Dunkin' Takes the Lead in a Crucial Race Against Starbucks

Dunkin' Brands (NAS: DNKN) has just announced the opening of its first Dunkin' Donuts in India, pitting itself squarely against Starbucks (NAS: SBUX) in the race to caffeinate the subcontinent. Starbucks recently inked a deal with one of India's biggest companies to help it gain a foothold in India but has yet to open a location.

Is there room enough in the veins of India's almost 1.2 billion citizens for two of America's best-known caffeine purveyors? Or will one of these rival coffee shops have to pack up their bags and take the next steamer home?

Partnering up locally
The first Dunkin' Donuts stores are in New Delhi, the country's second largest city. This follows an agreement the doughnut maker signed in early 2011 with Jubilant FoodWorks Ltd., an Indian company that currently runs the Domino's Pizza (NYS: DPZ) chain there. The franchise agreement with Dunkin' calls for the development of 500 restaurants across India in the next 15 years, making the deal the largest international store development commitment in Dunkin' Brands' history.

In February, Starbucks signed a deal with Tata Global Beverages, a subsidiary of Tata Group, which is in turn an Indian conglomerate best known in this country for the automobile badge Tata Motors, but known throughout India and the rest of the world for products and services as varied as hotels, communications, steel, power, and beverages.

Tata Global Beverages is the world's second-largest branded tea company, and the joint venture between the two companies will be a 50/50 operation called Tata Starbucks Limited. The cafes will eventually open in multiple cities across the country, but initially only in Mumbai and Delhi, sometime this year.

Would you like curry with those doughnuts?
Some of the finest teas in the world come from India, so, as you might expect, India is traditionally a tea country. But coffee is quickly becoming a global beverage, and India is an enormously populous and therefore irresistible target for expansion-happy companies like Dunkin; and Starbucks. So Dunkin' is first off the mark in this race, but which company really has the edge here?

Both have intelligently linked up with local companies that know the business landscape and can act as cultural guides to the region. If Jubilant FoodWorks has made a go of Domino's Pizza in India -- about as American a company and cuisine as you can imagine -- it should have similar success in establishing Dunkin' Donuts franchises there as well. According to the company's press release on the grand opening, the two companies have worked together to provide a menu that blends traditional Dunkin' fare -- including, of course, coffee and doughnuts -- alongside food that will cater to local tastes, like mango milkshakes and mango doughnuts. Dunkin' in India will also offer customers vegetarian sandwiches -- a smart move, given the relatively high number of vegetarians in the country.

In the official announcement of the deal between Starbucks and Tata, there's no mention of any food or beverage specialization, but Starbucks isn't new to the overseas retailing game and Tata certainly isn't new to India. Tata, in fact, is a household name there and knows its way around the beverage industry as well.

The Maharaja Mac
And what's a developing, Westernizing nation without the Golden Arches? Classic American burger joint McDonald's (NYS: MCD) has been in India for 15 years and has a network of 250 restaurants across the country. McDonald's is also no stranger to overseas operations and has gone to great lengths to tailor its menu to Indian tastes (the "Maharaja Mac" is made with mutton and chicken) and the country's vegetarianism in particular.

To wit: Indian McDonald's restaurants offer no beef or pork options -- the only country in the world in which this is the case. Says the company's website: "Special care is taken to ensure that all vegetable products are prepared separately, using dedicated equipment and utensils." Even the mayonnaise and ice cream are 100% vegetarian, and McDonald's uses only vegetable oil there to cook its foods in.

This town ain't big enough for the both of us
Even though Starbucks is just getting on its feet in India, it won't be long before it's caught up to or surpassed Dunkin' and McDonald's. Dunkin' and its doughnuts are all well and good, and the company seems to be hooked up with a quality partner in Jubilant FoodWorks, but Starbucks has an even better partner in Tata, with the added appeal of obviously being the hipper of the two.

The company's partnership with Tata Group is a real coup for Starbucks. Tata has massive influence in the Indian market and a virtually infinite well of financial resources with which to bolster the joint effort. Of course, these aren't the only companies set to take off in the emerging world. Check out a few more in this Motley Fool special free report: "3 American Companies Set to Dominate the World." Download your copy while it's still available.

At the time thisarticle was published Fool contributor John Grgurich would love to stop and chat, but he has a mouthful of mango doughnut he's trying to deal with. John owns no shares of any of the companies mentioned in this column. Follow John's dispatches from the bloody, front lines of capitalism on Twitter, @TMFGrgurich. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks and McDonald's and writing covered calls on Starbucks. The Motley Fool has a totally sweet disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.