivered.

The New York test “is really about working out all the operational kinks,” said Stacey Caravella, senior director of investor relations for Dunkin’ Brands, at an investors conference last week, according to a transcript on financial services site Sentieo.

Starbucks, meanwhile, began testing delivery in Miami last year, and now has the service in about 1,600 locations in seven cities. The company is now considering mobile-order locations in the U.S.

“We see delivery working alongside innovations and retail format to best meet the needs of consumers and capitalize on the total demand opportunity,” CFO Patrick Grismer said at an investors conference earlier this month, according to a transcript.

Beverage delivery has been something of an uncertainty as the service has grown in the U.S., though the chains have long felt that it had potential, while fast-casual bakery-cafe chain Panera Bread added self-delivery nationwide.

“I believe that delivery could be as transformative as the drive-thru was to the QSR industry,” Dunkin’s former CEO Nigel Travis said last year.

Coffee is largely dependent on convenience, which makes delivery a natural next step. And Starbucks in particular has helped prove that those customers like using technology to get their product.

The service also holds potential for large orders at corporate offices or other events. And it could bolster sales in the afternoon, where a number of coffee chains have struggled to generate traffic growth more recently.

Both Starbucks and Dunkin’ could use the traffic boost, though both chains have seen same-store sales growth this year. Starbucks’ same-store sales rose 4% in the company’s fiscal second quarter, with flat transaction count. Dunkin’s same-store sales rose 2.4%.

The service is far more vital to coffee chains outside of the U.S., particularly in Asia. The fast-growing Chinese chain Luckin Coffee, for instance, has grown rapidly in part by tapping into consumers’ demand for delivery there.

Starbucks has a delivery agreement with Alibaba in China. “We know that delivery is an important occasion or need state for Chinese consumers,” Grismer said.

That said, there are some concerns with coffee delivery—notably, ensuring that the product is delivered hot. It’s one thing to deliver a bag of food. It’s something entirely different to deliver a tray loaded with hot coffee.

On top of that, there is a lot of uncertainty about delivery overall, with little agreement on strategy or approach. Given the profit implications and the logistics involved when delivering hot beverages, such a cautious approach is probably the right one.

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