The Wall Street Journal highlights a study conducted by market research firm CustomersDNA LLC. It finds that McDonald's coffee consumers are more loyal to the Golden Arches than the customers who frequent Starbucks and Dunkin' Donuts.

The study found that 53% of the respondents, who were identified as primary customers to either Starbucks and Dunkin' Donuts, had more tendency to "roam" by visiting competing outlets over the course of a month. On the other hand, only 29% of the McDonald's customers responded by saying they visit either Starbucks or Dunkin' Donuts for coffee or breakfast in a given month.

Winning customers and keeping them loyal is increasingly important for restaurant chains in the U.S. With little room for expansion, difficulty attracting diners hurt by the economic downturn and pressure from rising commodity costs, competitors are focused on battling for market share.

The coffee wars intensified over the past 3 years when McDonald's came to market with their specialty coffee drinks nationally. McDonald's entrance into specialty coffee coincides with the 2007/2008 downturn in the economy.

It's easy to blame anemic sales growth many coffee purveyors have seen over the past couple of years on the economic recession and lack of consumer spending. However, amongst the coffee players, the study actually tells a different story. McDonald's is gaining market share at the expense of both Starbucks and Dunkin' Donuts.

McDonalds is clearly the superior performer based on their strong 6.8% 3YR CAGR. Starbucks realized a healthy 7% increase in FY2010 SSS mainly due to the 900 stores closed between 2008 and 2009.  Privately held Dunkin' Donuts is clearly the market laggard in the specialty coffee wars.

Chuck Neul, who blogs The Reasoned Sceptic, recently provided some insight into Starbucks' corporate strategy for growth and increasing shareholder value:

Perhaps Starbucks' focus on overseas growth will allow it to regain an ability to earn consistently superior total returns, thanks to detaching its growth from the US economy and consumer, and going overseas for more revenue growth.

Given Starbucks' corporately owned model, they must focus internationally to drive growth due to reaching a market saturation point in the U.S. which began to diminish shareholder value causing Starbucks to close numerous stores between 2008 and 2009.

In contrast to Starbucks' corporately owned model, Dunkin' Donuts and McDonalds are franchises. Store level EBITDA is not a critical guage of system wide performance for shareholders. Only global EBITDA and comparable sales matter.

McDonalds has been scaling back on the number of corporately owned locations by refranchising them to franchisees. However, McDonalds will still maintain roughly 5,500 corporately owned stores after executing their refranchising plans. Dunkin' Donuts, on the other hand, is nearly 100% franchised with only 16 corporately owned stores. In their core Northeast markets there is 1 Dunkin' Donuts for every 9,700 people. 

According to Dunkin' Donuts 2007 Franchise Disclosure Document (FDD), U.S. average unit volume was $879,424. Dunkin' Donuts recent Form S-1, dated May 4, 2011, reports average unit volume in the U.S. to be $855,000 as of year-end 2010.  Although Dunkin' Donuts has successfully grown the number of stores between 2007 and 2010, actual average unit volumes are down -2.78%.       

With all the competition in the coffee market, how will soon-to-be-public Dunkin' Donuts perform against its publicly traded peers? 

To increase shareholder value, Dunkin' Donuts plans to continuously increase market penetration east of the Mississippi:

In our traditional core markets of New England and New York, we now have one Dunkin’ Donuts store for every 9,700 people. In the near term, we intend to focus our development on other existing markets east of the Mississippi River, where we currently, have only approximately one Dunkin’ Donuts store for every 48,400 people. In certain Eastern U.S. markets outside of our core markets, such as Philadelphia, Chicago and South Florida, we have already achieved per-capita penetration of greater than one Dunkin’ Donuts store for every 25,000 people.

Dunkin's U.S. corporate strategy will cause further declining average unit volumes for their franchisees. Over the next few years, it is reasonable to assume, that the Dunkin' Donuts franchisees will be forced to squeeze cash flow by sacrificing quality service and employee training to generate profits. 

If declining average unit volumes is in fact the trend, Dunkin' Donuts will lose the battle in the coffee wars to the competitors that can better serve the American consumer by delivering a consistent experience and value for their dollar that increase brand loyalty.