Marketing

Dunkin’ Donuts’ global expansion

As the world’s largest coffee consuming country, more than 100 million Americans drink a total of more than 400 million cups of coffee a day. Around 20 per cent of these Americans go out to buy their coffee, rather than brew it at home. The result has been a lucrative out-of-home market, a trend that has worked well for market leader Dunkin’ Donuts. Although the typical American treat may be its namesake, Dunkin’ Donuts is a dominant player on the United States coffee scene. According to IBISWorld research, Dunkin’ Donuts has cornered a whopping 16.1 per cent share of the US retail coffee market. This number trails behind only Starbucks, which claims 32.6 per cent. Through aggressive expansion plans, Dunkin’ Donuts now has its eyes set on even bigger things. “[Dunkin’ Donuts is] seeking to capture a greater share of the pie,” says marketing expert Charles Gaudet of PredictableProfits.com. A move Gaudet says could “potentially disrupt the competitive landscape”. These global expansion plans are a big step forward from the company’s humble beginnings. Dunkin’ Donuts was founded in 1950 with a single restaurant in the US state of Massachusetts. Today, the coffee chain has ballooned into the world’s second largest, behind only Starbucks. There are currently more than 10,800 Dunkin’ Donuts restaurants in 31 countries across the globe. The international coffee chain, which is owned by the parent company Dunkin’ Brands, also franchises the popular ice cream store Baskin-Robbins. In 2012, Dunkin’ Brands global franchisee sales topped US$8.8 billion. Serving a variety of speciality coffees and baked goods, Dunkin’ Donuts has become a market leader in the hot, regular, decaf, flavoured, and iced coffee categories. According to research firm NPD Group, Dunkin’ Donuts holds the title for selling the most hot and iced coffee in the US. Much of the chain’s strong sales stem from its extremely loyal customer base. For seven years in a row, Dunkin’ Donuts has earned top ranking for customer loyalty. This loyalty has translated into strong domestic growth. In the third quarter of the 2013 financial year, the company added 81 new US-based Dunkin’ Donuts locations. This expansion brought the total number of American Dunkin’ Donuts restaurants to 7500. According to Grant Benson, CFE, Vice President of Global Franchising and Business Development, Dunkin’ Brands, the coffee chain ultimately intends to have at least 15,000 Dunkin’ Donuts restaurants in the US, including approximately an additional 3000 east of the Mississippi and 5000 in the western part of the country. These restaurants would double the chain’s current presence in the US. “We see significant opportunity to expand the brand across the US as well as internationally in the years ahead,” says Benson. With rampant growth across the US, it should come as no surprise that Dunkin’ Donuts’ financials are quickly rising. In the third-quarter of 2013, same-store-sales – an important metric of retail growth – increased 4.2 per cent from the 2012 quarter. Over this same time period, total revenue grew 8.6 per cent from the year prior. Because Dunkin’ Donut stores are almost entirely operated by franchisees, further expansion should mean an influx of franchise fees and royalty income, along with minimal operating expenses. This formula bodes well for the company’s future financial growth outlook. With strong success on its home turf, the popular coffee chain is now aiming to replicate the formula worldwide. Europe is an important growth target for the coffee company. In Germany, Dunkin’ opened its first store in 1999. There are currently 39 locations across the country. Over the coming five years, Dunkin’ Donuts plans to more than quadruple its German store count to 150 outlets. In 2010, the coffee chain opened its first new locations in Moscow, Russia. In 2011, Dunkin’ Donuts announced plans to open 500 new stores in India. The first Indian-based store opened its doors in 2012. In the same year, Dunkin’ Donuts announced expansion plans in the Middle East as well as Latin and South America. Over the coming years, management plans to continue franchising out new international locations. With these ambitious growth targets, the company will likely move closer to achieving world coffee domination, quarter by quarter. In the third-quarter of 2013, Dunkin’ Donuts added 141 new international restaurants, worldwide. Thanks to increased sales at these new outlets, total international revenue increased 13.7 per cent from the 2012 period, to US$4.2 million. The company’s expansion experience, however, has had its drawbacks. Dunkin’ Donuts already painfully learned it’s difficult to steal market share where loyal customers already pay favour to a particular coffee brand. At one point, Dunkin’ Brands had 210 stores in Canada. It now has just has five. Diminishing sales caused the drastic reduction; it wasn’t able to compete against the extremely popular Canadian coffee chain, Tim Hortons. On the global stage, Dunkin’ Donuts will be faring up against those loyal to Starbucks. Standing tall at nearly 18,000 stores across 62 countries, Starbucks is the world’s biggest coffee chain, based on store count. There are nearly 1000 outlets each in Canada and Japan. Plus, more than 800 stores each in China and the UK. In South Korea, there are more than 550 locations. Additionally, there are around 200 stores each in the Philippines, Turkey, Thailand and Germany. In Starbucks’ birth country, the US, there are an astounding 13,000 stores, which is 30 per cent more than all the current number of Dunkin’ Donuts locations worldwide. One point of difference that could lead to success for both chains, is that the two coffee chains appeal to different income classes, and will likely draw different crowds. Starbucks US$5-lattes appeal more to the upper-class coffee-drinking segment, likely leaving room for Dunkin’ Donuts to tap the lower-end coffee drinking market. How the donut king will compare against the latte queen will now be a test for the world stage. With coffee consumption on the rise around the world, there should be room for all types of players on the market.

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