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Dunkin’ Brands Group Inc, Strategic Planing

Research · April 2020

DOI: 10.13140/RG.2.2.29545.31845

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Adil Malal
Université Internationale de Rabat
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 EXECUTIVE SUMMARY

In this report we will analyze the internal and external environment of Dunkin’ Donuts Group,
by providing an overview of how several factors are influencing the company and how it should
react to these factors taking into account that rivals are working hard to increase there market
share. This analyze will help the top management to take wise decision because we provided at
the end of this report strategic alternatives, by studying the key capabilities and competencies
of the company.

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 I. External Analysis
a. Global Environment
i. PESTLE Analysis

Factor Statement Score

Fast food industry restaurants industry has become regulated in way that protect 7/10
consumers, employees and also the companies from their rivals. Eventually,
governments and international organizations tend to require some legal obligations
such as protecting the environment by limiting the waste of this industry and using
products certified ecofriendly by these organizations; companies working in the fast
Political and Legal

food industry are required to use products that has been tested for their conformity
to certain regulations that organize the work within this industry. It is important to
note that these regulations don’t protect the consumers and employees from the
negative impact of these companies but also they protect other companies from
unfair competition, these disloyal companies are then stopped by paying for some
penalties in favor of the other company that has been damaged.

As we said before, international authorities such as United Nation Agencies, and

Human Rights Watch; takes also place to ensure the protection of human rights,
good labor conditions and environment protection at the international level.

The fast-food industry is very attractive, for the fact that several well-known 6/10
companies succeeded to gain market share in their original market and other
markets especially in the emerging countries. According to MarketWatch.com, the
fast food restaurants operating in coffee houses sector such as Dunkin’ Brands
Economic

Group, Starbucks and Mc Donald’s by its subsidiaries McCafé are generated 495
billion dollars in 2014. However, the global market is controlled by 10 multinational
companies, these ones are working to expand their restaurants to reach eastern
markets as Asian ones. Besides that this industry suffer from the volatility of the
prices of coffee beans (Arabica & Robusta), according to Statista.com; the prices of
Arabica coffee beans reached 4.24 dollars per kg whereas Robusta ones reached
2.22 dollars per kg.

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 The fast food industry is impacted by the fact that customer is becoming day after 8/10
day conscious about the negative impact of fast food on their health. The sector of
coffee houses is impacted by the fact that people becomes directed to consume
juices rather than coffee because they believe that caffeine impacts negatively their
health as they say its toxic, raise blood pressure and can cause indigestion.
Social

In order to face this factor, coffee houses launched several product to face this
problem, products such as decaffeinated coffee launched by Dunkin Donuts and
Starbucks, they also improved their websites to provide nutritional facts about their
offer as well as providing training plans to help their customers to manage their
health and organize the daily consumption of caffeine.

According to International Coffee Organization (ICO), certain operations in this 7/10

industry has been changed to be in conformity with regional, national and
Environmental

international regulations; the companies operating int the coffee houses specifically
and in the fast food industry in general, committed to take this regulations seriously.
Several actions took in place such as, minimizing their waste by recycling paper and
using used packaging that are in a good condition, moreover they should reduce
their emission by supplying their raw materials from local suppliers and avoid
foreign ones because it will reduce carbon emissions.

This factor is very important, because nowadays technology has become a 5/10
Technological

competitive advantage, using a high technology machines in making coffee will

help to improve the quality of it, these equipment may require huge investment but
it worth it for the fact it helps has long term turnover. However, many companies
supply this equipment from highly rated suppliers which provide personalized
equipment for making coffee that meet the standard of the company.

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 ii. Actors Analysis

The main actors’ fast food analysis will help us to identify their impact on the fast food industry
and the coffee houses sector.

Actor Position Assessment Comment

Government Favorable 3 Encouraging investments within the
industry and protection the companies
from unfair competition.
International Unfavorable 5 Searching for incomes without n
Coffee Taking into a account ethical issues.
Organization (ICO)
United Nations Favorable 8 Ensuring the application of
(UN) international laws.
Suppliers of Coffee Unfavorable 6 Not controlling prices in a way that
beans. keeps all the B2B customers supplied
to avoid crises.

iii. Driving forces:

Driving forces Position Assessment Comment

Environment protection Unfavorable 7 Need more regulations to
ensure that no company
bypass actual laws.
Technology Favorable 5 Digitalization is the way to
guarantee cost efficiency.
Customer needs Favorable 7 Customers willingness to pay
increases when they find high
quality products at a suitable
prices.

(The rest of the page is intentionally left blank)

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 b. Direct Environment
i. Market analysis: market and consumer behavior

MARKET SHARE COFFEE SHOP INDUSTRY IN 2015*

37%

Total Liabilities
59%

4%

*Source: Forbes.com

The coffee house industry is leaded by Starbucks, according to Forbes the market share of this
company in 2015 is 43% whereas it’s 27% for Dunkin Donuts. The industry includes more than
18.000 shop only in the U.S according to the same source, this industry generated more than 10
billion dollars in 2014. As the next graph shows, the total sales of Starbuck increased
dramatically by +10.1% in 2014 where as KKD achieved an evolution of 6.5% which is not the
case for Dunkin, the company achieved an evolution of just 4.9%.

TOTAL SALES EVOLUTION IN 2014

0 500 1000 1500 2000 2500

Period in years 2011 247

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The leading players of this industry had aggressive expansion plans, the number of stores is
considered as a sign of success, Dunkin had until 2015 more than 11.300 store in forty states in
the united states and within 32 other country. Whereas Starbucks has 18.000 coffee store in
sixty country, and it own more than 9400 of them while 8650 are considered as franchise.
Krispy Kreme Doughnuts (KKD) is open in 695 locations withing the U.S and within 20 other
countries.

ii. Market segmentation

At this level, we analyze the different segments of this market:

Segments Factors
Geographic All over the world
Demographic All genders
All ages and especially generation “Y”
Middle and Upper class
All ethnicities
All nationalities
Student/ Employee
Behavioral Loyal to the brand

Psychographic Interested in coffee

Open minded

iii. Industry competition analysis: 5 forces of Porter

1. Competition among existing competitors in the industry

The competition within the coffee shop industry is considered strong for the fact that there is a
high demand of premium coffee. The companies are using different strategies to gain market
share, such as providing exclusive offers and products, or opening new stores in prestigious
places. The companies also improve the quality of their services by managing efficiently the
flow of orders within the stores, keeping the queue a s short as possible and also by providing
loyalty card with motives such as special offers for students to keep them interested to the brand.

2. Barriers to entry:

The barriers to entry to the coffee shop industry is relatively low for small businesses, because
many entrepreneurs can open coffee shops without the need of searching for franchise.

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However, these small stores cannot compete with larger franchise stores for the fact their
expansion is too slow comparing to the leading players in this industry.

Nevertheless, the barriers to entry for larger coffee shops is high; due to high concentration in
this industry and the key companies have invested too much to gain market shares, so new
entrants need to have huge investment to ensure there establishment in this market.

3. Bargaining power of suppliers:

The power of suppliers is moderate because they depend on the volatile prices of raw materials;
the coffee beans are basically high due to the presence of multiple actors; suppliers cannot sell
coffee beans directly from its origin, generally the raw material passes from different suppliers
so each one try to add the margin price. Suppliers tend to have issues with the quality of their
products because the coffee shop stores are very selective to keep their offer at high level of
quality.

4. Bargaining power of customers:

The bargaining power of buyers is high due to their needs that are influenced by the word of
mouth, buyers need premium coffee with high quality and a store with good atmosphere.
Customers are become aware about their health and they need a product that satisfies there
needs and health at the same time. However, the buyers are interested in new offers and they
are prepared to try anything special and new that distinct them from others, they are also
influenced by budget constraints that direct their way of spending or choosing from the offers
provided by these companies.

5. Substitute products:

The power of substitute products is very strong, because buyers tend to search for alternatives
even if the coffee shops tries to offer new and special products. Customers are sometimes driven
to buy juices, sodas or other fresh drinks.

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 iv. Strategic group map:

This strategic group map analysis show the leading players of the coffee shops industry; the
companies that have the same characteristics hold the same strategic position.

This strategic group map contains two variables, the brand personality: is how the brand is
perceived by customers and how they see the brand, the geographic coverage defines if the
strategic group is operating in the regional, national or global level. We chose to position the
main 4 companies in the U.S at the global level with a strong brand personality, which is not
the case for the other brands because it needs huge investment in marketing to achieve the
success of the top ones.

Strong
Starbucks
Dunkin
KDD
McCafé
Brand Personality

Blue Bottle
Verve
Roasters
Collectivo
BLUE SAIL
COFFEE
COFFEE HOUSE
29
DOWNTOWN
Weak CREDO

Regional* National* Global

Geographic coverage
*U.S

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 v. Conclusion
1. Key Success Factors

Product and service innovation: offering original and creative products is a success factor,
companies are enhancing the customer experience in order to guarantee its loyalty to the brand.
So offering innovative products will make customers motivated to buy again and again the
product, and providing a good customer service will keep them attracted to spend more.

Quality: customers buying from premium coffee shops generally need to pay for products that
worth the high price. Companies should improve continuously the quality of their products
because they have a category of client that are very selective so they should consider this factor.
The quality can be improved by selecting the best of coffee beans and also by using high
technology equipment to make firstly a high-quality coffee and secondly to optimize the time
in order to delivering orders to customer at a short period of time.

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 II. Internal analysis
a. Company profile

According to Bloomberg, Dunkin’ Donuts it’s a chain of coffee shops that offers hot and cold
coffee, backed goods and ice cream all over the globe. The company is founded in 1960. The
mission of the company is to provide delicious beverages & backed goods in a relaxed and
friendly environment that inures high quality products. The vision of the company is to be the
desired place for great coffee beverages and delicious complementary donuts and bakery
products to enjoy with family and friends.

b. Financial Analysis
i. Table of income (In million dollars)

Period in years
2011 2012 2013 2014 2015
Net Income 34 108 147 176 105
Income Index Gross Profit 491 514 558 589 650
Revenue 628 658 714 749 811

Evolution of income, gross profit and revenue from 2011 to 2015

3500

3000

2500

2000

1500

1000

500

0
2011 2012 2013 2014 2015
Period in years

Total Liabilities #REF! Total Liabilities

The gross profit and revenue of Dunkin’ Donuts was growing continuously from 2011 to 2015,
whereas the net income of the company was growing from 2011 to 2014 to start decreasing
from this year to 2015.

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 ii. Table of assets (In million dollars)

Period in years
2011 2012 2013 2014 2015
Cash and short term in-
Assets Index vest 247 253 257 208 332
Totatl assets 3224 3218 3235 3124 3197

Evolution of assests from 2011 to 2015

350 3260
300 3240
3220
250 3200
200 3180
3160
150 3140
100 3120
3100
50 3080
0 3060
2011 2012 2013 2014 2015
Period in years

Total Liabilities Total Liabilities

We conclude that the cash and short-term investment stay stagnated during the period from
2011 to 2014, from the year 2014 the ratio decreased to 208 million dollars and increased then
in 2015 to reach 332 million dollars.

iii. Table of returns ratios (In billion dollars)

2011 2012 2013 2014 2015

ROI 0,53 0,88 1,12 1,3 1,4
ROA 0,09 0,32 0,53 0,65 0,64
ROE 0,09 2,21 0,53 0,65 0,64

Evolution of ROI, ROA and ROE from 2011 to 2015

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2011 2012 2013 2014 2015

ROI ROA ROE

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The ratios of return on investment (ROI) and return on assets (ROA) has been in continuous
evolution from 2011 to 2015, whereas the ration return on equity was volatile by increasing
dramatically from 2011 to 2012, and decreased from this year to 2013 to star increasing again
from this year to 2015 and reach 0.64 billion dollars.

c. Value chain analysis (VCA)

At this level, we will analyze how the processes are within Dunkin’ Donuts, by defining how
the different activities and operations are managed.

i. Primary activities:

Outbound logistics:

Customer purchase Dunkin products from company’s’ stores and licensed ones. They can also
buy some product online and be delivered directly to their location. Dunkin open their stores in
prestigious areas and also, they sell a limited type of product into supermarkets.

Marketing and sales:

The company uses several communication channels to promote its brand, such social media and
street marketing. The high competition pushed the company to invest heavily on marketing,
investment at this level reached 251 million dollars in 2013 according to Bloomberg.

Services:

One of the most important activity is to provide a good customer service, it keeps customers
attached to the brand. So Dunkin’ Donuts insures a high quality of service to keep it competitive
in the market.

ii. Support activities

Technology and development

Dunkin’ Brands Group makes huge investment to keep its equipment at a high level of
technology, because improving it will improve also the quality of service therefor the quality
of the final product.

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Firm infrastructure:

Strategic management is the key to achieve long term objectives, that’s why the firm tries to
open new stores wisely by focusing in opening them in capital cities; which is the case for
Brazil; the company opened a store in Brazilia then they moved to the surroundings.

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13 | P a g e
 d. Competitive strengths rating:

Costa
Dunkin’ Brands Group Starbuck McCafé KDD
Coffee
Relative market
Strengt Weighted
share Weig S. W.S.
h strength W.S.R S.R W.S.R S.R W.S.R S.R
ht R R
Rating rating

Costs relative to
0,10 7 0,7 5 0,5 6 0,6 5 0,5 6 0,6
competitors
Ability to match
rivals on key
0,15 5 0,75 8 1,2 5 0,75 8 1,2 8 1,2
product
attributes
Bargaining
0,10 4 0,4 7 0,7 2 0,2 7 0,7 7 0,7
leverage
Strategic fit
0,10 7 0,7 6 0,6 5 0,5 8 0,8 8 0,8
relationship
Technology and
innovation 0,20 8 1,6 7 1,4 8 1,6 7 1,4 5 1
capabilities
How well
resources match 0,15 5 0,75 8 1,2 8 1,2 7 1,05 5 0,75
KSFs
Degree of profit
0,20 7 1,4 9 1,8 8 1,6 8 1,6 7 1,4
relative to rivals
Sum of weights 1,00
Competitive
6,3 7,4 6,45 7,25 6,45
strength rating

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 e. VRIO Analysis

Resource/Capability Valuable Rare Imitable Organized

Investment in Technology
YES NO NO ✔

Products innovation and

originality YES YES NO ✔

Customer Loyalty
YES NO YES ✔

Location
YES YES NO ✔

i. Core competencies

Investment in technology: This resource will give to Dunkin’ brands group a competitive
parity. Because many companies invest in technology and the company can’t be unique at this
level.

Products innovation and originality: this is a competitive parity for the fact that the company
has the possibility to find new concepts to provide it to its customers. They can improve their
products in way competitors cannot do and imitate.

Customers loyalty: every competitor can provide incentives to keep customer loyal to the
brand sot this competency it’s a competitive parity.

Location: this resource provides a temporary competitive advantage for the fact that the
company can open its stores in certain locations that can not be reached by it competitors.

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 f. Strategy formulation: TOWS matrix and SWOT combined

Strengths (S): Weaknesses (W) :

Internal Factors
1) Strong marketing strategy
2) Ability to keep customers
interested to the brand
External Factors
3) Strong market share
4) Competitive prices
1) Limited stores comparing to
other rivals
2) High calorie food and
beverages
3) No full control on other
franchises

Opportunity (O) S-O Strategies W-O Strategies

1) Expand its operation in the
western and Asian markets
2) Include healthy products to gain
market share and increase sales
• (S1, O2): Capitalizing healthy • (W1, O1): Opening stores in the
products and using marketing to Asian market.
promote the new products.

• (S4, O2): power of purchase in

Asian market is low so expanding
in this region will help to make
profit because Dunkin has low
cost strategy.

Threats (T) S-T Strategies W-T Strategies

1) Risk of market saturation. • (S2,T2): Developing the ability • (W2,T3): Developing products
2) Weak barriers to entry
3) Cost of raw materials of keeping customers interests on that don’t have high costs of raw
4) Rent fees are increasing the brand to stay protected from materials and healthy at the same
new entrants and guartantee time.
Dunkin customers to not switch to
thye other new store.

16 | P a g e
 g. Competitive advantage:

Brand image: Dunkin brands are well known and have a good notoriety within the market, this
competitive advantage is acquired by providing high quality products and also by providing a
good customer service which keeps customers loyal to the brand.

Shops Location: Customers prefer coffee shops that are not far and need a prestigious place,
so Dunkin open their stores in suitable places and strategic ones to insure high level of visits.

III. Challenge & Problem Identification:

How can Dunkin Brands Group will increase its global market share?

1- Use social media promote the brand

2- Call for investors to open new stores in Africa and Asia
3- Create new original products to stay distinct from rivals

1- Choice of Alternatives

Use of technology
Enhance customer
Improve brand within stores to
Criteria experience within
awareness reduce order
the shops
preparation time
Investment 5 3 5
Return 5 5 4
Time to implement 3 4 5
Market penetration 4 2 5
Total Score 17/20 14/20 19/20

2- Implementation:

By introducing technology into the stores, the queue time will be reduced; the company should
provide training to customers to adapt to this new technology. Customers will have the
possibility to order and pay from there seat without staying in front of the door to order.

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