Introduction
The group’s goal was to find a brand that met specific requirements. It needed to be connected to the food and beverage sector and be in a thriving market within a country with high demand for the product. Consequently, our search centered on Dunkin Donuts’ coffee selection in the United Kingdom.
We have conducted an assessment and analysis in the report to effectively justify and substantiate our decision. Additionally, we aim to provide an overview of market attractiveness and entry modes.
Company Overview
Dunkin’ Donuts, which is a coffee and doughnut franchise, belongs to parent company Dunkin’ Brands. It was established in 1950 by Bill Rosenberg in Quincy, Massachusetts and has played a significant role in the snack food and beverage industry of the region.
Dunkin’ Donuts, a well-known name in the snack food and coffee house industries, has a strong presence in 30 countries around the world. It is highly regarded as the top chain for coffee and baked goods, serving an impressive number of over 3 million customers on a daily basis. By the end of 2007, there were a total of 7,988 Dunkin’ Donuts stores worldwide – with 5,769 being franchised locations within the U.S., and the remaining 2,219 spread across international markets. In that particular year alone, Dunkin’ Donuts managed to generate an impressive $5.3 billion in sales revenue [1]. Over the past decade or so, Dunkin’ Donuts has gained significant acclaim for its exceptional coffee blends and espresso beverages. This accomplishment has allowed them to establish themselves as the leading provider of coffee by the cup within the United States (Bright Agency, 2006).
Attractiveness Assessment
Market Size: In the UK market, there are three major brands that face strong competition. There is a growing demand for this market and a lack of switching costs. This facilitates new entrants in capturing customers from their competitors. Research indicates that the UK coffee market is expected to almost double in size over the next decade.
According to Allegra Strategies Consultancy, the UK currently has more than 3000 branded coffee outlets that generate £1.3 billion in annual sales. Over the past decade, the market has been steadily growing at a rate of 15% per year and is expected to continue expanding. It is projected that there will be 6000 outlets and a turnover of £2.5 billion in the next decade, indicating ongoing growth in the coffee market.
A recent survey reveals that around 11 million people visit a coffee shop once a week in the UK. On average, each person consumes about 2. kg of coffee per year, which amounts to approximately 300 cups annually. These numbers indicate a significant demand for Dunkin Donuts to cater to.
Coffee sales in the UK have consistently risen over time. In 2002, total sales amounted to 48,475 tonnes and increased to 52,983.4 tonnes by 2007 – reflecting a growth rate of roughly10%. This growth was particularly notable in the instant coffee sector.
Considering this increasing demand and consumption patterns within the UK market (as shown in Table 1 found in the appendices), it is evident that Dunkin Donuts has ample opportunity to expand its presence and retail volume within this industry segment.
Competition
The coffee house industry is experiencing rapid growth in the food service sector. This competition extends beyond national coffee house chains to include smaller local businesses. Should Dunkin’ Donuts enter the U.K. market, it would face strong competition from well-established coffee house brands like Starbucks, Costa Coffee, Caffe Nero, Puccino’s, and Coffee Republic (Table 2, refer appendices).
Consumer Expenditure
For Dunkin Donuts’ international market sales, they primarily target low-income consumers. Their main products, coffee and donuts, are affordable for consumers in the UK. The data provided shows that the annual expenditure on coffee indicates a strong purchasing power for coffee products. It is important for DD to take note of this data, as it reveals that the expenditure on coffee, tea, and cocoa in the UK increased by 27.7% from 1995 to 2007 (Euro Monitor, 2008) (Table 3, refer appendices).
Coffee Consumption
The coffee market’s attractiveness is evaluated by considering the consumption of coffee, as stated in this report.
Based on an analysis of coffee consumption data in different target countries, it is evident that coffee is greatly preferred and extensively consumed in the UK consumer market. The growing popularity of coffee has resulted in a substantial increase in sales at coffee shops, establishing the UK as one of the largest consumer bases worldwide. In 2006, the UK consumed a total of 3059 bags of coffee beans, which corresponds to approximately 2.2 kg of coffee per capita annually. On average, this amount is equivalent to consuming around one cup of coffee per day for each person residing in Britain (International Coffee Organization, 2007).
Dunkin Donuts will target potential customers interested in trying specialty coffee from retail outlets, despite the economic crisis and rising coffee prices (Euro Monitor, 2008). The forecasted sales indicate a growing market volume, especially for chained specialist coffee shops like Costa and Starbucks. Dunkin Donuts operates as a chained café and the forecasted sales in cafes/bars sector suggest great potential for growth, larger market size, and increased revenue. If Dunkin Donuts enters the UK market, it can further boost sales of coffee and packaged food in chained cafes by fulfilling gaps in distribution, usage, and product line.
In other words, the current volume and great value of the brand indicate the potential for additional sales by a new entrant (Euro Monitor, 2008) (Table 1, refer appendices). Furthermore, a country analysis comparing the United Kingdom and Finland, where the brand is not present, has shown the advantages of entering the U.K market (Table 5, refer appendices).
SWOT Strengths The brand has been globally recognized as a high quality coffee provider for the past 50 years. It also boasts a well-established franchise setup, allowing for a smooth start in the market.
Despite having ample financial resources that allow for lower prices and extensive advertising, the company faces various challenges in a highly competitive new market. The brand’s previous failures may cause potential franchise partners to hesitate. Furthermore, their no-frills image makes it challenging to expand into higher-end markets. However, there are still opportunities for growth: the U.K market is expanding, leaving room for a new competitor. Additionally, Dunkin Donuts’ quick service aligns well with consumers’ increasingly busy lifestyles. Lastly, their breakfast range complements their coffee offerings and provides customers with a comprehensive package.
Other brands (Starbucks) have begun to imitate the company’s breakfast options, although not to the same extent. The European preference for coffee is more sophisticated than the American preference, requiring the brand to adapt accordingly. The growing concern for health may lead consumers to shift their focus away from fast food and coffee.
Market Mix
The product assortment at the new Dunkin Donuts location will be identical to that found at their current outlets and franchises. However, the primary emphasis will be on their coffee selection, as Dunkin Donuts holds a dominant position in the United States and even surpassed Starbucks in a blind taste test survey specifically focused on coffee.
Price
The pricing strategy options available for Dunkin Donuts are Price Skimming and Price Penetration. The more suitable option is Price Penetration due to two reasons. Firstly, coffee, excluding gourmet coffee which is irrelevant here, is not considered a luxury brand. Additionally, the coffee industry in the U.K. is currently in the later stages of growth on the life cycle curve, making it challenging for a newcomer to implement a skimming strategy. The second reason is that Dunkin Donuts focuses on middle class consumers, working professionals, and students.
The target segments considered in this analysis are price sensitive and have a strong likelihood of switching from competitors if prices are lower. Therefore, we advise implementing a price penetration strategy. In addition, the decreasing prices of coffee beans[2] will further decrease costs and allow for price reductions to be passed on to consumers.
Placement is extremely important for the coffee and bakery business in the UK market due to both its potential and existing competition. All competitors currently have their outlets and franchises strategically located in main areas.
When introducing Dunkin Donuts to the UK market, it is important to centrally locate the outlets and franchises. This will ensure that customers can easily find and access the Dunkin Donuts shops.
Promotion
One of the most successful promotional activities done for Dunkin Donuts was by The Bright Agency in the U.S. After examining their promotion strategy, we believed that replicating it would result in more benefits than costs (especially since Dunkin Donuts has the financial resources for a media blitz).
Below are the key elements of the campaign that can be easily customized for the U.K. The Dunkin’ campaign will heavily depend on a comprehensive advertising strategy, including national television, radio, newspapers, and outdoor platforms. Advertisements will appear on products designed for our target audience. The main aim of the ads is to create awareness for Dunkin’ Donuts, with a specific emphasis on their coffee offerings. We intend to differentiate our brand from competitors in the coffee house and snack food industry by communicating messages about practicality, quality, efficiency, and exceptional customer service.
Our objective is to provide a hassle-free and convenient space for coffee enthusiasts to savor a snack along with their cup of coffee. We strive to distinguish ourselves from Starbucks by offering a more efficient and straightforward experience, devoid of any unnecessary embellishments.
Market Segmentation
The main focus is on regular coffee drinkers in the UK, although it’s important to analyze the market segments and spending habits of UK customers when compared to competitors like Starbucks and other popular coffee shops. The company’s surveys in the U.S. reveal that individuals between 18-45 years old are their most frequent customers.
Due to a large consumer base and strong purchasing power, we are focusing on the same segment in the U.K. Psychographic segmentation would be beneficial, as individuals who consider themselves young, enthusiastic, impulsive, and seeking variety and excitement tend to enjoy consuming coffee or tea from well-known coffee shops.
Target Market
The primary demographic for the service is individuals who consume coffee on a regular basis and are looking for fast and efficient service. This includes students and working professionals who require a swift breakfast and coffee before heading to school or work.
The Primary target customers will be
- Middle Class
- Working Professionals
- Students Secondary Target Market
- Businesses and Firms
- Catering
Product Positioning
Internationally, Dunkin Donuts is known for its commitment to excellence, variety of products, and creating a welcoming environment. This strategy differentiates them from competitors and attracts customers. Their goal is to increase sales by offering high-quality items at competitive prices. Furthermore, the company aims to rejuvenate its brand by showcasing its products with renewed enthusiasm and excitement.
The survey in the USA revealed that Dunkin Donuts coffee outperformed Starbucks coffee. This fact will be highlighted in our strategy for entering the U.K market. While Dunkin Donuts is already well-known for its donuts, it has also successfully built a positive reputation for its coffee among consumers. This differentiation in image will greatly benefit the company, as Dunkin Donut’s coffee complements its other specialties such as donuts and bakery items. Establishing a distinct character and value proposition through image differentiation will assist Dunkin Donuts in standing out from competitors.
Entry Mode
The suggestion is that Dunkin Donuts should adopt the “business format franchising” method as their entry mode. This method involves an ongoing relationship between a franchisor and a franchisee, encompassing not only the product, service, and trademark but also the entire business format – including marketing strategy, business plan, operational manuals, standards, quality control, and continuous two-way communication (ITA, 1987; Welch et al., 2007). We recommend this approach for several reasons: Dunkin Donuts already has a highly successful franchising operating model implemented worldwide.
Dunkin Donuts can easily establish operations in the U.K. by using franchising as an entry mode. This allows the company to maintain control over important aspects of the business while being relieved from day-to-day operations. Franchising is an effective way for Dunkin Donuts, as a new player in the market, to gain maximum exposure quickly. According to the 2007 NatWest/BFA Franchise Survey, the franchising industry in the U.K. experienced double the growth rate of the entire economy in 2006. The annual sales of the business format franchise sector reached ?10.8 billion, which represents a 100% growth since 1984.
A survey conducted by Franchiseek revealed that the franchise sector has witnessed consistent growth, with a 3% increase in overall franchises in 2006. This growth is even more significant when compared to the past decade, which saw a remarkable surge of 44%. The survey further unveiled that independent franchisors accounted for 77% of respondents, while those operating on a master licensee basis constituted 14%, and subsidiary preference was shown by 9%. In terms of profitability, the majority of participants reported positive financial results, with a staggering 93% experiencing profits. This is notably higher than the figures recorded in both 1991 (70%) and 2004 (88%). Such findings indicate an upward trend in profitability within this particular method of entry. Respondents expressed confidence in their business model, as approximately 82% of franchisors and 56% of franchisees predicted sales growth. It is crucial to also take into consideration factors such as production, supply, and distribution.
In the UK market production, supply, and distribution for Dunkin Donuts franchises, home franchise partners will primarily handle these aspects. These partners are typically larger and better-capitalized compared to the average UK franchisee. According to Euromonitor (2008), franchising coffee shops is an important element of the chain’s strategy in both the US and other countries, particularly in new markets. This allows for smaller stores and increased outlet strength. While the company oversees the operation of fundamental manufacturing facilities in newer markets, local franchisees are more likely to handle these facilities in more established markets.
Conclusion
Based on our analysis, it is a wise business decision for Dunkin Donuts to expand into the U.K. market by using franchising.
References
- www. dunkindonuts. com, accessed on 15/11/08. www. dunkinbeatstarbucks. com, accessed on 15/11/08.
- www. starbucks. com, accessed on 21/11/08.
- www. ico. org, accessed on 20/11/08.
- http://www. franchiseek. com/UK/Franchise_UK_Statistics. htm, accessed on 19/11/08.
- Welch, L. S. , Benito, G. R. G and Petersen, B. (2007)
- Foreign Operation Methods: Theory, Analysis, and Strategy. Publication: Edward Elgar Lowe, R and Marriott, S. 2006)
