Dunkin' Donuts is taking on Starbucks to win over a growing $2 billion industry

Dunkin Donuts

Dunkin' Donuts is teaming up with Coca-Cola to take on Starbucks in a battle to win the bottled coffee business.

On Thursday, the coffee-and-donut company announced it will launch its first line of ready-to-drink coffee beverages in early 2017. The beverages will be manufactured, distributed, and sold by Coca-Cola and sold in convenience and grocery stores, as well as Dunkin’ Donuts locations

"We're the No. 1 seller of iced coffee. This is in our wheelhouse," Dunkin' Brands CEO Nigel Travis told Business Insider. "We saw this was a category that was growing at an incredibly fast rate."

Last year, Travis says, bottled coffee grew 8% in the US, reaching $2.3 billion in annual sales according to Nielsen data. Sales are estimated to grow another 8% this year. 

Beyond the growing bottled coffee trend, the move was also prompted by concern that Dunkin' Donuts may be losing customers to competitors, such as Starbucks, that already sell bottled coffee. 

Dunkin Donuts

"There is no doubt that all our research showed that our customers were drinking Starbucks, and not just Starbucks but other brands. We don't think that's a good thing," says Travis. "The trouble is when people try things, they might like it and become loyal to that brand. So, we want the loyalty to be entirely to Dunkin'."

With the new bottled coffee line, Travis says the company wants customers who are casual Dunkin' drinkers to become true loyalists.

Further, Travis believes that bottled Dunkin' Donuts coffee will convince new customers to visit stores, as well as help potential customers to warm to Dunkin' in areas where the chain is currently expanding. 

"It will stop our customers from buying the competition," says Travis. "There is a lot of evidence to show that people who buy the bottled coffee will also go back and try the product — the original product — in the store." 

Much of Dunkin's bottled coffee plan is still unknown. The company has not revealed any information on the flavors that will hit the market, though Travis says it will maintain the "Dunkin' taste" profile. 

Dunkin Donuts

Currently, Starbucks, in partnership with PepsiCo, controls a huge percentage of the bottled coffee market.

Starbucks claims it invented bottled coffee as we know it back in 1996 when it debuted its bottled Frappuccino. In 2015, Starbucks claimed the North American Coffee Partnership, a joint venture between Starbucks and Pepsi, had 97% of the market share in bottled coffee. 

As Dunkin' Donuts attempts to compete with Starbucks in the bottled coffee business, it is worth noting that this is also a move for Coca-Cola to compete with PepsiCo. Earlier in September, Coca-Cola's iced tea brand Gold Peak announced it planned to enter the ready-to-drink coffee business in 2017.

With soft drink sales slumping, beverage companies from coffee chains to soda giants are looking for new drinks to boost sales. Bottled coffee is a $2.3 billion industry — and it's growing. Now, Coca-Cola and Dunkin' Donuts are gearing up to take on Starbucks and PepsiCo for a share of the profits. 

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