Warren Buffett once called the cigarette the perfect product: "It costs a penny to make. Sell it for a dollar. It's addictive."
Much the same could be said about coffee today. Even a costly coffee drink -- Starbucks sells its lattes for about $3.50, depending on the location -- consists of little more than a cup of water, a splash of milk, a spoonful of coffee grinds and 30 seconds of labor. Starbucks has managed to turn its customers' craving for caffeine into a $6.4 billion a year business. It already has about 6,000 company-owned coffeehouses and claims to open five more each day. All of which explains why so many sellers of fast food and drink seem intent on taking away some of its highly profitable market share.
Dunkin' Donuts, for its part, has tried to rev up its business by adding all sorts of new beverages over the last several years and, according to a recent Wall Street Journal article, introducing new food varieties and a coffee-house ambience to some of its stores. Its beverage offerings include the Coffee Coolatta and, lately, the Turbo Hot, a cup of coffee stoked with a shot of espresso. The changes, along with a new ad campaign, are intended to tell consumers, "We take our product seriously but not ourselves too seriously," says spokeswoman Susanne Norwitz. "We're not about fancy couches and wi-fi. We're about providing a good value and being convenient." Despite that thinly veiled knock at Starbucks, Norwitz insists that the changes aren't aimed at luring customers from the Seattle chain. "We are doing what we have always done," she says. "We are ... speaking to the plainspoken, no-nonsense Dunkin' patron."
McDonald's likewise has trotted out a new line of upscale coffee, co-branded with Newman's Own food company. And even 7-Eleven has taken to serving cappuccinos and boasting of gourmet beans in its brews.
But marketing experts at Wharton caution that these kinds of efforts may be misguided.
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