Dunkin' Donuts Hones Recipe for Expansion

Lessons learned over the past year in expanding the brand

Dunkin' Donuts sees a huge coffee drinking, donut and sandwich eating market outside of their traditional New England base. Besides, coffee also has higher profit margins than baked goods. So it is not surprising that the firm announced big growth plans last year. But according to today's Wall Street Journal (WSJ: $$), Dunkin' Donuts has learned a few lessons this past year in its strategic recipe for national and global expanision.

Strategic lessons learned?

1. Identify characteristics of the customer base, what the company now calls the "Dunkin' tribe". Determining that a core characteristic was their customer's down-to-earth attitude, the company asked key questions to people outside of New England. Says the WSJ, "Dunkin' determined that one-third of the country is made up of people who are part of the Dunkin' tribe, even though they may not live near a store. That has reassured the chain it can move beyond the Eastern half of the country, where most of its U.S. stores are."

2. Not alienating the 'Dunkin Tribe' by expanding too far out of the box. Dunkin' added bright pink and orange colors to its newer stores, only to have its comparatively blue-collar, no-nonsense base comment, "It didn't feel enough like a Dunkin." The firm moved back to its original styrofoam cup, in contrast with Starbucks' more frou-frou paper cup with literary quotations in back, to emphasize the image that resonated best with the Dunkin Tribe.

3. Moving to the right area and doing so quickly. McDonald's Corp. is already using its existing chain to sell lattes and cappuccinos to the same middle-class customer, and the behemouth is moving swiftly. Can Dunkin' hit its window of opportunity fast enough or will major competitors get there first?

4. Focus on core resources and competencies while shedding unnecessary ones because resources are in short supply. "In October, Dunkin' Brands, which is owned by Thomas H. Lee Partners, Bain Capital Partners and the Carlyle Group, said it had put its Togo's sandwich chain on the block. That is in part because executives decided they didn't need the brand in order to sell afternoon fare." [Dunkin' already has an impressive array of bread and food making capabilities already part of each store.]

For established franchisees, the changes in menu and design haven't come without cost. Marvin Kaplan, who has 18 Dunkin' outlets in the Sarasota, Fla., area, opened one with the new design scheme in February. He says it was a gamble to invest at least $75,000 in cooking equipment to help him heat the new flatbreads and pizzas. But his more stylish interiors are enticing customers to bring their laptops and linger. "I don't want them hanging around for hours," Mr. Kaplan says. 'But if they come for 45 minutes, that's a great thing.'"

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Note: The Startup Journal published the original WSJ article a day later. It is now available free.