In our endeavor to find a suitable brand which would suit the criteria set, the group decided from the outset that it had to be a brand associated with the food and beverage industry. We then next searched for a brand in a growing market and a country which had a growing demand for the said product. This narrowed our choice down to the coffee range of Dunkin Donuts and the United Kingdom.
In the report, we have tried to evaluate and analyze the various factors which we think would aptly explain and support the reasons for our decision and help to give a brief overview of the market attractiveness and the entry modes for the same.
The brand Dunkin’ Donuts is a coffee and doughnut franchise under the ownership and control by parent company Dunkin’ Brands. Dunkin’ Donuts was founded in Quincy, Massachusetts by Bill Rosenberg in 1950 and ever since it has been a staple of the snack food and beverage sector in the geographic region.
Today, Dunkin’ Donuts dominates the snack food sector and is making its mark on the coffee house sector not only in the U. S. , but across 30 countries world over (www. dunkindonuts. com). Dunkin’ Donuts is the world’s biggest coffee and baked goods chain, with more than 3 million customers daily. At the end of 2007, there were 7,988 Dunkin’ Donuts stores worldwide, including 5,769 franchised restaurants in the U. S. and 2,219 internationally. Dunkin Donuts generated annual sales of $ 5. 3 billion in 2007. 1] In the span of the last decade, Dunkin’ Donuts has produced a quality line of coffee blends and espresso drinks that have led to it achieving the number one spot in the US in coffee-by-the-cup sales (Bright Agency. 2006).
Market Size The UK market 3 major brands with a strong level of competition amongst them. There is a growing demand for this market and also non-existent switching costs. This makes it easier for a new entrant to capture customers of competitors. Research has shown the U. K coffee market will nearly double in size in the next 10 years.
Branded coffee outlets number more than 3000 with annual sales of ? 1. 3 billion. According to Allegra Strategies Consultancy, the market has seen an annual increase of 15 % in the last decade and will further grow to 6000 outlets with a turnover of ? 2. 5 billion pounds in the next decade. This shows that the market is still in the growth phase of the life cycle. The same survey also claimed that about 11 million people go to a coffee shop once a week and according to figures from Euro Monitor surveys, the average UK citizen consumes up to 2. kg of coffee an year which translates to about 300 cups per year. Taken as a nation wide average, this figure is quite a large one. Hence there is a demand that can be effectively served by Dunkin Donuts. According to (Euromonitor, 2008), in the coffee market of UK, the sales of coffee has gradually increased from 48, 475 tones in 2002 to 52, 983. 4 tones in 2007 (an increase of around 10%). For the coffee shops, 37,152. 3 tones of sale volume in instant coffee sectors are the most attractive factor to consider, in terms of further market share. This rising and great demand is expected to support the growth of coffee retail volume. (Table 1, refer appendices)
The coffee house sector has become one of the largest growing in food service. The competition does not just start and end with nationalized coffee house chains, but also includes the smaller local coffee house businesses. On launching in the U. K. market, Dunkin’ Donuts would receive most competition from the already established coffee house brands such as Starbucks, Costa Coffee, Caffe Nero, Puccino’s and Coffee Republic (Table 2, refer appendices).
For Dunkin Donuts’ international market sales, they mainly focus on low-income consumers, and its major products (coffee, donuts) are affordable for UK’s consumers. Looking at the following data, the annual expenditure on coffee proves a strong purchasing power on coffee products. Based on this data, it is significant for DD to note that the expenditure on the coffee, tea and cocoa in the UK grew by 27. 7% from 1995 to 2007 (Euro Monitor, 2008) (Table 3, refer appendices).
For the assessment of coffee market attractiveness, coffee consumption is anther crucial criteria applied in this report.
By exploring the available statistic of some targeting countries coffee consumption, it is notable that in the volume of hot drink consumption, the coffee is much more wide and common across UK consumer markets. As the growing penetration of coffee contributes to coffee shop sales, UK has one of the widest consumer bases in the world (3059 bags of coffee beans in 2006). In other words, the person per year in UK consumes approximately 2. 2 kg coffee beans, which means almost one cup of coffee per day for British people on average (International Coffee Organization, 2007).
Among these consumers, the potential customers who are keen to experience the specialist coffee shops in retail outlets will be particularly targeted by Dunkin Donuts. This trend is continuing to influence the rising of coffee consumption, although the economic crisis and exporting pattern have been driving the coffee price up (Table 4, refer appendices). (Euro Monitor, 2008) 3. 5 Rate of Growth The forecast sale is viewed as an indicator of growing market volume, which is anticipated to be improving from 2007 to 2012. Regarding the chained specialist coffee shops, such as the Costa and Starbucks, the forecast sales are ? ,336. 4 million in 2012. As the Dunkin Donuts business model is considered as chained cafes, so the forecast sales in cafes/bars sectors in table 4 shows the coffee, as well as the products package in cafes, are still at an early stage, which is underpinned by great potential, increasing market size, and growing revenue from investment. As long as Dunkin Donuts establish its own presence in UK market, the chained cafes sales in coffee and other package food will have a potential additional sales contributed by Dunkin Donuts, because the gaps in market such as distribution, usage, product line would never be fulfilled.
In other words, this current volume and great value in the following years indicate the potential additional sales could be generated by a new entrant. (Euro Monitor, 2008) (Table 1, refer appendices). Finally a country analysis of United Kingdom against another European market in which the brand is not present, Finland, has revealed the advantages of entering the U. K market (Table 5, refer appendices). SWOT Strengths The brand is globally recognized as a high quality coffee provider for the past 50 years. It has a well oiled franchise setup which lets it hit the ground running.
The financial resources of the company let it price cut and out spend its competitors in advertising. Weaknesses A new market and high level of competition will test the brand initially. A past failure might make new franchise partners hesitant. The brand will find it difficult to move up market due to its no frills image. Opportunities Though highly competitive, the U. K market is growing which creates space for a new comer. Increasingly hectic lifestyles promote the kind of service provided by Dunkin Donuts. The breakfast range of the brand complements its coffee and provides their customers with a complete package.
Threats Other brands (Starbucks) have started emulating the breakfast range of the company (though not to such a great extent). The European palate for coffee is much more refined than the American one and the brand will need to adjust to the same. Increasing health consciousness might move consumers away from fast food and coffee.
Product The product range would be the same as available at existing outlets and franchises of Dunkin Donuts but main focus would be the coffee as in USA Dunkin Donuts has a leading position and beat Starbucks in a blind taste test coffee survey.
The 2 options for Dunkin Donuts to pursue in their pricing strategy: Price Skimming v/s Price Penetration. There are 2 factors which argue for the latter strategy. Coffee is not a luxury brand which lends itself to the skimming strategy (unless you count gourmet coffee which is not the case here). Also the coffee industry in the U. K is in the latter stages of the growth phase in the life cycle curve. This makes it nigh impossible for a newcomer to introduce a skimming strategy. The second factor is the fact that Dunkin Donuts positions and targets consumers in the middle class, working professionals and students.
These target segments are relatively price sensitive and there is a good chance of switching over consumers from competitors due to lower prices. Hence we recommend a price penetration strategy. Declining prices of coffee beans will also help drive down costs which can be passed on to consumers.
Place Placement is very important and crucial as far as the coffee and bakery business is concerned. Though there potential in UK market for coffee but at the same time, there is already a great competition in the UK market and all the competitors are having their outlets and franchises on the main locations.
So while introducing Dunkin Donuts in the UK market the location of outlets and franchises would be central so that customers can have easy approach and access to the Dunkin Donuts shops.
One of the most successful promotional activities carried out for Dunkin Donuts was by The Bright Agency in the U. S. A look at their promotion strategy convinced us that a replication of the same could provide beneficial aspects far outweighing the costs involved (considering the fact that Dunkin Donuts has the financial resources to undertake a media blitz).
Reproduced below are the salient features of the campaign which are easily transferable to the U. K. The Dunkin’ campaign will rely heavily on a nationalized television, radio, newspaper, and outdoor advertising plan. Ads will be placed on products geared towards our target market. The focus of the ads will be to create awareness of Dunkin’ Donuts, with special focus to their coffee line. The brand should stand out from other coffee house and snack food chains. Messages that express practicality, quality, speed, and good service should be conveyed.
We wish to give coffee drinkers a practical place to get a snack and coffee that doesn’t have all the bells and whistles of the leading coffee competitor, Starbucks.
The main market segment would be the regular coffee drinker in the UK. But again talking about the competitors like Starbucks and other well known coffee shops, it is important to segment the market according to different classes and keeping in mind the spending habits of UK customers. Surveys conducted by the company in the U. S shows that people in the age group of 18-45 are its most regular patrons.
A high purchasing power and market size leads us to target the same segment in the U. K. To some extent Psychographic segmentation would be helpful, as having coffee or tea from some branded and well known coffee shop is loved by those people who see themselves as young, enthusiastic, impulsive and who seek variety and excitement.
The main target market is those who are drink coffee regularly and want a quick and efficient service. This translates to students and working professionals who need a quick breakfast and coffee before school/work.
The Primary target customers will be
- Middle Class
- Working Professionals
- Students Secondary Target Market
- Businesses and Firms
Internationally, Dunkin Donuts products have always been seen in a positive light. An emphasis on product quality, variety and a friendly environment sets their products apart. Offering a quality product at competitive prices will help increase sales and attract customers from their competitors. Image Differentiation The product will be positioned through a totally new, refreshing, energetic and enthusiastic way.
As mentioned that Dunkin Donuts coffee beat Starbucks coffee in a survey in USA, which will be emphasized in our approach to the U. K market. Dunkin Donuts is more famous because of its donuts but as the company is successful in developing a good image in the consumer’s mind for coffee so this image differentiation would be very helpful and also the Dunkin Donut coffee is an add on the other specialties of the company like donuts and other bakery items. Image differentiation will help Dunkin Donuts to establish the product’s character and value proposition in a distinctive way
We recommend that Dunkin Donuts should go for “business format franchising” as an entry mode The ITA (1987, 3) defines it as “characterized by an ongoing relationship between a franchisor and a franchisee that includes not only the product, service and trademark, but the entire business format – a marketing strategy, business plan, operational manuals and standards, quality control, and continuing 2-way communication” (Welch, Benito & Petersen, 2007). Given below are some of the reasons for our suggestions: Dunkin Donuts already practices a highly successful franchising operating model worldwide.
This experience will allow Dunkin Donuts to easily setup a franchising operation in the U. K. Franchising allows it to retain control over the most vital aspects of the business while freeing itself from day to day operations. As a new entrant the brand will need maximum exposure in minimum time. This can be achieved through this entry mode. The 2007 NatWest/BFA Franchise Survey stated that in 2006 the franchising industry grew at twice the rate of the entire U. K economy. Annual sales of the business format franchise sector amount to ? 10. 8 billion. This represents a growth of around 100% from 1984.
A 3% increase in overall franchises in just 2006 shows the continuing growth of this sector which continued a 44% increase in the past decade. The survey showed 77% of independent franchisors, 14% on a master licensee basis and 9% prefer being a subsidiary. 93% of the respondents were in the green (compared with 70% in 1991 and 88% in 2004). This shows the increasing profitability of this entry mode. Respondents as a whole were optimistic about their model with 82% of franchisors and 56% of franchisees forecasting increase in their sales. (http://www. franchiseek. com/). Production, supply and distribution
In the UK market production, supply and distribution for Dunkin Donuts franchises will principally be managed by home franchise partners, which lean to be big and better-capitalized than the average UK franchisee. According to Euromonitor (2008), in both the US and away, franchising coffee shops is a key part of the chain’s strategy, mainly in new markets, permitting for smaller stores and better outlet strength. In newer markets, fundamental manufacturing amenities are mostly run by the company, whereas in more stable markets they are likely to be handled by the local franchisees.
In conclusion, our analysis shows that it makes sound business sense for Dunkin Donuts to expand into the U. K market through franchising.
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- 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)
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