Dunkin' Donuts Shifts Focus From Doughnuts to Drinks
CANTON, Mass. -- Over the past several years, Dunkin' Donuts has seen more “dough” in its beverages, which turned out higher margins than its bakery items.
"We all loved Fred the Baker, but we're a beverage company. It's not going to be time to make the doughnuts anymore," said CFO Paul Carbone, who spoke Tuesday at the Bank of America Consumer & Retail Conference in New York City.
As a result, Dunkin' Donuts has upped its national media attention to beverages. It has changed in-store queues to highlight beverages, including its digital menu boards; trained managers to offer beverage samples in place of doughnuts; and brought beverages to nearby businesses when a new store opens.
The brand's aggressive strategy has been seen in California since 2010, even though the chain won't open its first unit in the state until 2015, reported the news outlet.
The shift to the beverage marketing strategy over the past 10 years has paid off in at least one way -- coffee loyalty.
As CSNews previously reported, Dunkin' Donuts ranked No. 1 in customer loyalty in the coffee category of Brand Keys' annual Customer Loyalty Engagement Index for the seventh straight year. It also ranked No. 1 in customer loyalty in the packaged coffee category.
However, branding Dunkin' Donuts as a beverage destination is not without challenges, especially when it comes to the brand's international expansion. Carbone noted that the brand is still thought of as a doughnut destination, rather than a beverage destination, in most global markets.
In addition to beverage sales, Dunkin' Donuts has gotten a lift from its breakfast sandwiches, "which have margins below beverages and significantly above bakery." Its 12 limited-time offers (LTOs) a year have also helped. So far this year, the brand has launched the Turkey Sausage Breakfast Sandwich in January, the Heart-Shaped Brownie Batter Donuts in February and the Angus Steak Wrap in March.
"We have perfected this strategy of 12 LTOs a year. We have a very deep pipeline; it's never been deeper, and it's both new products and a twist on older products," said Carbone.
The LTO strategy dates back to 1996 when the bagel sandwich was first introduced. 2004 marked the year of the iced latte; 2008 saw the introduction of DDSMART, Wake-Up Wraps, and K-Cups; and the Big 'n Toasted Sandwich made its debut in 2011.
During the Bank of America conference, Carbone also discussed Dunkin's new mobile app, which was first introduced in September and required the brand to unify its point-of-sale system across franchised locations two years ago.
The app reached the 1 million downloads benchmark at the end of 2012, sped up service times and boosted local marketing offers to improve customer loyalty.
Dunkin' Donuts' 2013 goal is to improve mobile loyalty on two fronts: payment migration and behavior migration. Payment migration involves moving customers to its My Dunkin' Card, which lowers transaction costs and improves franchisee profitability.
The franchise-model is reportedly a challenge for Dunkin' because it cannot offer a $5 deal if you join its loyalty program, like its competitor Starbucks Coffee Co. can.
"We have to figure out that customer acquisition piece in a franchise," Carbone said. "It's probably why there's not a lot of franchise businesses that do (mobile) loyalty programs. But we are actively working on it, and we'll launch something this year."
Dunkin' Donuts serves more than 1.7 billion cups of coffee every year at more than 7,300 U.S. locations and more than 10,400 restaurants in 32 countries worldwide, according to the company.