Dunkin': On The Road Again (With Plenty of Dough)
Dunkin' Brands, which was founded in 1950 in Quincy, Mass., and is now is based in Canton, Mass., has been owned since late 2005 by private-equity firms Bain Capital Partners, Carlyle Group and Thomas H. Lee Partners. These money guys didn't purchase the brand as a reliable source of dividends for their partners' memberships in the Jupiter Beach Shuffleboard and Pinochle Club. By September of that year, Fortune's Matthew Boyle could write:
"Who'd have thought a frumpy regional chain from outside Boston -- best known for a somnambulistic TV spokesman mumbling "time to make the doughnuts" -- could be sparking a frenzy in suburban Tennessee?" in a piece that warned that "the company has failed in the past when it tried to expand beyond its home market."
But, CEO Jon Luther told Boyle, "The [Dunkin'] leadership at the time believed this was a great regional brand, but for them the world ended at the Hudson River. They were not prepared to build a national brand."
Luther then explained how its methodical expansion plans included local development teams who assisted franchisees with "all facets of the business." One of the key facets was a fresh emphasis on its cups of Joe, which has a higher profit margin than the doughy stuff. While that baker was rubbing the sleep from his eyes in the later 20th Century, Starbuck's Howard Shultz had taken Dunkin's founder William Rosenberg's discovery that you could charge more than the going rate for a cup of coffee (he got a dime) to new extremes.
Cadging from the brilliant-if-overstated tagline "America Runs on Dunkin'," the Wall Street Journal's Julie Jargon and Lynn Cowan write that the company indeed now "runs on coffee more than doughnuts." NPD data show it sells more servings of hot regular coffee and iced coffee than any other fast-food chain in the U.S. and that coffee and other drinks represent 60% of its U.S. sales, according to the prospectus for the IPO.
Dunkin' hopes to open up to 250 more shops over the next two years, saying it is committed to building out its presence in "less penetrated markets," according to Evelyn M. Rusli in the New York Times.
"Part of the attraction of Dunkin' Donuts is that there is significant opportunity for store openings," D. A. Davidson & Co. analyst Bart Glenn tells Rusli. "Dunkin' has broad customer appeal, and they've done a good job of delivering high-quality coffee."
Long-term plans are far more ambitious: It wants to double the number of outlets in the U.S. -- now about 6,800 -- over the next 20 years, Reuters' Lisa Baertlein reports. Currently, all but about 100 of those shops are in the East. There are also about 3,000 shops overseas. In contrast, Starbuck's has about 11,000 outlets in the U.S. and McDonald's, which has been upgrading its caffeinated brews, has about 14,000 stores.
Brand Keys president and founder Robert Passikoff tells Baertlein that Dunkin' Donuts has ranked No. 1 for customer loyalty and engagement in coffee over the past five years.
The company has something of a working-class persona, particularly compared to the café-cum-workspace atmosphere of Starbucks.
"Known for light-roasted coffee and a downscale grab-and-go ambience ...," writes (smirks?), the Seattle Times' Melissa Allison, who also cites a five-year-old commercial for the brand in writing that it "casts itself as an unpretentious alternative" to the hometown Starbucks:
"'My mouth can't form these words,' a befuddled group of coffee drinkers sang in a 2006 TV commercial for Dunkin' Donuts, which has no stores in Washington. 'Is it French or is it Italian? Perhaps Fritalian.'"
The brand is not unknown in the region, however, thanks to its presence on grocery shelves. "The lines in Boston are long, and the stores are jammed, but it's hard to say how it will catch on in the West," McAdams Wright Ragen research director Dan Geiman tells Allison.
Dave Jenkins, co-founder of CustomersDNA, foresees a price war as Dunkin' outlets step onto Starbucks' turf. Would that it would break out in places where the two already co-exist, seemingly on alternate corners. We'd get out of the home office every once in a while and see how the real people work.