Dunkin' Donuts likes to brag that its coffee beats Starbucks in a national taste test. Now it aims to beat its rival in mobile payments as well.
Dunkin' Donuts yesterday launched its own mobile-payment application, hot on the heels of news that rival Starbucks Corp. is working with Square Inc. to improve the coffee chain's already successful mobile payment app.
Dunkin' Donuts, a unit of Dunkin' Brands Inc., argues that its app already has a bit more flavor.
"With our new option for mobile payment, we're creating an entirely new level of speed and convenience that will further distinguish our brand to current and new customers," Scott Hudler, Dunkin' Brands vice president of global consumer engagement, said in an email.
Dunkin' allows customers to buy virtual gift cards for one another within the application. Dunkin' can deliver its virtual cards via text, email or Facebook Connect in denominations between $2 and $100.
CorFire, a U.S. subsidiary of SK C&C of South Korea, is providing the technology to support the mobile initiative.
"What we do is make the [gift card giving] mobile to mobile," Jon Squire, CorFire's chief marketing officer, said in an interview. "[The value] automatically loads into the mobile wallet."
Yesterday's launch is just the beginning of multiple mobile-based initiatives Dunkin Donuts has planned over the next four years. Dunkin's next step is to integrate its loyalty program, Hudler says.
"They're definitely looking at all the efficiencies mobile brings, but where they land is up to Dunkin' to reveal," Squire says.
Starbucks made a name for itself in mobile payments even before it revealed its pact with Square. The company completed a nationwide rollout of its closed-loop mobile payment system while many banks and payments companies were still limited to regional tests.
Starbucks also veered from the script that many in the payments industry followed. It embraced bar codes when many companies were designing systems around Near Field Communication chips. And when its rivals developed solely for Apple Inc. iPhones and Google Inc. Android smartphones, Starbucks gave early attention to Research in Motion Ltd.'s BlackBerry handsets, which it realized were popular among the office workers that frequent its stores.
The new app's launch makes "perfect sense" for Dunkin' Donuts for the same reason it does for Starbucks, says Ben Jackson, a senior analyst with Mercator Advisory Group.
Both companies' apps encourage loyalty and help to speed up the checkout process, he says.
Since both companies' apps use two-dimensional barcodes, which get scanned by a reader at the point of sale, "there's no fancy work needed," he says. "Will they get $100 million in mobile sales like Starbucks did last year? Maybe not right away."
The Dunkin' Mobile app runs on iPhone and iPod Touch devices and Android smartphones. It supports gift card loads initiated with PayPal as well as with American Express, Visa, MasterCard and Discover cards.
Dunkin' Donuts went live with the program simultaneously at its 6,000-plus U.S. stores, Squire says, noting some internal tests were done starting in April involving CorFire and Dunkin' Donuts employees.
Starbucks learned early on that its app speeds up lines by allowing users to load their closed-loop card accounts while still standing in line. Otherwise, users would make two transactions at the register — one to load the card account and another to spend from it.
In its tests, Dunkin' observed the same effect, though users upped their balances while in line instead of at the register, thus avoiding potential split transactions, Squire says. With the app, customers don't need to "fumble around for a card or cash," he says. "That's almost like being behind someone with a checkbook."
Another immediate perk of the new mobile initiative is the personalized access Dunkin' gets to its customers, Squire says.
"It also allows Dunkin' to have one-to-one relationships with customers whereas before [with plastic cards] they were anonymous," he says.
The two large coffee retailers focus on different types of clientele. Starbucks' customers tend to linger for the atmosphere and the free Wi-Fi, whereas Dunkin' Donuts' customers tend to leave as soon as they finish paying.
As such, Jackson says he wouldn't be surprised if consumers had both companies' apps on their phones.
"It's just another example of how closed-loop is pushing mobile payments ahead faster than open loop is," he says.
Correction: An earlier version of this story stated that Starbucks does not allow users to buy virtual gift cards from its mobile app. Although the company did not support eGifts in its original "Mobile Card" app, Starbucks introduced eGifts when it launched the separate "Starbucks for iPhone" app in June 2011.