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DUNKIN’ ‘COFFEE’ DONUTS SETS SIGHTS ON STARBUCKS’ TURF

By Rodger Brown

When Shakespeare put out that probing question about just what there is in a name anyhow, he paid no mind to whether the handle at issue is a first, a last or a middle. But that’s an option Dunkin’ Donuts does not seem to have. What it does seem to have is a bit of sorting out to do.

“We’re not really a doughnut company,” said Susanne Norwitz, manager of global communications at Dunkin’ Donuts parent Dunkin’ Brands. “We’re really a coffee company. Like our CEO always says, ‘Coffee is our middle name.’ ”

That’s no small claim to make these days, when many think of Starbucks as the first name in coffee — and the last. So CEO Jon Luther might want to think some more about those Shakespearean premises. Further, such a boast seems not to jibe with the history of a company that built its brand in part around an award-winning ad campaign featuring a bleary-eyed baker rising before dawn to mutter, “Time to make the doughnuts.”

Nevertheless, while Starbucks has become pop-culture shorthand for global ubiquity, gotten mentions on such TV shows as The Simpsons and moved into music and book publishing (vying for the tastemaker role of Oprah for the cool jazz set), 56-year-old, hard-workin’ Dunkin’ Donuts still claims to be the No. 1 retailer of “coffee-by-the-cup” in the U.S., as well as the top baked goods chain selling more coffee, doughnuts and bagels than any other quick-serve restaurant in the world.

And the Canton, Mass.-based company is determined to keep it that way. In April Dunkin’ Donuts launched its first major rebranding initiative since Fred the Donut Guy turned off his deep fryer for the last time back in 1997. Built on the tag line, “America runs on Dunkin’,” Norwitz says the new campaign focuses on Dunkin’ Donuts’ appeal to the broad spectrum of ordinary people who keep the traditional “spirit of America” alive by going about their daily chores (in contrast to those with time to lounge over laptops checking e-mail through free Wi-Fi connections at Starbucks).

“The campaign speaks directly to the Dunkin’ Donuts consumer, the hardworking, everyday person,” Norwitz said. “The campaign underscores how Dunkin’ Donuts is integral to the lives of people, helps them get through the day and do it in a way that’s quick, convenient and has good value.”

“America runs on Dunkin’ ” makes a virtue out of the default position Dunkin’ Donuts has found itself in as Starbucks, Caribou Coffee and their ilk have established a more European-style café environment in which to build their brands. In direct contrast to Starbucks’ faux-Left Bank groove, the Dunkin’ campaign is based on images of busy people on the move: truck drivers, mail carriers, lawyers — and even skateboarders. The message is that Dunkin’ Donuts is there to provide good coffee and maybe a quick bite, fast and at a reasonable price.

“It’s kind of quirky, a little irreverent and very unpretentious,” Norwitz said. “It’s very emotionally driven.”

No “grande” or “ventis” sold here; at Dunkin’ Donuts it’s small, medium and large. “We’re just focused on what we do best,” said Norwitz. “We’re focused on product and service, not Wi-Fi and fancy couches. We appeal to people that want good value and good coffee.”

Dunkin’ Donuts won’t admit it is competing with Starbucks. But a competition is what others see.

“Their focus right now is to make sure they protect their coffee franchise,” said Ron Paul, president of Technomics, a Chicago-based food industry research firm. Paul says Starbucks has created a virtual “third space” — a hangout zone midway between home and work and built around coffee.

“In their existing stores, Dunkin’ can’t really offer the third space,” Paul said. “So what they can offer is more convenience, quicker speed, a simpler menu. Theirs is a get-in-and-get-out kind of thing, and they’ll see if they can even lure some of the existing Starbucks customers away. It won’t be easy, because Starbucks is also increasing the density of their stores.”

In any case, Dunkin’ Donuts can easily benefit from Starbucks’ slipstream as the coffee business continues to boom, with industry observers such as Mr. Paul crediting Starbucks with having almost single-handedly created a new market for premium coffee. In 2000, 58 percent of coffee sales were consumed away from home, according to Datamonitor. As of last year, that had risen to 68 percent.

By 2010 the coffee market is expected to climb to $34 billion, up from its current $26 billion.

“What Dunkin’s trying to do is basically build on the success that Starbucks is having,” said Paul. “They’ve always had a well-recognized coffee program, but, obviously, Starbucks has proven that there’s an opportunity to grow coffee well beyond what any of us thought, particularly premium coffee. They’ve [Dunkin’ Donuts] always been known in the Northeast for their coffee, but this should help them as they expand on a national basis and ramp up their expansion.”

With nearly 5,000 stores in the U.S. already, Dunkin’ Donuts says it hopes to triple in size over the next 10 years. Though its sales rose 13.8 percent in 2005 to more than $4 billion, according to Technomics, 80 percent of its sales currently come from its concentration of stores in the Northeast and the East Coast. “They’ve got a lot of geography to fill out,” said Paul.

Dunkin’ Donuts’ first wave of expansions is concentrated in Charlotte, N.C., Cincinnati, Cleveland and Tampa, Fla. In Cleveland, for example, the company plans to add 90 stores by 2010. In February Dunkin’ unveiled what the company is touting as its prototype store for the future. The format includes a bakery display at the front counter and an open floor plan that allows a view of the kitchen and the ovens. “We’re going for an industrial bakery look, not a fast-food look,” Jimmy FitzGerald, Dunkin’s director of concept development, told the Cleveland Plain Dealer following the grand opening.

Virtually all the Dunkin’ Donuts stores are franchises. Currently, the company is aggressively seeking franchisees in North Carolina, Ohio and Tennessee, with the model store measuring 1,500 square feet and located in regional, community or power centers. The company is also targeting such transportation hubs as Dulles Airport, in the Washington, D.C., area, where it is opening three stores.

“In terms of mall locations, they like to be in any mall of any consequence, of course,” said Paul. “But if Starbucks already has an exclusive, there won’t be a place for them.”

Dunkin’ Donuts in recent months has rolled out a series of initiatives to build and promote its new brand. In January it became the official source of coffee for JetBlue. The next month Dunkin’ Brands announced a partnership with TomTom USA, a maker of personal GPS-based navigation systems for cars and of PDAs and mobile phones, under which Dunkin’ Donuts and ice-cream chain Baskin-Robbins locations would show up on GPS products. (Dunkin’ Brands owns Baskin-Robbins.) In March the company launched Turbo Hot, a regular cup of coffee with a shot of espresso, and April saw Dunkin’ Donuts and the Boston Red Sox link up to offer coffee at Fenway Park.

These come on the heels of a series of transactions last July through which parent company Allied Domecq sold Dunkin’ Brands to wine-and-spirits company Pernod Ricard. The new owner then flipped the business to a trio of equity firms in December, who have between them also invested in Burger King, Domino’s Pizza and Snapple.

Besides Baskin-Robbins, Dunkin’ Brands owns the 400 Togo’s sandwich stores in the U.S. But Dunkin’ Donuts is the company’s main revenue driver, with its recent year-to-year sales growth being more than double the 7 percent average in the overall food service industry, according to the company and Technomics.

With deep pockets behind Dunkin’ Donuts and a new campaign ahead, Paul says it is now up to the marketplace to decide if the chain will brew up a buzz. “I think ‘ ‘America runs on Dunkin’ ’ is good,” he said. “It’s got their name in it, and captures the idea of refueling. But we’ll have to see how it resonates.”

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