Dunkin’ Donuts – the birth of a new distribution and franchising concept Ruth A. Schmidt Acting Head of Department, Department of Retailing and Marketing, the Manchester Metropolitan University, Manchester, UK Brenda M. Oldﬁeld Research Assistant in the Department of Retailing and Marketing, the Manchester Metropolitan University, Manchester, UK
Dunkin’ Donuts is a global retailer of coffee and bakery products. The company is 99 per cent franchised and has used the franchising system as a route to market entry and expansion worldwide. The original historic roots of the company are in the USA and despite wide international expansion since the 1970s, the US market continues to serve as a testing ground for innovations prior to international roll-out. Based on observation and key informant interviews with core members of the management team during a visit to Richmond Project in 1994, the case explores the initial phase of the introduction of a central production facility as an innovative route to preeminence in one test market. Strategic and operational issues are discussed, highlighting the differences and efficiency gains of the central production facility cum satellite store approach compared to the traditional stand-alone on-site production approach. Implications for future developments are discussed.
Dunkin’ Donuts is a wholly owned subsidiary of Allied Domecq plc which operates worldwide, making and selling coffee, doughnuts, and other related bakery products. Founded in the USA in 1950, the business started international expansion in 1970, was acquired by Allied Domecq in 1990, and is now the world leading retailer in its ﬁeld. The company mission statement clearly sets out a continued emphasis on growth and market leadership: “Our dream for the future is to be among the world’s most recognized and respected brands. To accomplish this, we are passionately committed to pursuing the following values in every interaction with all those whom our system touches: • trust and integrity; • teamwork; • continuous improvement and learning; • joy . Our mission is to be the pre-eminent retailer of high quality coffee, doughnuts and related bakery, snack, and beverage products in each market in which we compete. In addition, we wish to be pre-eminent retailers in these product categories as measured by total sales versus any of our competitors throughout the USA.” In the USA alone, Dunkin’ Donuts currently generates an annual sales volume of $1.4 billion. Pre-eminence in a local market is deﬁned as 4.5 per cent of consumer expenditure on fast foods and multi-media advertising expenditure to match the cost of 44 weeks’ TV exposure. The number of distribution points needed to achieve this is based on the area population and advertising. Each store contributes 5 per cent of sales revenue to corporate advertising. Currently the national sales average is $10,500-$11,000 per store per week. However, where pre-eminence is achieved, sales can go up to $17,000 per week. Dunkin’ Donuts has already accomplished pre-eminence in some parts of the USA, e.g. the Boston area surrounding the corporate headquarters. The experience of operating in these areas serves as a yardstick to set targets for other areas currently striving for
pre-eminence. A rapidly changing environment and strong competitive pressure from other fast food operators serve to stimulate the corporate management team to strive to be innovative in experimenting with alternatives to organic growth. The aim is to identify and test ways of accelerating the achievement of pre-eminence. Ultimately the goal is to develop those paths which prove successful into new franchise opportunities.
Business format franchising
The Dunkin’ Donuts’ chain is 99 per cent franchised. Each franchised outlet pays 4.9 per cent of total sales revenue to Allied Domecq plc. Traditionally, site selection has always been very much in the hands of the franchisee. The franchisee...
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