Donuts Alone Do Not Make a Chain Grow
By George Anderson
Dunkin’ Donuts, says Nation’s Restaurant News QSR Newsletter, was reborn on April 10th when the fast food chain began the “most significant repositioning” in its 55 year history.
The chain is expanding its menu to include items such as panini sandwiches and snacks for dayparts other than breakfast. It is also expanding its successful beverage business to include more premium drinks, but at a lower price point than competitors such as Starbucks.
“There’s a huge daypart opportunity for us that we intend to capture,” said George Condos, Dunkin’ Donuts’ chief brand officer. “Our product line certainly would be appealing for busy consumers who are looking for a snack throughout the day. Sometimes that snack is a beverage, not a food item. A good example is smoothies.”
The typical Dunkin’ Donuts consumer, said Jeff Bonasia, senior vice president and group account director for the Hill, Holliday, the chain’s advertising agency, said, “The Dunkin’ customers are people who are busy and on the go and getting stuff done.”
These consumers come from a wide spread of demographic segments. It’s not unusual for corporate lawyers and construction workers to both go to Dunkin’ Donuts for their hot or cold coffee beverage.
Marketing consultant Laura Ries of Ries & Ries said that Dunkin’ Donuts is ready to fill a void in the market.
“There’s always an opportunity for a powerful No. 2 brand,” she said. “We don’t see that in terms of coffee shops. There’s Starbucks, and there’s nobody else.”
Ms. Ries said the key for Dunkin’ Donuts to be successful will be to avoid imitating Starbucks.
“Don’t put in music and couches, for God’s sake,” she said.
Dunkin’ Donuts’ Condos said there is little need for concern on that score. “We offer our customers an unpretentious place to get their coffee,” he said.
Moderator’s Comment: Dunkin’ Donuts is looking to triple its size within 10 years. What will it have to do to reach its goal?
George Condos believes Dunkin’ Donuts can reach its goal. “The biggest challenge” he said, “is communicating to consumers that we are a beverage-based business
more than we are a doughnut shop.” – George Anderson – Moderator
Starbucks has never been about the coffee. If it were, the chain would never have reached its current level of success as an American icon. It’s about style and creating a comfortable atmosphere for customers who are willing to fork over $5 for a cup of Joe.
In its own way, Dunkin’ Donuts has become unique by offering more popular price points for high quality coffee and munchies. I think they are on the right track, but I would be concerned about overexpansion and diluting the brand promise — along with the coffee. This was partly responsible for the demise of Krispy Kreme.
If the Dunkin’ Donuts execs have really tried to understand their current consumers and found that they want sandwiches and snacks then the expansion will work. If they haven’t done that and are making these additions to expand their market, they risk losing their current market. The current market wants to get in and out fast while getting fresh coffee. Repositioning is always a risk. If you really understand your consumers the risk is much less.
To triple their size they will need to grow the old fashioned way… buy a competitor.
I agree with some of the comments preceding my writing this, especially the one from Warren Thayer. Starbuck’s sells atmosphere. Their coffee (not that too many people drink just their coffee without whipping sugar and cream into it) is commonly referred to in this part of the country (Midwest) as “charbucks,” i.e., it tastes burnt. Is this the key to success in mixed coffee drinks? Maybe so, but not for the average coffee drinker. I enjoy coffee very much and do not purchase coffee very often if ever from Starbucks. I purchase whole beans from other distributors in the area who blend their own beans. Dunkin’ Donuts would do well to focus on quality and pursuing a good decaf. Too many options to choose from would be disastrous. I am also a supplier exclusive to Starbucks.
Regarding the comments about a name change, I have heard buzz that they are thinking of changing their name to just “Dunkin”. I don’t see that one taking off, personally.
Tripling their size is a nice “pie in the sky” goal, but it won’t happen easily. Here in the Northeast, it seems there is already one on every corner. In our city of 110,000, we have ten, plus probably 15 total competitive outlets.
And, as Jamie mentioned, there is the name. When “donuts” is in your name, it’s going to be hard to sell paninis. And demographics aside, the environment is hardly conducive in the typical DD to serving higher-end items like paninis. If this flies, I guess we can expect to see filet mignon at IHOP.
Being a fan of coffee, and that being most brands and blends of coffee, I like a cup of DD now and then. So what’s the problem? They are now nearly almost totally absent from our market area completely. Mr. Lilien’s comments may explain their rapid escape from the market. I am now aware of only two poorly located locations in the entire metropolitan area (if you can call it that) of our market. There were two in my immediate area that have both closed within 6 months.
So, maybe tripling their size is done by simply slowing the decline of existing franchise locations?
Mark Lilien hit the key business lever here, company owned versus franchise stores. My Pepsico days ring back in thinking about the Dunkin’ Donuts challenge, where we were incredibly innovative and flexible with our primarily company owned Taco Bell unit, yet the same corporate parent had woefully slow and painful change at KFC. Here’s wishing the new DD management team all the best!
At the risk of pointing out the elephant in the room, shouldn’t Dunkin’ Donuts be considering a name change? I don’t suggest this lightly – there is significant brand equity here. But in this case, the brand belies the updated offering. Changing logos is the toughest, and scariest trick in marketing, but the upside may well be worth the risk. As in most ventures of any value, they’ll get the courage afterwards.
Dunkin’ Donuts’ franchisees have to make a profit, and their profits would be hit hard by (1) additional location sales cannibalization and (2) comp sale growth fueled by lower-margin sales. The Dunkin’ Donuts franchisor is compensated by collecting a percentage of sales, leading to goal conflict. Worst competitor for a Dunkin’ Donuts franchisee? Another Dunkin’ Donuts nearby, not Starbucks. Worst sales mix for a Dunkin’ Donuts franchisee? Lots of food, only a little coffee. Most of the profit comes from coffee, not food. So it’s possible to triple the sales volume (and franchise fees) in 10 years, but will the franchisee profits triple? Or will they decline?
I’m one of more than a few that likes their coffee better than Starbucks’. But their premium drinks are sad imitations. For instance, Starbucks’ frappucinos are really good products, but Dunkin’ Donuts’ attempt at equivalency is terrible. If they positioned more products as healthy, it’d be good. They’ve got a few low-fat offerings, but us aging boomers are legion, and we’re watching what we eat more. Finding stuff that’s not over processed and full of sugar (okay, so frappucinos break that rule) is difficult. Not saying Dunkin’ Donuts should be a health food chain, just offer a bit more in a hip/healthy sector.
Dunkin’ Donuts has a strong brand opportunity by being some of the things Starbucks is not (and incorporating aspects that Starbucks does include….it is not about being everything they are not!). Emphasize the speed, ease, convenience aspects. Upgrade the training of the clerks/food & beverage servers – this is an issue that most fast food outlets suffer from, but when you find one that does it right…it stands out. Settle on menu items (the daypart idea does not work for me…I would not choose Dunkin’ Donuts for a panini sandwich if there is a Panera Bread franchise close by). Dunkin’ Donuts is coffee and “breakfast” foods (donuts and bagels) for me that are served all day. I am not likely to view them as a lunch alternative in spite of any amount of advertising they do.
If I represent their “target consumer” (on the go semi professional man in his 40’s) – serve me quality coffee with a smile, get me in and out fast, and do all you can to ensure my feet don’t stick to the floor from dribbled jelly filling from a previous customer that has not been mopped up. Drive-thrus would be good additions also for stores that do not have them.
Why not “Duncan’s” if you want a name change?