Tuesday, October 18, 2011
DD Executive Summary
Case: Dunkin’ Donuts
Section 4 (10 am), Group 10
MI021 Computers in Management, Fall 2011
Group Members:
Soo Jin Suzie Choi
Brianna Giarraputo
Daniel Neagu
Konrad Testwuide
William Rosenberg, the founder of Dunkin’ Donuts, believed that a company must “always provide [its] customers with the finest quality, service, cleanliness and value.”[1] This has been the philosophy of Dunkin’ Donuts and has helped it to become one of the most recognizable and successful coffee chains in the world. Over the decades, Dunkin’ Donuts has focused on innovation, customer satisfaction, and future growth. Such efforts have helped Dunkin’ Donuts build strong relationships with its customers and therefore develop a strong and successful brand.
Over the years, Dunkin’ Donuts has expanded its business from the doughnut industry to the coffee industry as well. Today, Dunkin’ Donuts competes with McDonalds, Panera Bread, Krispy Kreme, and of course, Starbucks. However, although the coffee industry may initially seem to be full of opportunities, coffee entrepreneurs may want to reconsider entering this industry. The buyers in the coffee industry are quite powerful because coffee is a commodity; therefore, they have the power to drive prices down and a business must do all that they can to cut costs or they will not reap as much profit. The suppliers are relatively weak in the retail coffee business because the suppliers depend on the producers to sell their products. Another problem faced by the coffee industry is that the threat of substitutes is high.[2] Over the past few years, many people have switched from drinking coffee to drinking tea. Tea sales climbed by 32% from 2005 to 2009. Teashops, such as Teavana, continue to open and expand their stores across the country.[3] Although the coffee industry is fairly easy to get into if an individual has capital readily available, it is very difficult for a business to enter the market because of all the other name brand coffee shops. Therefore, companies like Dunkin’ Donuts have a competitive advantage and the threat of potential entrants is low because although a business is easy to start-up, it is very challenging to succeed and make a profit. Rivalry amongst existing competition is tough and existing firms are often successful because they have a scale economy. These firms can buy large quantities of goods, such as coffee beans, for lower prices because they are buying in bulk. However, a start-up coffee shop must pay a higher amount for these goods because it purchases a smaller quantity of them, thereby shrinking a small shop’s profits.
Despite the highly competitive nature of both the doughnut and the coffee industries, Dunkin' Donuts has survived, retaining its strong influence in each of these two markets. Dunkin' Donuts' total revenue has grown by 7.0 % in 2010 whereas the average growth for the coffee shop industry was 5.7%.[4] Such growth is an excellent sign especially given the continuing economic recession, which impacted Dunkin' Donuts in 2008. The firm opened new 574 stores, globally, in 2010 and 107 stores in the first half of 2011, expanding its size to 9,867 stores in total and growing its influence.[5] The size of 9,867 stores is remarkable compared to the 582 global stores of Dunkin’ Donut’s direct competitor, Krispy Kreme.[6] According to American market survey's recent report, the market share for Dunkin' Donuts is 28%, which is much greater than 16% for Krispy Kreme.[7] Though not number one in the coffee industry, Dunkin' Donuts has successfully placed its position in two industries, coffee and doughnut, instead of straddling in these two competitive fields.
Dunkin’ Brand is estimated to be a multi-billion-dollar firm, with a market cap of $3.37billion. It recently went public this in August 2011, having been privately owned since its creation in 1950, and is currently valued at $28.02 a share (October 14, 2011), which has not fluctuated much.[8] For the second quarter this year, Dunkin’ Donuts reported revenues of $157million and Net income $17million.[9] Compared to its main competitors, Dunkin’ Donuts is relatively small. Starbucks, currently valued at $42.22 a share (October 14, 2011), has a whopping market cap of $31.50billion and McDonald’s, valued at $89.94 a share (October 14, 2011) has an even larger market cap of $92.80billion.
Dunkin’ Donuts faces both opportunities and threats in the coffee industry. The major opportunity for the firm is its ability to expand across the globe. Although originally based in the United States, Dunkin’ Donuts has reached out to numerous markets around the world. By the end of 2010, Dunkin’ Donuts had 6,722 stores in the USA and 2,988 stores in 30 other countries.[10] While these figures seem small compared to rival Starbucks with 17,000 worldwide cafes in 50-plus countries,[11] Dunkin’ Donuts generates a significant amount of revenue from its stores located in Latin and South America, Europe, the Middle East, Asia-Pacific, and Asia. More recently, the company increased its influence in emerging markets with the addition of over 70 new restaurants in China in 2007 and 8 new restaurants in Russia in 2010.[12] This potential for expansion is significant because by expanding the number of stores it has, Dunkin’ Donuts will be in a better position to surpass its rivals. This is notable because the main threat that Dunkin’ Donuts faces is competition from rivals. When Dunkin’ Donuts decided to expand into the coffee industry, it encountered greater competition. Now, Dunkin’ Donuts does not only compete with Krispy Kreme, but also with other well-known companies such as Starbucks. Another potential threat the company faces is the increasing health consciousness of consumers. Dunkin’ Donuts must continue to innovate, keep its prices low, and keep the nutritional needs of the consumer in mind in order to maintain its customer base and continue to be profitable.
Dunkin’ Donuts continuous success has required a great deal of growth and efficiency in which they use technology in part to help accomplish. In April 2005, Dunkin’ Donuts partnered with the Mid-Atlantic Distribution Center, which supports more than 1,700 locations and has begun using a scheduling application, ResourcePRO, that uses sophisticated algorithms to assign routes to trucks and drivers. This application minimizes the transportation resources needed for each delivery and therefore increase efficiency and reduce costs. ResourcePRO is also used in conjunction with TerritoryPRO to adjust and design route territories based on specific constraints, such as the number of stops per route or the sale volume of each delivery.[13]
These new technologies are extremely useful because they help Dunkin’ Donuts optimize its delivery routes. With this software, routes are created based on customer locations and types, volume and time requirements, road network distances, and vehicle cost and capacities. ResourcePRO and TerritoryPRO even calculate and can accommodate customer time windows, driver work time parameters, and dispatch parameters.[14] This is very important because prior to the implementation of this software, this system was not as efficient and the work had to be done manually. Now, Dunkin’ Donuts’ employees can spend more time creating new ideas and marketing their products, rather than planning the schedules for delivery trucks.
Dunkin’ Donuts also leverages technology for both promotional purposes and for research and development initiatives. Dunkin’ Donuts employs social networks such as Facebook, Twitter, and various blogs to gather marketing information and create greater brand awareness. Facebook and Twitter are excellent uses of technology for Dunkin’ Donuts because consumers can be notified of any special promotions and this method of advertisement targets a great number of people. Although many firms have not yet been successful in marketing via Twitter, Dunkin’ Donuts has over 46,000 followers and the firm has tweeted about “deals on coffee, munchkins, and breakfast sandwiches, the company’s “create your own donut contest,” and [it] also replies to dozens of requests and comments daily.”[15] This is especially important because Dunkin’ Donuts is utilizing technology not only to advertise to consumers but also to communicate with its customers. In 2010 Dunkin’ Donuts was ranked Number One in Brand Keys Customer Loyalty Engagement Index for the coffee industry, for the fifth consecutive year.[16] This means that Dunkin’ Donuts beat Panera, McDonalds, and even Starbucks, in customer satisfaction surveys for five consecutive years. This has also helped Dunkin’ Donuts to succeed because if customers are satisfied, they will remain loyal.
Other uses of technology that have helped Dunkin’ Donuts to succeed are SCVNGR and LevelUp. SCVNGR is very useful because consumers can broadcast their location (i.e., in a Dunkin’ Donuts store) to their social network and their friends/followers can see this. They are also invited to take part in small challenges or quizzes and are rewarded with special deals for participation.[17] LevelUp is also a major resource for Dunkin’ Donuts’ advertising. This application can be used on smartphones and it allows customers to connect a credit card to their phone.[18] This is a great advertising tool because it allows a business to run special promotions or increase the credit amount available for a specific number of customers that visit their store.[19] Consumers are therefore encouraged to use this application because it is an easy method of payment and they can receive special deals and promotions through it. In an industry where advertising and consumer satisfaction are essential, applications in technology such as SCVNGR and LevelUp help Dunkin’ Donuts to reach out to consumers and build a brand name.
Dunkin’ Donuts has also built a brand name by listening to what its consumers want and creating opportunities around those wants. Contests such as the “Create Dunkin’s Next Donut” Contest help Dunkin’ Donuts to get a better understanding of what consumers want to see on the shelves.[20] Additionally, Dunkin’ Donuts launched an initiative known as “the ultimate Coolatta summer music mix!”, which was in partnership with Pandora. Customers designed their “ultimate” summer mix tape, by adding songs to a certain Pandora station. This competition led directly to 300,000 new Facebook followers and 40,000 new Pandora users and encouraged consumers to become more active members of the Dunkin’ Donuts’ community.[21] Dunkin’ Donuts’ utilization of technology has given the company a competitive advantage and allowed it to build greater brand awareness, more engaged and loyal customers, and valuable research and development data.
Another key to the success of Dunkin’ Donuts is its ability to expand into different markets. In 2007, Dunkin’ Donuts announced that it would be partnering with Hess and Sara Lee Foodservice Industries.[22] This partnership is significant because it allowed Dunkin’ Donuts to sell its products in self-serve coffee stations in venues such as cafeterias, break rooms, or gas-convenience locations. Dunkin’ Donuts additionally partnered with Procter & Gamble, in 2007, to bring its products to the shelves of over 40,000 retail outlets.[23] These partnerships increase Dunkin’ Donuts profitability because they allow more people to buy Dunkin’ Donuts brand coffee at low cost to the firm. Dunkin’ Donuts also partnered with JetBlue Airways, in 2006, to serve its coffee on JetBlue flights.[24] In addition, in 2011, Dunkin’ Donuts announced a promotion with Green Mountain Coffee Roasters, Inc. The company announced that it would offer authentic Dunkin’ Donuts coffee in single-serve K-cup portion packs for consumers to use with Keurig Single-Cup Brewers.[25] This is a strategic move for Dunkin’ Donuts because by using JetBlue and Green Mountain Coffee Roasters as distribution channels, it is expanding the company’s customer base and this competitive advantage will help Dunkin’ Donuts to grow and reap more profits in the future.
Remaining loyal to Rosenberg’s philosophy of quality and value, Dunkin’ Donuts is poised to continue to grow and use technology to enhance efficiency, continue to create marketing opportunities, and maintain and enhance Dunkin’ Donuts’ brand competitive advantage.
Bibliography
Entrepreneur's Hall of Fame: William Rosenberg. (2007). Let's Talk Business Network. Retrieved October 14, 2011, from http://www.ltbn.com/hall_of_fame/Rosenberg.html
Riddle, K., Flick, S., & Kampschror, K. (2008, December 2). Case Study of Hill Holiday Client - Dunkin' Donuts [Web log post]. Retrieved October 9, 2011, from http://advertisingtouchpoints.blogspot.com/2008/12/case-study-of-hill-holliday-client.html
Bolton, D. (2008, August 11). Six of Ten 2011 Trends: Specialty Tea. Specialty Coffee Retailer. Retrieved October 12, 2011, from http://www.specialty-coffee.com/
Link, A. (2010, Apr. 12). Sample Strategic Planning and Analysis for Panera Bread Message posted to http://ezinearticles.com/?Sample-Strategic-Planning-and-Analysis-For-Panera-Bread-Company&id=4059333
Dunkin’ Brand, (2011, Feb. 3). DUNKIN’ BRANDS, INC. ANNOUNCES ROBUST 2010 DEVELOPMENT GROWTH Message posted to http://news.dunkinbrands.com/dunkin+brands/dunkin+brands+news/dunkin+brands+announces+robust+development+growth.htm
Dunkin Brand Inc., (2011, Aug. 3). Retrieved Oct. 13, 2011, from http://files.shareholder.com/downloads/ABEA-68SCR9/1450142903x0x488437/9c91294c-9170-4f9f-8a3d-eb14c7f7a52b/DNKN_News_2011_8_3_General_Releases.pdf
Krispy Kreme Doughnut Inc., (2010, Apr. 15). Retrieved Oct. 13, 2011, from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTAyNDQ4fENoaWxkSUQ9LTF8VHlwZT0z&t=1
Boulder, C. (2010, July 14). Krispy Kreme and Peet’s Coffee & Tea Consumer Favorites In Market Force Coffee and Snack Chain Study. PRWEB, Retrieved Oct. 13, 2011, from http://www.prweb.com/releases/2010/07/prweb4259284.htm
Form 10-QDunkin' Brands Reports Second Quarter 2011 Results (2011, August 3). In Dunkin' Donuts. Retrieved October 14, 2011, from http://investor.dunkinbrands.com/releasedetail.cfm?ReleaseID=596282
Company Snapshot (2011). In Dunkin' Donuts. Retrieved October 13, 2011, from http://www.dunkindonuts.com/content/dunkindonuts/en/company.html
Dunkin’ Donuts global footprint gets bigger (2011, March 30). In The Boston Herald. Retrieved October 13, 2011, from http://www.bostonherald.com/blogs/news/the_ticker/?p=221
King, M. (2011, February 24). Dunkin' Donuts announces entry into India. In Dunkin' Donuts. Retrieved October 13, 2011, from http://news.dunkindonuts.com/dunkin+donuts/dunkin+donuts+news/dunkin+donuts+announces+india+entry.htm.
Edwards, J. (2005, April). Time to deliver the donuts. Inbound Logistics. Retrieved October 14, 2011, from http://www.inboundlogistics.com/cms/article/time-to-deliver-the-donuts/
[Advertisement]. (n.d.). Appian Logistics. Retrieved October 12, 2011, from http://appianlogistics.com/index.php/products/fleet-sizing/resourcepro/
Van der Pool, L. (2010, March 18). Sweet Tweets. Portfolio.com. Retrieved October 11, 2011, from http://www.portfolio.com/companies-executives/2010/03/16/dunkin-donuts-tracking-twitter-in-effort-to-turn-tweets-into-sales/
High five! Dunkin' Donuts is number one in customer loyalty for fifth straight year. (2011, February 16). Dunkin' Donuts News. Retrieved October 12, 2011, from http://news.dunkindonuts.com/dunkin+donuts/dunkin+donuts+news/dunkin+donuts+customer+loyalty.htm
Build on SCVNGR [Advertisement]. (n.d.). Retrieved October 12, 2011, from http://www.scvngr.com/builder
LevelUp Support [Advertisement]. (2011, July 11). Retrieved October 13, 2011, from http://support.thelevelup.com/entries/20263233-levelup-app-walkthrough
Elliott, A. (2011, February 20). Power to the People: 3 Tasty Crowdsourcing Case Studies. Social Media News and Web Tips Mashable The Social Media Guide. Retrieved October 10, 2011, from http://mashable.com/2011/02/20/crowdsourcing-case-studies/
Dunkin' Donuts parters with Hess, Sara Lee. (2007, December 11). Boston Business Journal. Retrieved October 10, 2011, from http://www.bizjournals.com/boston/stories/2007/12/10/daily26.html
Cheng, A. (2007, August 13). Procter & Gamble to sell Dunkin' Donuts coffee to U.S. retailers. Market Watch. Retrieved October 13, 2011, from http://www.marketwatch.com/story/procter-gamble-to-make-sell-dunkin-donuts-coffee
JetBlue Airways to serve Dunkin' Donuts coffee. (2006, January 24). USA Today. Retrieved October 10, 2011, from http://www.usatoday.com/travel/flights/2006-01-24-jetblue-dunkin_x.htm
Raskopf, K. (2011, February 22). Green Mountain Coffee Roasters, Inc. and Dunkin' Donuts to Make America's Favorite Coffee Available in K-Cup Portion Packs for Keurig Single-Cup Brewers. Dunkin' Donuts News. Retrieved October 14, 2011, from http://news.dunkindonuts.com/dunkin+donuts/dunkin+donuts+news/dunkin+donuts+coffee+available+k-cup+brewers.htm
Endnotes
[1] Rosenberg, 2007
[2] Riddle, Flick, & Kampschror, 2008
[3] Bolton, 2008
[4] Link, 2010
[5] Dunkin’ Brand, 2011 and Dunkin’ Brand Inc., 2011
[6] Krispy Kreme Doughnut Inc., 2010
[7] Boulder, 2010
[8] Yahoo! Finance, 2011
[9] Second Quarter Financial Report, 2011
[10] Company Snapshot, 2011
[11] The Boston Herald, 2011
[12] King, 2011
[13] Edwards, 2005
[14] Appian Logistics
[15] Van der Pool, 2010
[16] Dunkin’ Donuts News, 2011
[17] Build on SCVNGR
[18] LevelUp, 2011
[19] LevelUp
[20] Elliott, 2011
[21] Elliott, 2011
[22] Boston Business Journal, 2007
[23] Cheng, 2007
[24] USA Today, 2006
[25] Raskopf, 2011
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