Slam dunk for Starbucks?
Stop & Shop ends deal with Dunkin' Donuts, making room for a rival
In the latest twist in New England's coffee wars, Quincy grocery chain Stop & Shop will drop Dunkin' Donuts stores from inside 130 supermarkets next year and likely replace them with rival java giant Starbucks, according to a Dunkin' franchise executive and a supermarket union official.
Mark Dubinsky, president of the Dunkin' Donuts Independent Franchise Owners Association, yesterday said Stop & Shop is not going to renew its master lease with Dunkin' when it expires early next year.
"For some reason, Stop & Shop didn't want to continue. A lot of Dunkin' franchises are sad to see the relationship end," Dubinsky said. "Franchises liked the ability to access supermarket customers that may not frequent traditional stores. It was a good deal while it lasted."
Most of the supermarkets with Dunkin' Donuts shops are in Massachusetts and Connecticut.
Now, Stop & Shop appears poised to expand a relationship with Starbucks it first began two years ago. Starbucks has 93 coffee stands operating inside Stop & Shop and its sister grocery chain Giant Food. Mark Espinosa, president of UFCW Local 919 in Connecticut that represents Stop & Shop employees, yesterday said he had been told by the grocer's labor relations executives that Starbucks would be taking over the Dunkin' sites.
Bridget Baker, spokeswoman for Seattle-based Starbucks, said the company is "pleased to be moving forward" with Stop & Shop but declined to comment further on future store openings.
Stop & Shop spokeswoman Faith Weiner declined to discuss the terms of the company's agreements with Dunkin' Donuts and Starbucks, except to say: "We have agreements in place with Dunkin' Donuts that extend into 2009."
Dunkin' spokesman Stephen J. Caldeira declined to comment and referred questions to Stop & Shop.
In recent years, Starbucks and McDonald's have tried to challenge Dunkin' Donuts, opening more stores and offering new gourmet brews.
Now, while Canton-based Dunkin' has focused on opening stores across the country in a massive expansion, Starbucks is retrenching, saying this month it would shutter approximately 600 stores, including seven in Massachusetts.
The different customers that Starbucks and Dunkin' Donuts attract may have been a factor in Stop & Shop's switch, said Dennis Lombardi, executive vice president of foodservice strategies for WD Partners, a design development firm in Columbus, Ohio. Higher priced menu items at Starbucks could mean higher profits for the grocery chain as well, Lombardi said.
"My guess is it's a Stop & Shop decision to try and maximize revenues per square foot," Lombardi said. "More [is] spent per purchase on Starbucks."
Another factor may have involved workforce issues between Stop & Shop and Dunkin'. Stop & Shop is a union grocery chain, while Dunkin' is nonunion.
Under the terms of its union contract, the workers staffing the Dunkin' stands inside the supermarkets have to be Stop & Shop employees.
"It was a challenging relationship," Dubinsky said. "Dunkin' had to use Stop & Shop employees because of the union and had difficulties managing employees because they technically weren't their own."
Espinosa said the setup led to a lot of confusion. Stop & Shop, he added, had a relatively hands-off approach to the Dunkin' shops, while the union expressed concerns that Dunkin' was staffing the stores only with management positions to avoid complying with staffing levels and other provisions of the union contract.
"With Starbucks, Stop & Shop will have more control over the stores, and this is a positive development," Espinosa predicted.
Starbucks had its own labor issues, including charges last year by the National Labor Relations Board that the chain broke federal laws by illegally firing workers who supported a unionization effort.
Stop & Shop employee Liliana Cabral, 24, found out recently that the Dunkin' Donuts at the South Bay shopping center in Dorchester where she's worked for the last five years would be closing. She said she's disappointed Dunkin' will be gone, but as a Stop & Shop employee she hopes to continue to work at the coffee shop when it becomes a Starbucks.
Dunkin has focused its nationwide expansion on stand-alone stores, although it has tested shops within other grocery chains such as Shaw's Supermarket.
The Stop & Shop deal may also prove to be an exception for Starbucks. The majority of its stores are company-operated, though in cases where it partners with a supermarket, the stores are jointly operated. On its website, Starbucks said it will "enter into licensing arrangements with companies who provide access to real estate which would otherwise be unavailable," listing national grocery chains as an example of this exception.
Hatem Hassan, 45, a drugstore manager, considers himself a customer of both Starbucks and Dunkin' Donuts.
"Starbucks' coffee's nice. It's more expensive," Hassan said, sipping a Dunkin' Donuts coffee inside the Stop & Shop at the South Bay shopping center. "I'll drink it anyway."
Elizabeth Campbell can be reached at ecampbell@globe.com. Jenn Abelson can be reached at abelson@globe.com. 