SBUX Starbucks Corporation

By Julie Jargon 

Dunkin' Brands Group Inc. is trying to undercut what rival Starbucks Corp. charges for a signature product: quality espresso.

The Canton, Mass., chain on Wednesday said that revamped lattes, cappuccinos and Americanos are the biggest change to Dunkin's drinks menu since it started serving espresso 15 years ago from simpler machines.

Dunkin' wants customers to see it as cheaper than Starbucks and just as good. The company dropped the "Donuts" from its name last month and is also encroaching on Starbucks's turf by selling cold-brew coffee in its shops and bottled iced coffee in grocery stores.

Starbucks has generated lackluster sales growth in recent quarters in the U.S., its largest market, and competition to sell high-quality coffee is intensifying. The price of a 16-ounce hot latte at a Dunkin' in Baltimore, where the chain has been testing the new drinks, is $3.59, with tax, compared with $4.19 for the same-sized drink at a nearby Starbucks.

"There's no reason to go to Starbucks anymore," said Tony Weisman, Dunkin's marketing chief.

Starbucks representatives were unavailable for comment Wednesday. Going up against Starbucks, whose business was modeled after the espresso shops of Italy, could be a big challenge for Dunkin', which always has been known more for its smooth coffees than a bold drink like espresso.

Dunkin' has been remodeling its stores with cold-brew taps and drive-through lanes for mobile orders. Like Starbucks, the chain has struggled to attract new customers. Dunkin's U.S. same-store sales grew 1.4% in the second quarter, as an increase in average check offset a decrease in traffic. The company is scheduled to report third-quarter results on Thursday.

Dunkin' has lagged behind in espresso sales as the category became the fastest-growing kind of coffee in cafes in recent years. McDonald's Corp. has a line of low-price espresso drinks, too.

The new espresso beverages will be served at Dunkin's more than 9,200 U.S. stores in bright orange cups to distinguish them from other Dunkin' drinks in white or clear cups.

The company hopes the drinks will help it boost business in the afternoon, which has proved challenging for both Dunkin' and Starbucks.

The company is investing $100 million in the U.S. in the next year, more than half of it in restaurant technology, including the espresso machines. Franchisees have committed even more money to the upgrades. Dunkin' wouldn't say how much franchisees are contributing or how much the new machines cost. Company executives chose the Swiss-made machine that will be the new standard, following trips to Europe and repeated tests to get the extraction from its coffee beans just right.

"The new equipment in some ways is faster than the old equipment," said Scott Murphy, chief operating officer of Dunkin' U.S.

Parag Patel, a franchisee who owns 25 Dunkin' shops in Baltimore and five in California, spent months teaching his employees how to hand-pull espresso shots, steam milk and blend the various drinks with different flavors. He said they are already drawing in new customers in Baltimore.

"The crew members feel like true baristas back there," Mr. Patel said.

Write to Julie Jargon at julie.jargon@wsj.com

(END) Dow Jones Newswires

October 24, 2018 09:34 ET (13:34 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.