Dunkin Donuts Business Analysis

Subject: Strategic Management
Pages: 10
Words: 2864
Reading time:
10 min
Study level: Master

Introduction

Dunkin’ Donuts is a leading American quick-serve restaurant concept and is the market leader in bagel and donut servings. Since the 1980s, the company has embraced coffee as a highly sought-after beverage in its outlets, and it posts an estimated 1.6 billion dollars in coffee sales annually (Dunkin’-Brands, 2019). The company has experienced systematic growth in the past few years as it expanded its reach to other parts of the world, such as Asia and the Middle East. It has adopted franchising which is the extension of intellectual rights and the use of the company’s brand to an operator referred to as a franchisee (Alon et al., 2021). The company has developed special distribution opportunities in hospitals, grocery stores, colleges, and wholesale clubs. The company’s strategic approach to market challenges has seen it grow to become a global leader in the quick-serve restaurant industry.

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Business Strategy

Dunkin’ Donuts is among the best-performing quick-service restaurant franchisors. It primarily focuses on selling coffee, baked goods, and ice cream. The company franchises organizations under its Dunkin’ brand. It boasts over 21000 distribution points in more than 60 countries globally (Dunkin’-Brands, 2019). The company applies a 100% franchised business model to gain specific financial and strategic benefits (Dunkin’-Brands, 2019). For instance, the fact that the company does not own or run restaurants means it can dedicate time and resources to gaining a competitive edge in the business environment.

Porter’s model is an important aspect of management because it guides organizations as they create strategies designed to help them survive in a competitive environment. Dunkin’ Donuts has implemented a low-cost strategy in the provision of products and services. This strategy places emphasis on the production of low-cost products for consumers who are sensitive to price (Islami et al., 2020). Dunkin’ Donuts is keen on beating the competition by reducing its cost of production. Another of Porter’s essential business strategies is differentiation, which refers to developing a unique product or service (Islami et al., 2020). Dunkin’ Donuts is keen on distinguishing itself from competitors by focusing on creating a diverse menu. For instance, the company has invested heavily in creating vegan beverages, which are uncommon in the quick-serve restaurant industry. Porter’s focus strategy refers to an organization’s decision to concentrate on a group of consumers, a product line, or a specific market (Islami et al., 2020). Dunkin’ Donuts has applied the focus strategy by prioritizing products served during breakfast. Its product line includes donuts, bagels, sandwiches, coffee, and other baked products.

Marketplace Approach

Dunkin’ Donuts coordinates its domestic marketing and advertising through the administration of brand-specific advertising funds. The company’s marketing strategy goals include brand differentiation, increasing total beverage and coffee sales, growing its breakfast consumer base, and improving afternoon sales (Dunkin’-Brands, 2019). It is worth noting that the company’s domestic franchisees contribute 5% of weekly gross retail sales to finance brand-specific advertising (Dunkin’-Brands, 2019). The money runs various local and national advertising initiatives online, in the print media, and on television. The company also applies various pricing strategies to attract a broader consumer base.

The quick-serve restaurant industry is highly competitive, with several companies offering similar products both at the local and international levels. Dunkin’ Donuts can stay ahead of the competition by offering quality products, convenience, unique restaurant concepts, and affordability. In order to remain profitable, the company has adopted a variety of strategies to create a discernible competitive edge. In addition to developing new products and intensifying advertising, Dunkin’ Donuts uses technology to offer personalized services to its clientele both locally and abroad.

The use of mobile technology has allowed the company to secure its place in a competitive market environment. The introduction of various digital and loyalty programs has allowed the company to experience growth in recent years. For instance, the launching of the Dunkin’ mobile application in 2012 to facilitate payment and offer rewards created the foundation for an effective one-on-one marketing strategy (Dunkin’-Brands, 2019). The DD Perks Rewards Loyalty Program has facilitated further personal engagement with consumers, while the On-the-Go mobile ordering function launched in 2016 allows consumers to order before they get to the restaurant (Dunkin’-Brands, 2019). The company has partnered with a mobile wallet provider to ensure that consumer payments through the Dunkin’ mobile application are safe and secure. It is vital to note that by December 2019, the DD Perks Rewards loyalty program had an estimated 13.6 million participants (Dunkin’-Brands, 2019). The aforementioned strategies have ensured that the company remains relevant in the contemporary business environment.

Business Model

The Dunkin’ Donuts Company focuses on the quick-serve restaurant (QSR) segment of the commercial food industry. The QSR segment accounted for an estimated 332 billion dollars of the 501 billion dollars generated from the commercial foodservice industry in the United States as of January 5th, 2020 (Dunkin’-Brands, 2019). The QRS segment features restaurants that offer limited or no table services for customers interested in quick and effective services

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The company’s core products are coffee, muffins, donuts, breakfast sandwiches, and bagels. It also serves Angus steak and egg sandwiches, croissants, a variety of pumpkin beverages, pretzels, burritos, and carousels. However, it is worth noting that over the years, Dunkin’ Donuts has evolved into a largely coffee-based brand, with approximately 58% of U.S. sales in 2019 resulting from coffee and other beverages (Dunkin’-Brands, 2019). The company intends to deliver its products in the breakfast segment of the day, which has the highest rates of activity in its branches.

Dunkin’ Donuts applies franchising as its primary business model in the quick-serve restaurant market. Franchising refers to an agreement where a service company, referred to as a franchisor, offers an operator, the franchisee, a license to use its products, trademarks, and systems in a given locale (Dunkin’-Brands, 2019). It is vital to note that the franchisee must remunerate the franchisor for the concept, marketing, strategy, brand recognition, and purchasing power. In addition, the operator must run the institution, including specific employment and labor decisions such as scheduling, hiring, promoting, benefits and wages.

Dunkin’ Donuts generates income from specific initiatives and activities defined in its business model. The first source is franchise fees and royalty income from operators licensed to conduct business under the brand. The company also makes money from continuing advertising fees from its partners and revenue generated from the gift card program (Dunkin’-Brands, 2019). The company earns revenue from the rental income generated from properties leased to franchisees. In addition, the company collects revenue from the sale and distribution of ice cream and other products to institutions in specific international markets. Finally, the company earns income from licensing fees collected from the use of its brand and products in specific retail channels.

The company’s customer value proposition is the promise that each of its outlets serves high-quality foods and beverages in a friendly environment. In addition, Dunkin’ Donuts insists that all of its products are affordable, and the customer service is like none in the market. Its competitive value proposition offers consumers adaptability, accessibility, and affordability. In essence, clients can expect convenience, rapid services, and pocket-friendliness in any of the company’s branches globally.

A profit proposition refers to the revenue an institution generates after the cost of production has been eliminated. Dunkin’ Donuts’ profits increased by 24.1 million dollars in 2019 (Dunkin’-Brands, 2019). The profit proposition made the company exceedingly attractive to investors keen on joining the quick-serve restaurant industry. In essence, associating with the company is deemed a profitable venture. The profit proposition is one of the key reasons investors are interested in joining the company as franchisees.

Corporate Strategy

The geographical strategy applied by Dunkin’ Donuts is complex and multifaceted. The company is keen on the acquisition of new franchisees across America in a bid to increase its presence and consumer base. The franchise costs are relatively low compared to other players in the market. The low threshold means that individuals and corporations interested in becoming a part of the quick-serve restaurant industry perceive the company as a favorable investment vehicle. The National DCP, a limited liability company based in Delaware, facilitates the company’s purchasing (Dunkin’-Brands, 2019). Apart from America and Canada, the company is expanding into Asia and the Middle East.

The international operators join the company through master franchise agreements, where Dunkin’ Donuts grants a master franchisee the exclusive rights to develop a specified number of restaurants in a defined geographical area. The terms include a specified period within which the franchisee should meet the standards outlined by the parent company with regard to restaurant design, product quality, and service delivery (Dunkin’-Brands, 2019). Failure to meet the stated terms may lead to the cancellation of the agreement. The strategy applied by Dunkin’ Donuts ensures that foreign franchisees source their supplies provided they comply with set standards. The company provides guidelines on how to produce specific products such as donuts. It is vital to note that some franchisees in foreign markets are allowed to source products from approved third-party suppliers. It is vital to note that in some regions, the company allows franchisees to source products locally to support local economies and improve consumer relations.

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Dunkin’ Donuts’ vertical scope is a competitive strategy intended to gain an edge over other companies in the quick-serve restaurant industry. The company maintains control of the production of its products, which facilitates consistency and efficiency. Dunkin’ Donuts maintains a centralized production strategy aimed at supporting the growth of the Dunkin’ brand. It is worth noting that franchisees own these centralized manufacturing locations that produce baked goods and donuts. They deliver fresh products to all the company’s restaurants on a daily basis and facilitate the streamlining of restaurant operations. In 2019, the company had a total of 73 centralized manufacturing locations in the United States (Dunkin’-Brands, 2019). These institutions are a critical aspect of franchise economics in view of the fact that they support profit maximization by guaranteeing consistency and producing high-quality goods. In addition, the company owns properties that it leases to franchisees. The company is, therefore, able to control the design of its premises and maintain standards across different locations.

Dunkin’ Donuts’ products are primarily served for breakfast or as snacks. They include doughnuts, bagels, sandwiches, coffee, ice cream, and other baked goods. The company prioritizes research and development, an important corporate strategy designed to help it remain relevant in the competitive business environment. The development of new products increases the consumer base, increases sales, and facilitates the company’s expansion into afternoon and evening time slots. The company houses its research and development facility in a modern facility in Canton, Massachusetts (Dunkin’-Brands, 2019). The company has invested in a sensory lab, a test kitchen, and a quality assurance laboratory. A dedicated team of researchers uses consumer data to create and test new products.

Dunkin’ Donuts has diversified its portfolio over the years to include properties from which it generates revenue. The company has expanded from its original product line to include real estate as a significant revenue source. By the end of 2019, the company owned properties 103 and leased 943 properties in America and Canada which were either leased or subleased to franchisees (Dunkin’-Brands, 2019). The company generated 9% of its annual revenue in 2019 from rental fees totaling 122.7 million dollars (Dunkin’-Brands, 2019). It is also worth noting that the original product line, which featured donuts and ice cream, has expanded to include a variety of beverages and other baked goods.

Corporate Structure

Organizational Structure

Dunkin’ Donuts applies a decentralized organizational chart to manage operations. The chief executive officer is at the top of the chart, which flows down to an operations manager, a finance manager, and specific regional managers. The specific regional managers supervise officers in charge of specific roles such as sales and marketing and manufacturing. The organizational chart applies a divisional design where franchisees are decentralized and managed separately from the parent organization.

The company’s management team answers to the board of directors, which in turn provides shareholders with information regarding the company’s performance. It is vital to note that the company applies a 100% franchising model, which means while the company headquarters makes the main decisions, the franchisees conduct the daily activities (Thong, 2019). Therefore, the franchises manage labor and employment responsibilities such as employment, hiring, and termination. The franchisor’s role is to develop new products, facilitate marketing and ensure high-quality standards in all its partner restaurants. Each franchise operator applies unique rules with regard to labor and hiring. A manager runs each franchise by overseeing the other employees. The employees must adhere to a specific code of conduct designed to ensure the highest degree of customer satisfaction.

Diversification

Dunkin Donuts applies diversification as a primary strategy to improve its market share. The company’s research and development facility is keen to identify new and innovative products to meet the growing demand in the market. The company has developed hundreds of beverages aimed at meeting unique consumer needs. In addition, its centralized production locations ensure that the varied types of baked goods are of the highest standards in the market. The company has also employed various marketing initiatives designed to ensure that it engages closely with its consumers, gathers feedback, and implements feasible proposals. By venturing into real estate, the company offers investors a complete package that increases its desirability. In addition, the properties it owns are an additional revenue stream.

Vertical Integration

The company designed its vertical integration strategy to gain an edge over other companies in the industry. The company maintains control of the production of its products which facilitates consistency and efficiency. Dunkin’ Donuts maintains a centralized production strategy aimed at supporting the growth of the Dunkin’ brand. It is worth noting that franchisees own the centralized manufacturing locations which produce baked goods and donuts. They deliver fresh products to all the company’s restaurants on a daily basis and facilitate the streamlining of restaurant operations.

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Globalization

It is vital to note that Dunkin’ Donuts has embraced globalization as a vehicle to guarantee success in the quick-serve restaurant industry. By bringing in international players, the company has increased its presence in a variety of markets across the globe. The company uses global alliances as part of its corporate strategy. The company arranges its international alliances by country or region. It mainly conducts operations through master franchise agreements with local investors. In Germany and China, the company employs a multi-franchise system. In other markets, such as Japan and Australia, the company is engaged in joint ventures with local companies.

Dunkin’ Donuts aims to team up with local operators to facilitate the adoption of the company’s concepts in the local business environments. In addition, this strategy allows the organization to meet consumer preferences at a reduced cost. The company’s main international target is Asia and the Middle East, which accounted for 68% and 19% of international sales, respectively, in 2019 (Dunkin’-Brands, 2019). Restaurants in international markets generated a total of 2.3 billion dollars in 2019, which represented 19% of total sales (Dunkin’-Brands, 2019). Engaging with international players is an effective way of ensuring brand recognition is enhanced and profitability is maintained.

Strategic Fit Between Business and Corporate Strategies

Dunkin’ Donuts’ cooperative strategy is to manage a network of stores dedicated to providing low-cost beverages, food items, and consistent quality across a network of retail points designed to cater to consumer needs. The company’s business strategy is to become a cost leader in the quick-serve restaurant industry by offering its consumers affordable, high-quality products. The two levels of Dunkin’ strategy have increased focus on value, which is essential for the attraction and retention of consumers. The company’s strategic decision to improve customer experience has led to increased profitability. The company is keen on increasing the speed of service and the accuracy of orders.

The blend of the company’s corporate and business strategies has led to the leveraging of technology to facilitate the creation of a memorable consumer experience. For instance, the continued development of mobile applications designed to simplify the ordering process, payments, and deliveries ensures that consumers easily access their desired products. The loyalty program incentivizes clients to continue consuming Dunkin’ Donuts products. It is vital to note that loyalty is crucial for continued success in the competitive quick-serve restaurant industry. It is vital to note that the expansion of delivery options ensures that more consumers gain access to the company’s products. In addition, Dunkin’ Donuts has facilitated strategic partnerships with organizations such as the Sustainable Coffee Challenge to ensure that its products are sustainably sourced (Dunkin’-Brands, 2019). The company designed its overall strategic plan to ensure accelerated growth, increased brand relevance, and profitability.

Conclusion

Dunkin’ Donuts’ application of effective business and corporate strategies has seen it grow and increase profitability. The company’s adoption of franchising has facilitated focus on product development, advertising, and marketing. In addition, the focus on the acquisition of new franchises and the penetration of new markets has facilitated increased growth. It is vital to note that focusing on the diversification of products, creative menus, and improved customer experiences have increased profitability. Dunkin’ Donuts has successfully applied strategies that have seen its shareholder confidence skyrocket as it focuses on remaining relevant and meeting consumer needs.

References

Alon, I., Apriliyanti, I. D., & Henríquez Parodi, M. C. (2021). A systematic review of international franchising. Multinational Business Review, 29(1), 43–69. Web.

Dunkin’-Brands. (2019). Dunkin’ Brands 2019 Annual Report. Web.

Islami, X., Mustafa, N., & Topuzovska Latkovikj, M. (2020). Linking Porter’s generic strategies to firm performance. Future Business Journal, 6(1), 1–15. Web.

Thong, L. H. (2019). A discussion on performance risk of Dunkin’s Brand. Munich Personal RePEc Archive, 97266, 1–28. Web.