McDonald's McCafe is posing a major threat to Dunkin Donuts

Key Points
  • Dunkin Donut's CEO Nigel Travis said that McDonald's and Burger King have taken a toll on afternoon sales at the coffee chain.
  • Shares of the company fell 4 percent following his comments.
An employee fills a coffee order at a Dunkin' Donuts location in Ramsey, NJ.
Ron Antonelli | Bloomberg | Getty Images

The morning coffee rush may be smooth sailing for Dunkin' Donuts, but when it comes to selling cups of Joe later in the day, the chain is struggling.

Competitors like McDonald's and Burger King have taken a toll on afternoon sales, Dunkin's CEO Nigel Travis said during the Jefferies Consumer Conference in Nantucket, Massachusetts, Wednesday.

"It's becoming a little bit more crowded, a bit more aggressive, but I think that's what Dunkin' enjoys," Travis said. "We enjoy fighting hard around the country."

Travis' comments sent shares down nearly 4 percent Wednesday.

Since jumping into the coffee fray, McDonald's has benefited from pricing its beverages far lower than its direct coffee competitors like Starbucks and Dunkin. The chain has doubled down on its value offerings, serving up $1 soft drinks and $2 McCafe beverages that include coffee, Frappes and lattes.

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Dunkin' has gained some steam in the coffee space by offering customers highly coveted items like cold brew and upscale coffee beverages. However, its sales have been largely buoyed up in recent quarters by increased franchise fees and royalty income.

Dunkin' sold off its remaining company-operated stores during the fourth quarter and is now 100 percent franchised. And that in itself poses some trouble for the company.

Travis said that the brand has had some difficulty with franchisees when it comes to pricing, as many balked at the idea of having national value propositions that all locations offered.

"It did take them a little bit of time to get onboard with national value," Travis said. "We did a lot of regional value. But, the benefit of national value is, you can advertise all the same thing at once, and you don't get cross messages."

The brand will be offering more value offers for the rest of year in addition to the chain's current $1.99 Frozen Coffee promotion, he said.

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