Dunkin donuts - study case PDF

Preview

Summary

study case...

Description

DUNKIN

02/12/2014

13:50:3

Page 1

DUNKIN DONUTS—IS THE WORLD RUNNING ON DUNKIN?*

r r r r r r r r

r r r r r r r r r r r r r r r r r r r r r r r r r r r

INTRODUCTION Snow is falling in Canton, Massachusetts, as Dunkin’ Donuts’ Chief Global Customer and Marketing Officer John Costello sits down to drink his morning coffee. Last night he returned from a business trip to Taiwan, yet he is surprisingly awake and energetic. Dunkin’ Donuts is enjoying astounding growth in Asia, and the purpose of his most recent trip was to sign a deal with franchise partner Mercuries & Associates to open 100 new restaurants in Taipei and Shanghai over the next 10 years. Costello suddenly remembers the bag of mochi rings he stashed in his suitcase before leaving Taiwan and gets a few to enjoy with his second cup of coffee. Mochi rings, a local favorite in Taiwan, can only be found Dunkin’s Taipei stores, so he always brings home a few. As he dunks the first mochi ring into his coffee, he turns to his calendar. Next week, he is scheduled to travel to Europe to discuss marketing efforts in the region. Dunkin’ Donuts has just over 70 locations in Europe and struggles to maintain sales growth in most. Next week’s trip will be focused on France, a country notoriously difficult to penetrate due to its consumers’ sophisticated coffee preferences and unique café culture. Costello reflects on the difficulties and frustrations Dunkin’ has experienced over the years in its attempts to enter the European market and penetrate the café lifestyle. He looks down at the mochi ring in his hand and wonders what can be learned from Dunkin’s continued success in Asian markets? Can some of the strategies used in Asia be applied to Dunkin’s market entry efforts in Europe? Should Dunkin’ maintain a similar marketing mix in Europe, or explore a different market segmentation and positioning strategy all together? This time next week, he will be sitting face to face with potential franchise partners in France. They will rely on the years of expertise Costello brings to Dunkin’ and will be looking forward to hearing his plans for moving forward in the French market. He wants to be prepared and offer strategic guidance to his European counterparts. It is time Dunkin’ Donuts gained a foothold in the Western European market once and for all. He knows it will be a long and difficult meeting.

opened a small coffee and doughnut shop in Quincy, Massachusetts, and called it The Open Kettle. Bill Rosenberg noticed his customers developing a habit of dunking their doughnuts in their coffee before taking a bite, and so in 1950, he decided to change the name of his coffee shop to Dunkin’ Donuts. After opening the first franchise in 1955, Dunkin quickly began to expand, licensing over 100 stores in the first 10 years. Bill Rosenberg’s philosophy was simple: “Make and serve the freshest, most delicious coffee and donuts quickly and courteously in modern, well-merchandised stores.” As the brand rapidly grew, quality, speed, and convenience remained leading principles of Dunkin’s mission. In 1966, Dunkin’ Donuts University was opened in order to train managers and franchise owners to ensure quality and consistency in every store. By 1970 Dunkin’, was expanding internationally, opening its first overseas location in Japan. Exponential growth continued, not only as a result of Dunkin’s high quality products but also due in large part to its exceptional marketing strategies. During the 1980s, the “Fred the Baker” character became a well-known figure in American households with his catchphrase “time to make the doughnuts.” In 1993 Dunkin’ Donuts joined forces with America’s largest ice cream chain, Baskin-Robbins. The parent company was later renamed Dunkin’ Brands, Inc. and is now headquartered in Canton, Massachusetts. Over the past two decades, Dunkin’ Donuts has remained focused on Bill Rosenberg’s original mantra. Quality, speed, and convenience are at the forefront of Dunkin’ Donuts’ mission. As strong competitors entered the market, Dunkin’ gained a competitive edge through strategic partnerships, menu innovation, and affordable pricing. Through a partnership with Procter and Gamble in 2006, Dunkin’ Donuts now distributes its coffee directly to consumers in supermarkets and club stores. In-store menu selections have been expanded to include muffins, bagels, breakfast sandwiches, espresso products, and iced coffee mixtures. Most recently, Dunkin’ initiated the DDSmart menu, offering customers a choice of healthier food options. Dunkin’ has also become the official in-flight coffee for JetBlue airlines. As a result of such superb marketing tactics and expansion efforts, it is no wonder why Dunkin’ adopted its most recent marketing campaign; America truly has come to “Run on Dunkin’.”

DUNKIN’ DONUTS HISTORY In 1946, William “Bill” Rosenberg began selling coffee, snacks, and lunch food items out of the back of his truck in his hometown of Dorchester, Massachusetts. Within a couple of years he

DUNKIN’ DONUTS TODAY Dunkin’ Donuts is now considered the largest coffee and baked goods chain in the world. Customers have a choice of

* This case was prepared by Chloe D. Johnson, Jaime Molyneux, and M. Domingo Tubio of the Fox School of Business at Temple University Japan under the supervision of Masaaki Kotabe of Temple University for class discussion rather than to illustrate either effective or ineffective management of a situation described (2012).

DUNKIN

02/12/2014

13:50:4

Page 2

2 • Dunkin Donuts—Is the World Running on Dunkin? 52 varieties of doughnuts, more than a dozen different coffee items, as well as several pastry, snack, and sandwich options. On any given day, more than 3 million customers are served worldwide. The company remains under the umbrella of its parent company Dunkin’ Brands, Inc., which includes both Dunkin’ Donuts and Baskin-Robbins. Dunkin’ Brands is currently a privately-held company: in December 2005 Allied Domecq sold the DD brand to a consortium of private equity firms including Bain Capital and the Carlyle Group for $US 2.4 billion in cash. Under the leadership of Nigel Travis, Chief Executive Officer of Dunkin’ Brands and President of Dunkin’ Donuts, the two brands continue to share in the same vision of quality, convenience, and affordability. According to Dunkin’ Donuts 2011 news update, the company opened 800 new locations in fiscal year 2010 alone. Dunkin’ Brands, Inc. now has a total of 16,193 points of distribution in 52 countries. Of these distribution points, 9,760 locations are Dunkin’ Donuts restaurants while the remaining 6,433 are Baskin-Robbins Restaurants. The company as a whole reports global sales of $US 7.7 billion in 2010, compared to $US 7.2 billion in 2009. The Dunkin’ Donuts brand alone is responsible for approximately 75 percent of the $7.7 billion in sales. Dunkin’ Brands, Inc. earned total revenues of approximately $575 million to $580 million for fiscal 2010, an increase of approximately 7 percent from the prior year. In 2009, John Costello was appointed to the newly created position of Chief Global Customer and Marketing Officer reporting directly to CEO Nigel Travis. Being charged with the responsibility of driving growth and success worldwide, Costello can rely on the marketing expertise he has gained from leadership positions with Home Depot, Papa John’s, Sears, and Yahoo! As Starbucks entered the realm of quick service restaurants, and many Americans embraced the lowcarb Atkins Diet fad, Dunkin’ Donuts recognized that the future of the industry was not in the doughnuts but in the coffee. More recently, McDonald’s has also joined the competitive landscape of sophisticated coffee products. Dunkin’ has remained a strong competitor, distinguishing itself from Starbucks through its pricing, speed of service, and drive thru locations. Former Marketing Vice President, John Gilbert, alludes to this competitive advantage when he says, “We won’t have Wi-Fi and couches and fireplaces. We’ll have speed,

speed, speed.” While Starbucks may have plush sofas and soothing music, Dunkin’ Donuts has gained an edge by offering quick service at almost a 40 percent discount. Dunkin’ Donuts responded to the “Starbucks” craze by adding more sophisticated espresso coffee items to its menu. That said, its primary target market continues to be middle-class customers with a median household income of $30,000. Dunkin’ Donuts customers are considered to be simple, no-frills, down-to-earth people that are not driven by status. The typical customer is often described as “the average Joe looking for an average cup of joe.” Dunkin’ prides itself on customer loyalty, as Dunkin’ coffee has become a daily routine for many, even some customers returning multiple times per day. In addition to enhancing its menu items over the past few years, Dunkin’ Donuts has redesigned its restaurants to create a more contemporary feel. Never losing ground, the company has competed head to head with Starbucks and looks forward to remaining a lead contender in the long term.

BREAKDOWN BY GEOGRAPHIC REGION The Dunkin’ Donuts brand alone has over 9,000 stores worldwide across 30 countries. Approximately 6,700 stores are located in the United States, while the remaining stores are located internationally. Sales in the United States represent approximately 70 percent of the Dunkin’ Brands overall sales. While the majority of Dunkin’ Donuts store locations are concentrated in the northeast part of the country, sales are nationwide as a result of the diverse array of distribution points. Through innovative partnerships and creative distribution techniques, Dunkin’ products are now being sold through a variety of channels, including grocery sales, airport and mall kiosks, supermarket counters, and even carts at ski resorts. California, for example, is Dunkin’ Donuts top coffee market in the United States and yet there is not a single Dunkin’ Donuts restaurant in the state! Dunkin’ Donuts has grown to become the number one coffee SKU in American grocery stores. As a result, one cannot assume that just because there are few stores in a certain area that Dunkin’ Donuts does not already have a strong presence in the region. The world map in Figure 1 depicts the vast global presence of Dunkin’ Donuts. With the exceptions of Africa and

F IGURE 1 CURRENT DUNKIN BRAND RETAIL POINTS-OF-SALE Bulgaria Germany

Canada

Russia Korea

Spain

Handuras Panama Colombia Ecuador Peru

Chile

Japan

China

Bahamas Grand Cayman Puerto Rico Aruba Lebanon Saudi Arabia

Oman UAE Pakistan Qatar Singapore Kuwait Indonesia

Taiwan Thailand Philippines Malaysia

DUNKIN

02/12/2014

13:50:4

Page 3

Dunkin Donuts—Is the World Running on Dunkin? • 3 Australia, Dunkin’ Donuts can be found on all other inhabited continents. While the company is still heavily concentrated in the United States, international growth has been steady and strategic. As many as 900 new Dunkin’ Brands stores were scheduled to open worldwide in 2010. The Asia-Pacific region has by far been the focus of international expansion efforts with more than 1,800 stores, including approximately 800 stores in Korea, 600 in the Philippines, and almost 300 stores in Indonesia. More recently, Dunkin’ has focused its attention on the Chinese market. Over the next 10 years, an estimated 480 stores are due to open on mainland China, and another 100 stores in Taiwan. As shown on the map, expansion efforts in other parts of the world are not quite as aggressive as in Asia; however, steady growth is still expected in Latin America, Europe, and the Middle East.

the European market. Currently operating in only four countries in Europe (Bulgaria, Germany, Spain, and Russia), the world’s largest coffee and baked goods chain has found itself challenged by factors that have managed to keep out not only Dunkin’ Donuts but its coffee chain competitors, as well. Western European countries proudly maintain a unique, sit-down, café culture, which is deeply embedded in their history and cultural traditions. Dunkin’ Donuts speedy, no frills take-out service is a foreign concept to the European consumers who prefer to sit and enjoy their espresso with a morning newspaper or the company of friends. While product modifications and a desire to emulate Western habits led Dunkin’s successful entry strategy in Asian nations, cultural barriers coupled with adaptation and segmentation issues in Europe are proving to be one of Dunkin’ Donuts’ toughest hurdles to date.

SUCCESS IN ASIAN MARKETS

CULTURE

On October 14, 2010, Dunkin’ Brands was happy to announce its 16,000th location worldwide. The announcement was made as the doors were opened to a new store in Shenzhen, China, the 20th store in mainland China. Last year also included the celebration of the 1,000th store opening in Japan, a country where the company has operatedfor over 37 years. In addition to China and Japan, Dunkin’ Donuts enjoys high sales growth in Korea, Taiwan, Indonesia, and the Philippines. The brand also has a strong presence in Singapore, Thailand, and Malaysia. Why has Dunkin’ Brands experienced such success in the Asian market? More importantly, what proven strategies can be learned from their success in Asia that can be applied to reenergize their efforts in lackluster markets? Dunkin’ Brands success story in Asia can be largely attributed to two factors: strategic partnerships and local market response. The parent company has identified franchise partners in Asia with years of proven experience and superior skills in retail and operating multiple consumer brands in the local market. Shaanxi Stellerich Restaurant Management Co. Ltd, for example, is the largest QSR (quick service restaurant) company in China and has been chosen by Dunkin’ to open 150 new restaurants in China over the next 10 years. While Dunkin’ Donuts is committed to maintaining the consistency of the brand in Asia, the company understands the importance of responding to local needs and preferences. In addition to the traditional coffee and baked goods, each country has a customized menu to reflect local tastes. In Taiwan, for example, a customer can order a sweet potato or pineapple doughnut. Mochi rings, indigenous cakes made with rice flour, have also become a local favorite. Market research has shown that many Asian countries prefer less sugar or different dough textures, and Dunkin’ Donuts is willing to change its recipes to accommodate consumer preferences. In countries where tea is preferred over coffee, Dunkin’ has added hot tea flavors, iced fruit teas, and even green-tea-flavored doughnuts. Without compromising the quality or integrity of the brand, Dunkin’ Donuts has managed to meet the needs of the diverse Asian market and, as a result, enjoys high sales volume and rapid growth.

Much of the difficulty in European market penetration can be attributed to cultural issues such as the absence of a “carryout” coffee culture. European coffee culture is steeped in Middle Eastern tradition, where socialization occurs over a cup of coffee. Islamic cultures tend to forbid alcohol; instead friends and colleagues would gather over coffee for long discussions. The Arabic tradition came to Tillyard in the England in 1655, forming what would become known as the Royal Society of philosophers, scientists, and thinkers. European cafés tend to be places to sit, sip, and converse over an espresso or latte, and the experience is just that—an experience. In contrast to the European coffee experience, Dunkin’ Donuts has built its brand on a strategy that has traditionally represented quick service at a good price. American coffee culture is more characterized by such immediate gratification as “instant coffee,” ground beans that dissolve in hot water, and the convenience of pre-ground coffee in a can for quick brewing. This approach is less attractive to more cultured Europeans, who are known for preferring fresh ground beans and the French press cafetiere to get the full flavor. A little extra time in preparation results in a higher quality experience. French coffee shops typically use ceramic cups—guests are expected to stay and enjoy their drink. Americans are more likely to request their coffee in a styrofoam or cardboard cup with a lid so they can hurry on their way. In Spain, the time after a meal where diners remain in their seats to engage in conversation over coffee is known as “sobremesa”—literally “at the table.” Coffee is not a quick burst of caffeine or an end to itself; rather, it is an experience. This challenge in consumer behavior patterns is proving to be a tough obstacle for the carry-out giant. Limited in its options, success in this market will depend on Dunkin’s ability to influence the coffee culture of millions of Europeans, or to adapt its strategy to closer match that of its successful sit-down counterparts.

CHALLENGES TO EUROPEAN EXPANSION

CURRENT EXPERIENCE IN EUROPE American coffee chains’ leaders are well aware of Western Europe’s challenging coffee market. In an interview with the Financial Times, CEO Nigel Travis is the first to admit that European expansion is difficult, stating that “there is a lot more

DUNKIN

02/12/2014

13:50:4

Page 4

4 • Dunkin Donuts—Is the World Running on Dunkin? drinks, for instance.” In 1999 Dunkin’ Donuts made an attempt to enter Italy, opening a new store just steps from the Trevi Fountain in Rome. Despite the steady flow of tourists in the area, sales were lackluster. In the birthplace of espresso and cappuccino, the bright pink and orange Dunkin’ Donuts brand went practically unnoticed. The company exited the Italian market less than three years later. Today Dunkin’ Donuts has approximately 70 restaurants in Germany, Spain, and Bulgaria. Dunkin’ Coffee for Iberia in Spain enjoys the most promising sales growth in the region. The company’s strategy in Spain is closely aligned with what many would consider the Starbucks model. While Dunkin’ still aims to become a daily ritual for its customers, restaurants in Spain are designed with warm colors, comfortable seating, and modern wooden furniture. The café style space is better suited to invite customers looking to relax, study, or meet with friends and co-workers over a cup of coffee. Menu selections in Spain have been altered to include more salty items since Spaniards are known to enjoy small snacks (tapas) between meals. There are currently 42 Dunkin’ stores in Spain, all of which have adopted this model. Based on its success, the company has aggressive plans to increase the number of outlets in Spain through continued use of its successful multi-franchise model. Another promising market for Dunkin’ Donuts is Russia, a traditional tea-drinking country that is quickly becoming hooked on coffee. Starbucks already has 31 locations in Russia, and Dunkin’ Donuts is looking to compete head on. CEO Nigel Travis has proven success in the region, having developed the Russian market for Papa John’s International just before joining Dunkin’ in 2009. The first Dunkin’ Donuts store was opened in Moscow in 2010, and 20 more new store openings were slated for 2011. Travis has already expressed his enthusiasm over the “scalded creams” and “raspberry jams” that have been added to the menus to meet local Russian tastes. Plans have also been made not only to continue expansion in Russia, but to extend further into the Ukraine in the coming years. Europe is, no doubt, a challenging market for the quick service coffee company; however, Dunkin’ Brands, Inc. remains focused on the region and will continue to rival its competitors’ expansion efforts.

WHY FRANCE? While Dunkin’ Donuts is optimistic about continued growth in Spain, the company cannot ignore its neighboring country, France. To date, Dunkin’ has not made an attempt to enter French market and confront the sophisticated café ...