TRINITY UNIVERSITY OF ASIA

STRATEGIC AND CRISIS

MANAGEMENT

Submitted by

ELSA GUTIERREZ
MBA Student

Submitted to

PROF. JOJO JAVIER

 DUNKIN’ BRANDS GROUP, INC. – 2015

A. Case Abstract

Headquartered in Canton, Massachusetts, Dunkin’ Brands (Dunkin’)

sells hot and cold coffee and baked goods, as well as hard-serve ice cream,

using a near-100 percent franchised business model. With 11,300 Dunkin’

Donuts restaurants in 40 states and 32 foreign countries, and 7,500 Baskin-

Robins restaurants in 43 states and 46 foreign countries, Dunkin’ is one of the

world’s largest franchisors of quick-service restaurants (QSR). All but 35

Dunkin’ Donuts and Baskin-Robins are franchisee-owned. In the last few years,

more and more customers are coming into Dunkin’ restaurants and spending

more and more money when they are there. About 70 percent of all Dunkin’

stores have a drive thru, which caters to consumers in a hurry. Dunkin’ is a

speed leader among QSR, even given increased ticket volume and menu

complexity.1

Dunkin’ recently launched a loyalty and rewards program that enables

the company to collect data from customers to determine their habits. For

example, if you normally visit Dunkin’ Donuts in the morning, the firm may soon

send you offers to purchase some donuts in the afternoon or evening.

Companies increasingly are using business analytics to make strategic

decisions. Major rival firms in the coffee retailing business include Starbucks,

Krispy Kreme Doughnuts, and Tim Hortons. Dunkin’ especially caters to the on-

the-go consumer looking or a quick coffee and breakfast. One potential

weakness for Dunkin’ is that the firm does not offer many healthy food options

for health-conscious customers.

 Coffee prices rose 50 percent in 2014 due to drought conditions in South

America, especially since Brazil endured its worst drought in decades. The

2014 coffee harvest in Brazil was the lowest in three years. To take up the slack,

Colombia, the world’s number-two Arabica grower, was increasing production,

but Colombia only produces about one quarter as much coffee as Brazil.

Dunkin’ Brands is performing quite well. In mid-2015, Dunkin’

announced agreements with seven franchise groups to open 51 new

restaurants in Virginia and West Virginia over the next several years. Of the

seven groups, only one is a new franchisee while the rest are existing

franchisees/franchise groups. For Q1 of 2015, the company’s revenues

increased 8.1 percent year-over-year to $185.9 million, driven partly by revenue

from the Dunkin’ K-Cup pack licensing agreement with Keurig Green

Mountains, Inc.

Dunkin’ Brands reported slower sales growth slow in Q4 of 2014 as it

faced intensifying competition for on-the-go customers in the mornings. Sales

for Dunkin’ Donuts USA edged up 1.4 percent in the period, down from the

growth of 3.5 percent a year ago. Analysts say the slowdown comes as more

competitors have pushed into the breakfast category, a relative bright spot in

the fast-food industry. For example, Yum Brands’ Taco Bell segment recently

reported that its quarterly sales rose 7 percent in its U.S. locations, boosted by

its national breakfast launch. Dunkin’ CEO Nigel Travis says, “If you think about

it, everyone’s getting into the breakfast space”.

Rival Burger King provides breakfast and coffee to millions of customers

through thousands of restaurant located near Dunkin’ Donuts restaurants. Now,

in addition, Burger King owns Tim Hortons, and looks to put those restaurants

near Dunkin’ Donuts restaurants, especially in the northeastern United States.

With these at hand, it is challenging to see what’s in store for the brands

under the company’s umbrella. Challenging because of the fast-pace growth of

competitors, yet throughout this study, the vast opportunities of Dunkin’ Brands

have been explored coupled with projections and recommendations that will be

useful in setting the foundation of future corporate growth.

B. Vision Statement

(actual)

Serving Responsibly – To be recognized as a company that responsibly

serves our guests, franchisees, employees, communities, business partners

and the interests of our planet.

(proposed)

To become a holistic and inclusive company that builds stronger and

lasting relationships within and beyond the Dunkin’ brand.

C. Mission Statement

(actual)

Our People: From our employees and franchisees to the farmers who

grow our coffee, we believe in treating everyone with respect and fairness so

they are empowered to reach their goals.

Our Guests: We are passionate about offering our guests delicious

products they will enjoy, giving them plenty of menu options, and providing

accurate nutrition information so they can make the best choices for

themselves.
 Our Neighborhoods: We are dedicated to serving the basic needs of

our local communities – from providing food for the hungry and support for

children’s health and wellness, to ensuring our neighborhoods are safe and

secure.

Our Planet: We recognize that everything we do has an impact on the

environment. From the materials we use, to the way we construct and operate

our stores, we are committed to adopting better, more sustainable approaches

whenever possible.

(proposal)

To be a forefront runner in serving the best food products that anyone

deserves. To be the first thing that comes into the mind of the customers when

they think about breakfast. To consistently provide our customers with

impeccable service by demonstrating warmth, graciousness, efficiency,

knowledge, professionalism and integrity in our work. To have every customer

who comes through our doors leave impressed by our service and excited to

come back again. To create and maintain a restaurant that is comprehensive

and exceptional in its attention to every detail of operation. To provide all who

work with us a friendly, cooperative and rewarding environment which

encourages long- term, satisfying, growth employment.

D. External Audit

Opportunities

1. The market development will lead to dilution of competitor’s advantage and

enable Dunkin’ Brands Group, Inc. to increase its competitiveness as compared

to others.
2. New trends in the consumer behavior can open up new market for the

Dunkin’ Brands Group, Inc. It provides a great opportunity for the organization

to build new revenue streams and diversify into new product categories too.

3. Over the past few years the company has opened new sales channel for

Dunkin’ Brands Group, Inc.2 In the next few years the company can leverage

this opportunity by knowing its customers better and serving their needs using

big data analytics.

4. Stable free cash flow provides opportunities to invest in adjacent product

segments. With more cash in bank the company can invest in new technologies

as well as in new product segments.

5. The new technology provides an opportunity to Dunkin’ Brands Group, Inc.

to practices differentiated pricing strategy in the new market. It will enable the

firm to maintain its loyal customers with great service and lure new customers

through other value oriented propositions.

Threats

1. Increasing trend toward isolationism in the American economy can lead to

similar reaction from other government thus negatively impacting the

international sales.

2. As the company is operating in numerous countries it is exposed to currency

fluctuations especially given the volatile political climate in number of market

across the world.

3. New technologies developed by the competitor or market disruptor could be

a serious threat to the industry in medium to long term future.

4. Stable profitability has increased the number of players in the industry over

the last years which has put downward pressure on not only profitability but also

on overall sales.

5. Changing consumer buying behavior from online channel could be a threat

to the existing physical infrastructure driven supply chain model.

Competitive Profile Matrix

DNKN SBUX KKD MCD PEET

Key Statistics
No. Employees 1,199 149,000 2,670 420,000 811
Market
$ 3.65B $ 43.26B $ 478.04B $100.71B $950.18M
Capitalization
Sales Revenue $ 628.20M $ 12.19B $ 403.19B $ 27.01B $ 371.92 M
Qtrly. Sales Growth 12.50% 16.40% 11.20% 9.80% 10.90%

Profitability
Operating Margin 33.56% 12.98% 6.54% 30.71% 8.41%
Net Profit Margin 5.48% 10.51% 41.24% 20.38% 4.78%
Return on Equity 6.55% 29.03% 102.15% 37.92% 10.15%
Return on
4.14% 13.39% 6.53% 15.96% 9.22%
Assets
Valuation
Price/Sales 5.81 3.55 1.19 3.73 2.55
Price/Book 4.86 9.05 1.92 7.02 5.31
Trailing
41.58 34.38 3.01 18.76 54.14
Price/Earnings
PED Ratio 1.72 1.66 1.06 1.73 1.81

Financial
Current Ratio 1.28 1.96 2.34 1.25 4.24
Total Debt/Equity 3.32 0.64 0.34 1.29 0.21
Debt Ratio 0.46 0.07 0.08 0.38 N/A
Source : Dunkin’ Brands 2011 10-K Annual Report

Dunkin’ (DNKN) is dwarfed by its two largest competitors, Starbucks

(SBUX) and McDonald’s (MCD), in both market capitalization and annual

revenue. Dunkin’s apparently tiny labor force is likely due to its exclusive use

of franchising. The company also competes against smaller boutique coffee

and doughnut shops, including Peet’s Coffee & Tea (PEET) and Krispy Kreme

Doughnuts (KKD). This positions the company near the median in market size

against its direct competitors. Dunkin’s year over year quarterly sales growth

has been strong, though Starbucks leads the firm’s peer group. Dunkin’ boasts
the highest operating margins of any firm in the comparison, indicating the

relative efficiency of its core business operations. The firm’s margin has

remained steady around 34% since 2007, suggesting a consistency in the

company’s operational effectiveness. This is especially important for Dunkin’,

as healthy operating margins are essential for the firm to be able to pay its fixed

costs, namely interest on debt. One reason for the strong margins is the

franchising model. The firm is able to expand its brands with lower capital

requirements since franchisees bear the cost of advertising and new restaurant

development. While the firm compares well in operating margin, it performs

poorly in net margin due to high interest expenses. Dunkin’ also lags far behind

in management effectiveness as measured by returns on assets and equity.

Since ROA (Return on Assets) and ROE (Return on Equity) measure the firm’s

efficiency in converting investment into bottom-line net income, Dunkin’s

interest expenses once again diminish its relative performance. Alternatively,

using operating returns before cost of borrowing (by adding back interest

expenses into net income when calculating) will allow for a financing agnostic

comparison.

Dunkin’s relatively high P/E ratio suggests that investors are looking for

continued growth from the company. These growth expectations for the firm are

likely built on the opportunities for expansion into new markets, especially for

Dunkin’ Donuts in the Western United States.

Price/book suggests that the company trades at a relative discount,

possibly due to its very burdensome liabilities. This is confirmed in the leverage

ratios: Dunkin’ is much more heavily levered than its competitors, claiming both
the highest Debt/Assets and Debt/equity ratio in the peer group. In addition to

its large debt burden, its low current ratio suggests the firm is relatively illiquid.

EFE Matrix

Weighted
Opportunities Weight Rating
Score

1. The market development will lead to dilution of

competitor’s advantage and enable Dunkin’ Brands
0.08 3 0.24
Group, Inc. to increase its competitiveness as compared
to others.

2. New trends in the consumer behavior can open up new

market for the Dunkin’ Brands Group, Inc. It provides a
great opportunity for the organization to build new 0.15 2 0.30
revenue streams and diversify into new product
categories too.

3. Over the past few years the company has opened new
sales channel for Dunkin’ Brands Group, Inc. In the next
few years the company can leverage this opportunity by 0.09 4 0.36
knowing its customers better and serving their needs
using big data analytics

4. Stable free cash flow provides opportunities to invest in

adjacent product segments. With more cash in bank the
0.10 2 0.20
company can invest in new technologies as well as in new
product segments.

5. The new technology provides an opportunity to Dunkin’

Brands Group, Inc. to practices differentiated pricing
strategy in the new market. It will enable the firm to 0.09 4 0.36
maintain its loyal customers with great service and lure
new customers through other value oriented propositions.

Weighted
Threats Weight Rating
Score

1. Increasing trend toward isolationism in the American

economy can lead to similar reaction from other
government thus negatively impacting the international 0.09 3 0.27
sales.

2. As the company is operating in numerous countries it is

exposed to currency fluctuations especially given the
0.10 1 0.10
volatile political climate in number of market across the
world.
 3. New technologies developed by the competitor or
market disruptor could be a serious threat to the industry 0.09 2 0.18
in medium to long term future.

4. Stable profitability has increased the number of players

in the industry over the last years which has put
0.10 3 0.30
downward pressure on not only profitability but also on
overall sales.

5. Changing consumer buying behavior from online

channel could be a threat to the existing physical 0.11 4 0.44
infrastructure driven supply chain model.

TOTAL 1.00 2.75

Dunkin’ Brands Group, Inc. is performing above average in addressing

its external issues with a score of 2.75 on the EFE Matrix. It has established a

global quick service restaurant brand. As a result, it enjoys enormous customer

trust and brand loyalty making it easier for the company to launch new product

lines. Banking on its already established namesake, the company has

undertaken the implementation of a six-part plan to fuel Dunkin' Brands'

strategic growth in the United States and better position itself as a beverage-

led On-the-Go brand. That plan includes building its coffee culture; faster

and improved product innovation; targeted values and smart pricing;

leadership position in digital innovation; improving the restaurant -like

experience; and driving consumer packaged goods and new channels.

E. Internal Audit

Strengths

1. Firm Brand Recognition and Recall – The Dunkin’ Brands, Group is made

up of two trademark brands. Dunkin’ Donuts is widely recognized for its

delicious doughnuts and impeccable service. It also doubles up as a coffee

house. Baskin Robbins is the world’s largest chain of restaurants that

specializes exclusively in ice cream delicacies. Dunkin’ Brands main clientele

are the average everyday breakfast customer. The loyalty their customers

exhibit is what drives the company forward. Both these brands have

successfully carved a niche for themselves in the market and also hold

significant share of mind with the consumers.

2. Remarkable Growth – Over the years, Dunkin’ Brands profits have

quadrupled and their economic standing is looking very optimistic.

3. Product Quality and Trust – In terms of their products, Dunkin’ Donuts

offers a variety of 1,000 doughnuts to their customer. Baskin Robbins offers a

record of 31 flavors of ice creams, making them a crowd favorite in this space.

In addition to this, they have been a brand that has always listened to their

customer feedback.

4. Global Reach and Accessibility – The Company has given due credence

to the place attribute of the marketing mix elements. They are located at places

where customer density is at the maximum. It is common to find them at

International airports and town squares. They also offer drive-in facility at

certain key outlets. Dunkin Brands are established in the leading economic

markets of the world.

5. Unparalleled Convenience – The On-the-Go Mobile Ordering (OTG),

feature for privileged members under DD Perks Program, is highly successful

with an 80 percent retrial rate. Furthermore, digital initiatives in tandem with the

Next Generation concept restaurant has been implemented.

6. Pricing and Promotions Strategy – Dunkin’ Donuts follows a competitive

pricing strategy that has rendered them an edge over other biggies like

Starbucks who are known for their coffee brand. A majority of Dunkin’ Brands
shops operate on the franchise business model. This goes a long way in

reducing their capital expenditures and promotions strategies. This allows their

finance team to concentrate on more futuristic problems such as product

differentiation and identification of potential markets.

7. Franchise Business Model – Dunkin’ Brands operates on a 100% franchise

business model. This lends it a great competitive advantage over its

competitors as the Company is not tied down with overseeing the day-to-day

operations of the restaurants and outlets, it can better focus on menu

innovation, marketing, expanding accessibility, customer tastes, franchisee

coaching and support, and other initiatives to drive the overall success of the

brand. With limited capital investment, this business model permits Dunkin’

Brands to expand their points of distribution and work on brand recognition.

They also generate revenue by charging royalty and fees associated with

franchised restaurants, claiming rent from restaurant properties that Dunkin’

leases or subleases to franchisees and sales of ice cream and other products

to franchisees in certain international markets.

Weaknesses

1. Financial planning is not done properly and efficiently. The current asset ratio

and liquid asset ratios suggest that the company can use the cash more

efficiently than what it is doing at present.

2. There are gaps in the product range sold by the company. This lack of choice

can give a new competitor a foothold in the market.

3. The marketing of the products left a lot to be desired. Even though the

product is a success in terms of sale but its positioning and unique selling
proposition is not clearly defined which can lead to the attacks in this segment

from the competitors.

4. Days inventory is high compare to the competitors – making the company

raise more capital to invest in the channel.

5. Not very good at product demand forecasting leading to higher rate of missed

opportunities compare to its competitors.

6. Political uncertainties in the country where a Dunkin’ brand is

franchised, prove to be a barrier in business, hindering performance at

times and making the business incur unnecessary costs.

7. Constant technological developments require the workforce to be

trained accordingly as the inability to keep up with these changes can

lead to loss of business for Dunkin Brands Group Inc.

IFE Matrix

Weighted
Strengths Weight Rating
Score
1. Firm Brand Recognition and Recall 0.06 4 0.24
2. Remarkable Growth 0.10 4 0.40
3. Product Quality and Trust 0.08 4 0.32
4. Global Reach and Accessibility 0.07 4 0.28
5. Unparalleled Convenience 0.06 4 0.24
6. Pricing and Promotions Strategy 0.05 3 0.15
7. Franchise Business Model 0.09 4 0.36

Weaknesses
1. Financial planning is not done properly and efficiently. 0.09 2 0.18

2. There are gaps in the product range sold by the 0.07 2 0.14
company.

3. The marketing of the products left a lot to be desired. 0.08 2 0.16

4. Days inventory is high compare to the competitors – 0.05 1 0.05

making the company raise more capital to invest in the
channel.
 5. Not very good at product demand forecasting leading to
higher rate of missed opportunities compare to its 0.06 1 0.06
competitors.

6. Political uncertainties in the country where a Dunkin’

brand is franchised, prove to be a barrier in business, 0.09 2 0.18
hindering performance at times and making the business
incur unnecessary costs.

7. Constant technological developments require the

workforce to be trained accordingly as the inability to keep 0.05 2 0.10
up with these changes can lead to loss of business for
Dunkin Brands Group Inc.

Major Weakness (1), Minor Weakness (2), Minor Strength (3), Major Strength (4)
TOTAL 1.00 2.86

Dunkin’ Brands Group, Inc. IFE results are above average which goes

to show that the company is addressing its internal challenges very well and

banks on the internal strengths that it has already honed throughout the entity’s

existence.

F. SWOT Matrix

SO Strategies

 Increase marketing to attract consumers to spend (S1, S3, O2).

 Use its presence on social media for marketing and to attract

customer towards its website (S4, O2, O5).

 Develop environmentally friendly products through innovation, at a

low cost so that they could be sold at a low price (S3, S6, O2).
WO Strategies

 Increase payrolls, provide incentive packages and benefits to

employees to reduce turnover and improve work morale. This

could be possible as costs are low currently. (W1, O4)

 Develop a more solid financial planning and increase efforts to

introduce this to the franchisees. (W1, O4)

ST Strategies

 Use a strong distribution network to reach out to customers and

fight off new entrants into the market (S1, T1).

 Use its strong financial position to invest in intellectual property

rights. This would help compete with increasing competition in the

market (S3, T4).

 Use its innovative teams to find cheaper alternatives to fuel so that

these could be used, thereby reducing costs (S4, O3).

WT Strategies

 Increase spending on research and development to enable Dunkin

Brands Group Inc to better compete with competition (W2, T4).

 Provide incentives, increase engagement, or provide a better work

environment to retain talent. This will ensure that employees don’t

leave and join competitors (W3, T4).

F. Recommendations

1. Develop a streamlined menu. This measure will simplify the restaurant

operations and allow it to reduce employee turnover and unnecessary costs in

the long term. With a streamlined menu, restaurant operations will be simplified

and the company is more likely to achieve its goal of better customer service

and propel its existing strength on having customer’s loyalty and patronage.

2. Touch-base with the On-the-Go mobile ordering platform and partner with

existing apps like Waze so that users can order ahead at any Dunkin’ store thus

enhancing the ease of access to the consumers.

3. Establish stronger relationships with Franchisees. One key element of

Dunkin’ Brands’ growth strategy is its focus on franchisee profitability. As the

company looks at expanding into new regions and growing its number of stores,

franchisee profitability will play a significant role in this expansion.

4. Innovate products and differentiate the brand from its competitors. The

company should start working on removing artificial ingredients from its donuts

to keep up with changing customer preferences. More and more customers are

opting to get products that are eco-friendly or are made out of organic healthy

ingredients. As competition in the quick-service restaurant space intensifies,

the ability to offer new products which meet customer demand is extremely

important.
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