Case Study 10

Dunkin’ Donuts
Betting Dollars on Donuts
Once a niche company operating in the northeast, Dunkin’ Donuts is
opening hundreds of stores and entering new markets. At the same
time, the java giant is broadly expanding both its food and its coffee
menus to ride the wave of fresh trends, appealing to a new generation
of customers. But is the rest of America ready for Dunkin’ Donuts?
Can the company keep up with its own rapid growth? With Starbucks
rethinking its positioning strategy and McDonald’s offering a great JESSICA RINALDI/REUTERS/Newscom
tasting coffee at a reasonable price, Dunkin’ Donuts is hoping they
“Kin Do It.”
them. First-time customers acquainted with this simple reputa-
Serving the Caffeinated Masses tion were often overwhelmed by the wide varieties of donuts
There’s a lot more to a coffee shop than just change in the tip jar. stacked end-to-end in neat, mouthwatering rows. Only in recent
Some 400 billion cups of coffee are consumed every year, making years has the company expanded its offerings to include break-
it the most popular beverage globally. Estimates indicate that more fast sandwiches, previously the sole domain of fast food restau-
than 150 million Americans drink a total of 465 million cups of cof- rants like McDonalds.
fee a day.1 And with Starbucks driving tastes for upscale coffee, None of Dunkin’ Donuts’ moves makes much difference unless
some customers may wonder whether any coffee vendors remem- consumers buy into the notion that the company has the culinary
ber the days when drip coffee came in only two varieties—regu- imperative to sell more than its name suggests. If plans prove
lar and decaf. But Dunkin’ Donuts does, and it’s betting dollars to successful, more customers than ever may flock to indulge in the
donuts that consumers nationwide will embrace its reputation for company’s breakfast-to-go menu. If they don’t, the only thing po-
value, simplicity, and a superior Boston Kreme donut. tentially worse for Dunkin’ Donuts than diluted coffee could be
a diluted brand image. After 60 years, the company has a repu-
Winning New Customers tation for doing two things simply and successfully—coffee and
Most of America has had an occasional relationship with the Dunkin’ donuts. Even when consumers see the line of products expand
Donuts brand through its more than 6,700 domestic outlets, which into what was once solely the realm of the company’s competi-
have their densest cluster in the northeast and a growing pres- tors, they may be unconvinced that Dunkin’ Donuts is the shop to
ence in the rest of the country.2 But the brand has also managed go to for breakfast.
to carve out an international niche with nearly 3,000 international Dunkin’ Donuts sells more than one billion cups of coffee a
shops in 30 countries. The shops are not only found in expected year, for 62% of the company’s annual store revenue.8,9 Consider-
markets such as Canada and Brazil, but also in some unexpected ing that coffee is the most profitable product on the menu, it’s a
ones, including Qatar, South Korea, Pakistan, and the Philippines.3 good bet that those margins give the company room to experi-
And Dunkin’ Brands recently hired Giorgio Minardi—a veteran of ment with its food offerings.
McDonald’s and Burger King—as president of its international op- Faced with the challenge of maintaining a relevant brand
erations at the same time it unveiled plans to expand aggressively image in the face of fierce and innovative competition, Dunkin’
into China, Southeast Asia, and Latin America.4 Donuts pursued a time-honored business tradition—follow-
If the company has its way, in the future you won’t have to ing the leader. The company now offers a competitive variety
go very far to pick up a box of donuts. “We’re only represented of espresso-based drinks complemented with a broad number
large-scale in the northeastern market,” said Jayne Fitzpatrick, of sugar-free flavorings, including caramel, vanilla, and Mocha
strategy officer for Dunkin’ Brands, mentioning plans to expand Swirl.10 And considering the growing popularity of single-shot cof-
“as aggressively” as possible. “We’re able to do that because fee makers like Keurig’s K-Cup, it is a logical format for Dunkin’ to
we’re a franchise system, so access to operators and capital is apply to package their coffee. Ever-increasing competition in the
easier.”5 How aggressively? According to CNN, Dunkin’ plans to morning meal market made an update to Dunkin’ Donuts’ food
double the number of its locations over the next twenty years.6 selection inevitable, too. The company currently focuses on ba-
According to social media manager Jessica Gioglio, the brand gel and croissant-based breakfast sandwiches, sausage pancake
plans a strategy of westward expansion into new markets adja- bites, and the Big N’ Toasted.
cent to those already served by Dunkin’ Donuts, including Den-
ver, Baton Rouge, New Orleans, and Albuquerque.7 On Every Corner
Starbucks is known for its aggressive dominance of the coffee
Changing Course to Follow Demand marketplace. When competitors opened a new store in town,
For most of its existence, Dunkin’ Donuts’ main product focus Starbucks didn’t worry. It just opened a new store across the
has been implicit in its name: donuts, and coffee in which to dip street, in a vigorous one-upmanship that conquered new ground

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and deterred competitors. But many who have struggled to for quality, giving the company the benefit of not having to work
compete with Starbucks have had to do so with limited re- hard to earn many customers’ trust. And if Dunkin’ Donuts can
sources or only a few franchises. Not so with Dunkin’ Donuts. Its find the sweet spot by being within most consumers’ reach while
parent brand, Dunkin’ Brands, also owns Baskin-Robbins. And falling just short of a Big Brother-like omnipresence, the com-
in the time since Dunkin’ Donuts went public last summer, it’s pany’s strategy of expansion may well reward it handsomely. But
earned a nearly $500 million coffer from which it can draw to this strategy is not without its risks. In the quest to appeal to new
fund its westward expansion.11 The number of Starbucks outlets customers, offering too many original products and placements
has shrunk in recent years; at its current pace of growth, the could dilute the essential brand appeal and alienate long-time
number of Dunkin’ stores may easily eclipse Starbucks’ in the customers who respect simplicity and authenticity. On the other
next decade. hand, new customers previously unexposed to Dunkin’ Donuts
might see it as “yesterday’s brand.”
If Dunkin’ Donuts’ executives focus too narrowly on fran-
Simple Food for Simple People
chising new stores, they might not be aware of issues develop-
Dunkin Donuts’ history of offering simple and straightforward
ing in long-standing or even recently established stores. Some
morning snacks has given it the competitive advantage of dis-
older franchises seem long overdue for a makeover, especially
tinction as the anti-Starbucks—earnest and without pretense. Like
when compared to the Starbucks down the block. To combat
Craftsman tools and Levi’s jeans, the company appeals to unpre-
the perception that many of Dunkin’ Donuts’ stores are out-
tentious people who enjoy well-crafted products.
dated, the company unveiled a new prototype restaurant de-
sign in Pawtucket, Rhode Island providing a glimpse into the
The Sweet Spot Has a Jelly Center future look and feel of the brand. The contemporary design
Dunkin’ Donuts is trying to grow in all directions, reaching more includes retro elements inspired by the very first shop built
customers in more places with more products. Achieving proper in 1950, and two-thirds of the planned stores will be built in
retail placement can be a delicate balance. this style.14
Although Dunkin’ Donuts often partners with a select group For the time being, Dunkin’ Donuts seems determined in
of grocery retailers—such as Stop & Shop and Wal-Mart—to its quest for domination of the coffee and breakfast market.
create a store-within-a-store concept, the company won’t set Will Dunkin’ Donuts strike the right balance of products and
up shop in just any grocery store. “We want to be situated in placement needed to mount a formidable challenge against
supermarkets that provide a superior overall customer experi- competitors?
ence,” he said. “Of course, we also want to ensure that the
supermarket is large enough to allow us to provide the full ex-
pression of our brand . . . which includes hot and iced coffee,
our line of high-quality espresso beverages, donuts, bagels, Discussion Questions
muffins, and even our breakfast sandwiches.” Furthermore,
1. What does a Porter’s Five Forces analysis reveal about
the outlet’s location within the supermarket is critical for a suc-
the industry in which Dunkin’ Donuts and Starbucks
cessful relationship. “We want to be accessible and visible to
customers, because we feel that gives us the best chance to in- compete? What are its strategic implications for Dunkin’
crease incremental traffic and help the supermarket to enhance Donuts?
their overall performance,” said John Fassak, vice president of 2. Is Dunkin’ Donuts presently using strategic alliances
business development. to full advantage? How could cooperative strategies
But why stop at grocery stores? Taking this philosophy a step further assist with its master plan for growth?
further, Dunkin’ Donuts has also entered the lodging market with
their first hotel restaurant at the Great Wolf Lodge® in Concord,
Problem Solving
North Carolina—one of North America’s largest indoor water
parks. Dunkin’ Donuts offers a variety of store models to suit Until recently, the Starbucks brand was much better known
any lodging property, including full retail shops, kiosks, and self- around the world than Dunkin’ Donuts. As Dunkin’s CEO,
serve hot coffee stations perfect for gift shops and general stores, what global strategy—globalization, multidomestic, or
snack bars, and convention registration areas.12 Who knows where transnational—would you follow to position Dunkin’ as a real
they’ll pop up next? challenge to Starbucks in the international markets, and why?
The launch into the lodging market coincides with Dunkin’
Donuts’ worldwide expansion program. Steadily and strategi- Further Research
cally expanding, Dunkin’ Donuts unveiled the brand’s first-ever
theme park restaurant at Hershey Park, new coffee kiosks at sport- Gather information on industry trends, as well as current
ing venues such as Fenway Park, Yankee Stadium, and the TD developments—domestic and international, affecting
Banknorth (Boston) Garden, and new stores at airports including Dunkin’ Donuts and its competitors. Use this information
Boston, Dallas-Fort Worth, and New York City.13 to build an up-to-date SWOT analysis for Dunkin’ Donuts.
The company is banking on these mutually beneficial partner- Based on implications of this analysis, is Dunkin’s top lead-
ships to help it achieve widespread marketplace prominence. ership doing the right things when it comes to strategic
Dunkin’ Donuts is a nationally known brand with a long reputation management, or not?

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