Description
about distribution strategies of the fast food and coffee giant alongwith its operations, SWOT and risks involved.
DUNKIN’ DONUTS: DISTRIBUTION STRATEGIES
1) What are the external factors affecting Dunkin Donuts’
operations? Dunkin’ Donuts were strongly associated with the donuts and coffee by the customers. They categorized purchases by the type of occasion: Social, work and family. Customers of all types of purchases chose Dunkin Donuts primarily because of the freshness and consistency of the product. It competed with other doughnut shops, bakeries, supermarket bakeries, restaurants, convenience stores and recently McDonald’s breakfast shops. They also competed indirectly with snack franchises. Competition from convenience stores and supermarket bakeries was becoming increasingly acute due to expansion of convenience stores into the food market. Their ubiquitous locations and long hours competed vigorously for commuter and impulse purchases. As it realized that people who generally shop at these stores look mainly for convenience and freshness and not quality, many Dunkin’ Donuts’ franchisees started selling wholesale unbranded doughnuts to the local convenience outlets. This was almost exclusively a franchising company and by the end of 87 it operated only 29 company units. It use to rent its properties to franchises for operations. In fact, the company derived more revenue from rental income from the franchisees operating company developed units than it did from its total ongoing franchisee royalty fees. But recently the return on investment in shop development became marginal to the publicly held company, and in order to free capital for more attractive alternatives, they began to shift the development burden to the franchisees. Also there was increase in the number of immigrants taking up the franchises and deploying their own family members to the shop for cost reduction. Hence there was a problem of language for many customers and also company’s managers. Also lack of any previous experience led to quality degradation in many cases. There were changes in consumer attitudes toward health and diet in the late 80s and hence along with the doughnuts company had to increase its product line to include coffee, specialty baked goods, soups and sandwiches. Thus in addition to the broadening product line, the company had expanded its marketing programs significantly, adding a wide variety of price, product and premium promotions of which the franchisee had to be aware.
2) What are the challenges faced in region 1 & 2?Which region challenge would you consider / prioritize and how? Region I (the eastern US and Canada) consisted of 75% of all domestic Dunkin Donuts shops. And by 1987, 80 % of all new shops were franchisee developed. In region I existing franchises were much more active in purchasing real estate and developing stores in order to expand their existing operations. By late 1978, company adopted a highly focused strategy for development in Region I. And this strategy had significantly increased the concentration of ships in a relatively small number of markets. Existing franchises sought to expand their businesses and preclude development in their area by competing franchisees. Some franchises were sometimes forced to ‘leapfrog’ over other franchises and gradually the development went out of control in the region I. Overall sales increased in that region but sales of some of the individual stores started suffering. Although overall system morale remained high, some franchises were getting angry with the company for approving sites which increased total market sales but hurt their individual businesses, and some lost faith in the company’s willingness to look after their interests. In region I most if the successful original franchises had strong connections to their Portuguese heritage, and were a part of substantial local Portuguese community. Also in region I where the wage rate for bakers was very high, operators started running on 2 shifts rather than 3 which jeopardized company’s reputation for freshness. Also in places where there was low level of unemployment, people employed at least one of their family members in the operation of the business to help ease the supervisory problem. Region II (the western United States) had significantly lesser average store sales as compared to region I. In this region there was relatively little franchisee expansion activity and when increased market penetration took place, it was most often because the company had developed the property itself. The spotty development of region II had left the company with little trademark recognition and no marketing and operational efficiencies in most market areas. This put the company at a distinct disadvantage when faced with a serious competitor willing to invest heavily to achieve market penetration. There were more than twice as many shops on rent relief. Also the continuity of ownership characteristic of region I was noticeably absent in Region II. In some areas the DD’s managers had sensed a negative consumer reaction to the widespread use of recent immigrants as franchisees. Language barriers and cultural differences also created managerial challenges. The solidarity if various ethnic communities was often reflected in reticence of one franchisee to adopt a program unless his or her friends were also going to adopt it. Moreover, in order to protect DD’s reputation for quality, company policy required that doughnuts and other baked goods be discarded after a specified time period. Reverence for food,
however led some franchisees to retain the products beyond their freshness limit. I think the region II would be given more priority in terms of implementing the strategies because there is a lot of potential in the region II for DD in the market and by leveraging its success in region I, It can apply penetration and expansion strategies in region II. By observing the changing trends among the consumers it can modify or extend its product lines to match the consumers likes. Moreover properly trained franchisees from its specialized university would solve the problem of cultural and quality discrepancies. Company can also invest in its research and development effort to extend the shelf life of the product. As it has a strong competition in region II, aggressive marketing strategies should be implemented. Also the franchisees should be encouraged to build and develop their own stores as done in region I. This will boost the confidence of the franchisees and would develop a sense of responsibility towards the business. Decreasing profit margins shouldn’t be a problem for the company in region II if it focuses on achieving the volumes. SWOT ANALYSIS: Strengths: 1) Strong and intensive franchisee network. 2) Positive brand recognition in many parts of USA. 3) Great value on the long standing harmonious relationship with its franchisees. 4) Quality and norms adopted for its products are good. Weakness: 1) Not able to leverage its strong presence in some parts of the country. 2) Could not build the sales of their products other than doughnuts and coffee. 3) Competition among franchisees affecting the healthy business in concentrated areas. Opportunities: 1) Strong quality presence can be leveraged through already established university. 2) Positive response for the satellite unit concept adopted by the company. 3) Growing needs of working class people to eat readymade food. Threats: 1) Expansion of convenience stores in the food service at an alarming rate. 2) Mcdonald’s entry into breakfast category. 3) Compromise in quality by immigrant and uneducated new franchises.
4) Increasing rage among the franchises regarding the approval of new outlets in conflicting areas. Risks Involved: 1) Franchisee profit levels. 2) Relationship with the franchisees in the increased competition levels. 3) Deteriorating sales to capital ratios. 4) Brand dilution.
doc_554318835.doc
about distribution strategies of the fast food and coffee giant alongwith its operations, SWOT and risks involved.
DUNKIN’ DONUTS: DISTRIBUTION STRATEGIES
1) What are the external factors affecting Dunkin Donuts’
operations? Dunkin’ Donuts were strongly associated with the donuts and coffee by the customers. They categorized purchases by the type of occasion: Social, work and family. Customers of all types of purchases chose Dunkin Donuts primarily because of the freshness and consistency of the product. It competed with other doughnut shops, bakeries, supermarket bakeries, restaurants, convenience stores and recently McDonald’s breakfast shops. They also competed indirectly with snack franchises. Competition from convenience stores and supermarket bakeries was becoming increasingly acute due to expansion of convenience stores into the food market. Their ubiquitous locations and long hours competed vigorously for commuter and impulse purchases. As it realized that people who generally shop at these stores look mainly for convenience and freshness and not quality, many Dunkin’ Donuts’ franchisees started selling wholesale unbranded doughnuts to the local convenience outlets. This was almost exclusively a franchising company and by the end of 87 it operated only 29 company units. It use to rent its properties to franchises for operations. In fact, the company derived more revenue from rental income from the franchisees operating company developed units than it did from its total ongoing franchisee royalty fees. But recently the return on investment in shop development became marginal to the publicly held company, and in order to free capital for more attractive alternatives, they began to shift the development burden to the franchisees. Also there was increase in the number of immigrants taking up the franchises and deploying their own family members to the shop for cost reduction. Hence there was a problem of language for many customers and also company’s managers. Also lack of any previous experience led to quality degradation in many cases. There were changes in consumer attitudes toward health and diet in the late 80s and hence along with the doughnuts company had to increase its product line to include coffee, specialty baked goods, soups and sandwiches. Thus in addition to the broadening product line, the company had expanded its marketing programs significantly, adding a wide variety of price, product and premium promotions of which the franchisee had to be aware.
2) What are the challenges faced in region 1 & 2?Which region challenge would you consider / prioritize and how? Region I (the eastern US and Canada) consisted of 75% of all domestic Dunkin Donuts shops. And by 1987, 80 % of all new shops were franchisee developed. In region I existing franchises were much more active in purchasing real estate and developing stores in order to expand their existing operations. By late 1978, company adopted a highly focused strategy for development in Region I. And this strategy had significantly increased the concentration of ships in a relatively small number of markets. Existing franchises sought to expand their businesses and preclude development in their area by competing franchisees. Some franchises were sometimes forced to ‘leapfrog’ over other franchises and gradually the development went out of control in the region I. Overall sales increased in that region but sales of some of the individual stores started suffering. Although overall system morale remained high, some franchises were getting angry with the company for approving sites which increased total market sales but hurt their individual businesses, and some lost faith in the company’s willingness to look after their interests. In region I most if the successful original franchises had strong connections to their Portuguese heritage, and were a part of substantial local Portuguese community. Also in region I where the wage rate for bakers was very high, operators started running on 2 shifts rather than 3 which jeopardized company’s reputation for freshness. Also in places where there was low level of unemployment, people employed at least one of their family members in the operation of the business to help ease the supervisory problem. Region II (the western United States) had significantly lesser average store sales as compared to region I. In this region there was relatively little franchisee expansion activity and when increased market penetration took place, it was most often because the company had developed the property itself. The spotty development of region II had left the company with little trademark recognition and no marketing and operational efficiencies in most market areas. This put the company at a distinct disadvantage when faced with a serious competitor willing to invest heavily to achieve market penetration. There were more than twice as many shops on rent relief. Also the continuity of ownership characteristic of region I was noticeably absent in Region II. In some areas the DD’s managers had sensed a negative consumer reaction to the widespread use of recent immigrants as franchisees. Language barriers and cultural differences also created managerial challenges. The solidarity if various ethnic communities was often reflected in reticence of one franchisee to adopt a program unless his or her friends were also going to adopt it. Moreover, in order to protect DD’s reputation for quality, company policy required that doughnuts and other baked goods be discarded after a specified time period. Reverence for food,
however led some franchisees to retain the products beyond their freshness limit. I think the region II would be given more priority in terms of implementing the strategies because there is a lot of potential in the region II for DD in the market and by leveraging its success in region I, It can apply penetration and expansion strategies in region II. By observing the changing trends among the consumers it can modify or extend its product lines to match the consumers likes. Moreover properly trained franchisees from its specialized university would solve the problem of cultural and quality discrepancies. Company can also invest in its research and development effort to extend the shelf life of the product. As it has a strong competition in region II, aggressive marketing strategies should be implemented. Also the franchisees should be encouraged to build and develop their own stores as done in region I. This will boost the confidence of the franchisees and would develop a sense of responsibility towards the business. Decreasing profit margins shouldn’t be a problem for the company in region II if it focuses on achieving the volumes. SWOT ANALYSIS: Strengths: 1) Strong and intensive franchisee network. 2) Positive brand recognition in many parts of USA. 3) Great value on the long standing harmonious relationship with its franchisees. 4) Quality and norms adopted for its products are good. Weakness: 1) Not able to leverage its strong presence in some parts of the country. 2) Could not build the sales of their products other than doughnuts and coffee. 3) Competition among franchisees affecting the healthy business in concentrated areas. Opportunities: 1) Strong quality presence can be leveraged through already established university. 2) Positive response for the satellite unit concept adopted by the company. 3) Growing needs of working class people to eat readymade food. Threats: 1) Expansion of convenience stores in the food service at an alarming rate. 2) Mcdonald’s entry into breakfast category. 3) Compromise in quality by immigrant and uneducated new franchises.
4) Increasing rage among the franchises regarding the approval of new outlets in conflicting areas. Risks Involved: 1) Franchisee profit levels. 2) Relationship with the franchisees in the increased competition levels. 3) Deteriorating sales to capital ratios. 4) Brand dilution.
doc_554318835.doc