DUNKIN’ DONUTS May 2012

By: Mark Burke

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BACKGROUND History Bill Rosenberg opened the first Dunkin’ Donuts restaurant in Quincy, Massachusetts in 1950. From the beginning, Rosenberg’s goal was to “make and serve the freshest, most delicious coffee and donuts quickly and courteously in modern, well-merchandised stores” (dunkindonuts.com). Headquartered in Canton, Massachusetts, Dunkin’ Donuts is a subsidiary of Dunkin’ Brands Group, Inc. which is also the parent company of Baskin-Robbins. Dunkin’ Brands, Inc. is owned by an association of three private equity companies: Bain Capital, The Carlyle Group, and Thomas H. Lee Partners. Rosenberg’s original mission remains a driving force behind the company’s success today. In 2011, with more than 10,000 restaurants in 32 countries, and global sales of $6.5 billion, Dunkin’ Donuts is truly a market leader, and is also the fastest growing QSR brand internationally. According to the company’s website, “There are more than 700 Dunkin’ Donuts franchise owners and operators in the United States and more than 50 international partners, who provide their guests with a great experience each and every day, and who are important contributors to their community and to our brand’s growth” (dunkindonuts.com). Key milestones for Dunkin’ Donuts include: 1950 – Dunkin’ Donuts opened 1955 – First franchise agreement signed 1970 – First overseas Dunkin’ Donuts opens in Japan 1978 – First network TV commercials are aired 1995 – 1,000th international Dunkin’ Donuts opens in Thailand 2000 – Dunkin’ Donuts opens its 5,000th worldwide location in Bali, Indonesia 2007 – Dunkin’ Donuts partners with Procter & Gamble to launch locations at retail

outlets; Dunkin’ Donuts opens its first restaurant in Taiwan, representing the first step in its China expansion strategy; Partners with Hess and Sarah Lee to bring Dunkin’ coffee to nontraditional foodservice locations (dunkindonuts.com)

Present Status in Industry Between the years 2005-2011, Dunkin’ Donuts has consecutively earned the No. 1 ranking for customer loyalty in the coffee category by Brand Keys. Brand Keys’ annual national surveys are highly regarded and “identifies brands that are best able to engage consumers by meeting or exceeding their expectations, which creates loyal customers” (Marketing Weekly News, 2012). According to CREST data for the year ending December 2011, Dunkin’ Donuts also received the following recognition: #1 in iced regular/decaf/flavored coffee

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#1 in hot regular/decaf/flavored coffee #1 in donut category #1 in bagel and muffin category #2 in breakfast sandwich servings #1 in customer loyalty in the coffee category since 2007, according to Brand Keys

(dunkindonuts.com)

Business Areas and Products Dunkin’ Donuts has been an industry leader in the donuts category for more than 60 years. Each year, the company sells more than 900 million donuts in the U.S. alone. Dunkin’ Donuts’ menu items include: hot and iced coffee, hot chocolate, 52 varieties of donuts, bagels, muffins, cookies, and breakfast sandwiches. “With coffee leading the charge, beverages accounted for nearly 60 percent of Dunkin’ Donuts’ 2010 U.S. sales. The remaining 40 percent of sales are bakery items such as donuts, bagels, muffins, breakfast sandwiches, flatbread sandwiches, Wake-up Wraps and hash browns” (dunkindonuts.com). Organizational Structure Dunkin’ Donuts utilizes a traditional, hierarchical organizational structure. This organizational design allows the company to centralize its operations, while also providing a uniform set of policies and procedures. In 2008, Dunkin’ Donuts’ parent company, Dunkin’ Brands, Inc. realigned its organizational structure in order to combine the U.S. and international teams for its Dunkin’ Donuts brand. Previously, these teams were under separate leadership. Jon Luther, Dunkin' Brands Chairman & Chief Executive Officer, commented, "This new alignment will result in a flatter and more streamlined organizational structure, while enhancing our ability to share innovations and best practices around the world" (dunkindonuts.com). Will Kussell, a long-time Dunkin’s employee and most recently Dunkin’ Brands’ Chief Operating Officer, was named President & Chief Brand Officer for Dunkin' Donuts Worldwide. In this role, Kussell had complete responsibility for all domestic and international components of the Dunkin' Donuts brand, a responsibility that Nigel Travis, CEO, resumed as of early 2009. Travis stated that, “This new structure will give me the opportunity to be even more involved in the business and, most importantly, to work more closely with our franchisees” (Sniegowski,). Today, Dunkin’ Donuts’ senior leadership team is comprised of roles that include a President, Chief Operating Officer, Chief Global Customer and Marketing Officer, Chief Creative and Innovation Officer, Chief Development Officer, and multiple regional Vice Presidents. These individuals are responsible for the majority of the decision-making for the company: Nigel Travis, Chief Executive Officer, Dunkin’ Brands and President, Dunkin’

Donuts

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Paul Twohig, Chief Operating Officer, United States John Costello, Chief Global Customer and Marketing Officer Joe Scafido, Chief Creative and Innovation Officer John Dawson, Chief Development Officer Neal Yanofsky, President, International Tony Pavese, Chief Operating Officer, International Randy Brashier, Vice President, Operating Systems William Bode, Vice President, Northeast Weldon Spangler, Vice President, South Central Bob Wiggins, Vice President, Central Atlantic Jean Grossman, Vice President, Midwest (dunkindonuts.com) Dunkin’ Brands also has a board of directors (see Company Strategy, Corporate Governance section below). COMPANY STRATEGY Vision To be recognized as a company that responsibly serves our guests, franchisees, employees, communities, business partners, and the interests of our planet. Mission Statement "To become the dominant worldwide of high quality doughnuts, compatible high quality bakery, fresh snacks products and beverages” (wikianswers.com). This statement describes the company’s values, services and mission for the future. It reflects Dunkin’s core purpose, identity, values, and principle business aims. It is powerful and compelling, and conveys confidence in the company, its products and employees. Objectives and Strategy “From its deep roots in New England, Dunkin’ Donuts has begun a steady and strategic national expansion in both new and existing Dunkin’ Donuts markets. In particular, Dunkin’ Donuts is focusing its expansion near its core markets in the Northeast, while continuing to develop its presence in the Mid-Atlantic and Southeastern states” (dunkindonuts.com). In 2006, The Wall Street Journal reported that Dunkin’ Donuts had an ambitious strategy to “expand its largely Eastern coffee chain into a national powerhouse that’s as synonymous with coffee as Starbucks Corp…Armed with fresh capital…Dunkin’ plans to remake its nearly 5,000 U.S. stores over the next three years, and have triple that number in less than 15 years” (Adamy). “The ‘key ingredients,’ he said, of its performance — innovative products and marketing — are in place to help the company achieve its goal of more than doubling the number of U.S. Dunkin’ Donuts units to 15,000 within the next 20 years” (Thorn). Six years later, in

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2012, Dunkin’s still has plans to expand into the western half of the U.S., where its presence is still small. Dunkin’ Donuts has also tapped into the Keurig cup (K Cup) craze, “which accounted for thirty percent of same-store sales growth at U.S. Dunkin’ stores in the fourth quarter” (Jannarone). Dunkin’ Donuts’ K Cups have sold best in newer regions across the county, suggesting that “people are willing to travel significant distances to live the Dunkin’ dream” (Jannarone). Dunkin’ CEO, Travis, told Forbes that their K Cup brand is, “The best K Cup out there.” (Fontevecchia). He is confident that the success of the Dunkin’ K Cup, along with their new sandwich offerings, will increase same store sales in 2013. Dunkin’ stores saw almost a 7.5 percent growth rate in Q4 last year. Travis explained that the K Cup campaign was one of the best rollouts he has ever seen in his thirty-plus year career. Additionally, Travis was excited that coffee and donut sales did not drop with the new K Cup line. In terms of achieving the goals of updating restaurants and expanding into new regions, here is how Dunkin’ Donuts fared: In Q4 of 2011, 120 new Dunkin’ locations were opened in the U.S., with more than eighty percent of openings located outside of the company’s core markets Dunkin’ Donuts remodeled 636 U.S. restaurants during 2011 (Entertainment Close-up) Dunkin’ Donuts is well positioned for the future. Taken together, Dunkin’ Donuts’ entrepreneurial business model, its culture, and the strength of its brands and menu offerings promise a strong future of successful growth. Corporate Governance The Board of Directors for Dunkin’ Brands, Inc., Dunkin’ Donuts’ parent company, serve as a fiduciary for shareholders and oversee the management of Dunkin’ Brands’ businesses. The Board sets high standards for the Dunkin’ Brands’ employees, officers and directors. The Board follows the procedures and standards that exist in its guidelines. EXTERNAL ENVIRONMENT Industry Overview The QSR industry is all about customer turnover. As a QSR, Dunkin’ Donuts’ goal is for a customer’s order to be completed in less than two minutes. Most locations require a drive through, however, it is not completely necessary. The key competitors for Dunkin’ Donuts are Honey Dew Donuts, Starbucks, and Tim Hortons. Honey Dew Donuts mainly operates in the northeast, U.S. Starbucks is a global company with almost double the amount of storefronts within the U.S. than Dunkin’s. Tim Hortons predominantly operates in Canada, but they have begun opening stores within the U.S. Almost all Tim Hortons locations are franchised. The retail coffee consumer drives the industry. Today’s consumer wants more options than just the original cup of Joe and a doughnut, however they don’t want too much and

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they want it as quickly as possible. This sounds like an impossible feat, however this is the business that Dunkin’ Donuts continues to strive in. Suppliers Dunkin’ Donuts’ suppliers have a substantial amount of power, despite the fact that Dunkin’s is a large account that most suppliers would not want to lose. One of Dunkin’s primary areas of focus in terms of suppliers is on its relationship with Green Mountain Coffee, the current supplier for Dunkin’s K Cup. The Dunkin’ K Cup product has seen great sales since being introduced to the market in August 2011. Green Mountain has had its share of difficult economic times, however these issues never impacted Dunkin’s K Cup launch. Green Mountain has been a great supplier for Dunkin’s, however they are the only maker of the K Cup, so have tremendous advantage over Dunkin’s for this particular product. If Green Mountain were ever to decide to discontinue its relationship with Dunkin’, it may be a challenge for Dunkin’s to determine a new supplier for their K Cup. An actual supplier issue that recently impacted Dunkin’s was the spike in coffee costs. Since July 2010 Dunkin’ has experienced a 37 percent increase in the cost of coffee (Thefranchisemall.com). This significant increase in cost has had a negative impact on Dunkin’s profit margin; their same store sales continue to be positive, but their net income decreased by roughly one percent in the second quarter last year (Thefranchisemall.com). Buyer Power Dunkin’s consumers have all the power. Not only is this a highly competitive market, but also competition is usually in the same plaza or across the street. This fact supports the need to build a strong brand. Dunkin’ has continued to market themselves and has maintained and increased their very loyal following. Dunkin’ continues to offer great coffee at a reasonable price, quickly, and with a smile. Dunkin’ has continued to offer new menu options to meet the changing needs of its consumers. While always serving their original flavor, special-blend coffee, Dunkin’s has also expanded the number of flavors they offer. New Entrants The threat of new entrants is high. It takes an estimated $50,000 to $100,000 to open a coffee shop, which in the business world is not a tremendously large amount of capital. Therefore, capital is typically not a barrier to entry. The biggest barrier is having to compete with the brand names. Starbucks and Dunkin’ Donuts are both well-known brands. While it is easy to open a small breakfast spot, one would have little to no brand recognition. Although new entrants may impact sales at one nearby Dunkin’ Donuts location, the company as a whole may not be impacted by this. Dunkin’s has been around for more than fifty years, and it would take a substantial amount of time, money, and customer loyalty to play on the same level as Dunkin’s. Substitutes The threat of substitutes is high. Anyone can brew coffee and sell it in a shop, online, or

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in a retail store. Dunkin’ prides itself on brewing some of the best flavors of coffee, and offers its loyal customers an unpretentious experience. This suggests that Dunkin’ customers are loyal to this brand for more than just the coffee. Some people may think that Starbucks brews a better cup of coffee, but they attract a different clientele than Dunkin’s does, so while substitutes are high, Dunkin’ customers are loyal and will likely not replace their Dunkin’s coffee with substitutes Competition The QSR industry is highly competitive. Dunkin’ and Starbucks are the two major players, with numerous competitors opening their doors daily. All these companies are trying to take market share away from each other, with some of their locations so close in proximity that they take away business from themselves. Depending on the volume of an existing location, the opening of a new location may actually the existing location more than help the overall company. However, there are circumstances when a new location is built to hold competition off, or to block competition from coming into a particular area. Key Success Factors Dunkin’s has many factors that contribute to its success. The most prominent factor is the Dunkin’ Donuts brand. Dunkin’ rivals Coca Cola in regards to brand recognition. The “America Runs on Dunkin’” campaign was one of the most successful ad campaigns in recent years. Dunkin’s strategic goal of opening more stores demonstrates that they have plans to invest capital into the business. Just having the capital to expand the business is a success in the current economy. While most companies are downsizing and cutting costs, Dunkin’s is looking to expand! The Dunkin’ K Cup and new breakfast/deli sandwiches are great innovative products for the company and will help increase their margin. Dunkin’s Research and Development team is amazing at always providing the consumer with what they want, while not overwhelming them with too many choices. Dunkin’ also continues to set the industry bar for the best breakfast menu offerings (Kowitt). RESOURCE-BASED ANALYSIS Strengths Dunkin’s biggest strength is their brand. They have a highly recognizable brand and product, and continue to invest in the power of these assets. The company realizes that a business must continually reinvent itself to stay relevant, demonstrated by Dunkin’s continuous development of new product offerings that meet their customer’s needs. Another strength for the company is its franchise function. Out of Dunkin’ Donuts 6,772 locations, 1,932 are franchises within the U.S. (dunkindonuts.com). Franchises minimize the risk that the company faces. Franchise owners must pay Dunkin’ Donuts a first time fee and a percentage of its location’s sales. Dunkin’s does train the franchise staff, design the restaurant, checks on the franchise management, but the franchisee takes all of the risk. From a risk perspective, Dunkin’s will not make money or benefit from a franchise only if the store closes. Dunkin’ Donuts prides itself on offering impeccable customer service; this is truly a

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strength that Dunkin’ customers genuinely value. Any retailer will tell you that customer service is one of the best drivers of sales, growth, and customer loyalty. The customer service training that is provided to all new franchise restaurants is not just a one-time training. Rather, Dunkin’s offers ongoing training and support to all of its locations to ensure the best customer service possible. In addition to investing in customer service, Dunkin’ Donuts has also invested in R&D. Prior to 2005, Dunkin’s did not create their own products. However, for the past seven years, Dunkin’s has developed all of their new products in-house (Kowitt). Since this change, Dunkin’s has hit the mark with products that their customers enjoy, and products that increase the profit margins, suggesting that the company truly understands what their customers want and delivers that value to the customers. Opportunities Dunkin’ Donuts’ K Cup has been so successful since its initial launch. This item is a strength and an opportunity. The Dunkin’ brand image makes this a trusted item, the ease of use is exactly what the consumer wants, and the price is right. Dunkin’s should seize the early success of this product and exploit the opportunity to expand the product line by offering all of its various coffee flavors, including seasonal flavors, as K Cups. Currently, Dunkin’s only offers its seasonal flavors during certain times of the year, as opposed to year-round, but they could benefit from offering these flavors as K Cups year-round. The biggest opportunity is pizza. Dunkin’ Donuts offered this product in 2010, with little success. It is challenging to sell pizza at breakfast, however Dunkin’s could use pizza to segway into the lunch rush. They are currently experiencing success with their new deli sandwiches, so it seems reasonable to suggest that Dunkin’s may see a boost in pizza sales if it were to market this product as part of its new lunch menu In addition to marketing the product effectively, Dunkin’s would have to think through some of the logistics and operations of offering this product. Dunkin’s pizzas are currently a small-size pizza, mainly because the Dunkin’ ovens cannot accommodate a large-size pizza. Determining the best way to cook, serve, and market the pizzas would require more research, but could transform Dunkin’s from a great breakfast choice to a great lunch one too. The continued success of the Kitchen Crew, the team responsible for research and development of all of the new Dunkin’ products, is an open-ended opportunity. We can’t begin to imagine all of the new products that they are capable of designing, but we know that they have started to test numerous healthier alternatives (Sugar Free, Gluten Free, Whole Wheat, etc.). This is a direct response to a more health conscience consumer. Developing healthier products is very difficult due to the high fat and sugar content of most of their items. However, Rick Golden, Manager of Donut Excellence, recently tested twenty-eight varieties of shortening in order to find the best, healthiest option (Kowitt). The Kitchen Crew continues to make incredible strides in their efforts to bring the best products to market, which is a huge opportunity for Dunkin’ Donuts. The last opportunity is the opening of new restaurants. It is great that Dunkin’s is

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committed to growth and continuing to penetrate new markets! Their goal of doubling their number of locations in twenty years has an amazing growth opportunity. If their restaurants doubled they would have as many as their major competitor, Starbucks. Many regions outside of northeastern U.S. have not seen or heard of a Dunkin’ Donuts. Therefore, this will be one of the biggest ongoing opportunities for Dunkin’ for the foreseeable future. Weaknesses One of the biggest weaknesses for Dunkin’s is its reliance on suppliers. Dunkin’ is a major account for most suppliers, so it is unlikely that a supplier would intentionally want to lose them as an account. However, when costs go up, suppliers some times have little choice but to pass those increases along to Dunkin’s. As Dunkin’ continues its efforts to keep prices low and consistent, its profit margin may suffer from rising costs. Threats Dunkin’ Donuts’ biggest threat is its primary competitor, Starbucks. The competing company offers many of the same types of items as Dunkin’s, just at a premium price. While Starbucks caters to a higher-end consumer, they have more locations and are continue to grow. If Starbucks evokes a similar strategy as Dunkin’s and decides to double their restaurants, Dunkin’s will have an increasingly difficult threat to deal with. The biggest market threat is the health factor. It only takes one news article or report to say that a certain food isn’t healthy and an entire industry can fail. For example, spinach has not seen the sales it had prior to the salmonella outbreak, and that was over five years ago. Dunkin’s offers a lot of high-fat foods. It will only take one negative report to drastically affect their entire market. SWOT Diagnosis Dunkin’ is following all of the right paths. They heavily invest in marketing to increase the value of their brand image. They plan on expanding to get a larger hold of the market share. They always are looking at their menu to a change and improve what they offer to their customers. Their customer service is impeccable, which is a difficult feat to accomplish in a fast-paced retail environment. The only thing that will hurt Dunkin’ is if they move away from any of their current goals, or if any health issue arise. Besides either of those two issues, Dunkin’ Donuts is an amazing company with an amazing growth opportunity that we will see flourish over the next twenty years. COMPETITIVE ANALYSIS Cost Leadership, Differentiation & Focus As defined by Michael Porter, a firm’s strengths ultimately fall into one of the two headings: Cost advantage and differentiation. Applying these strengths in a broad or a narrow scope determines the three basic generic strategies for a firm: Cost leadership, differentiation and focus. The following table illustrates Porter’s generic strategies.

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Strategic Alliances and Collaborative Strategy In January 2012 Dunkin’ signed a long term, performance based agreement for National Distribution Commitment Partnership to be the exclusive supply chain provider for all Dunkin’ Donuts restaurants in the U.S. The agreement, effective upon the merger of four regional franchisee-owned cooperatives into one national unit will offer financial savings and service-improvement benefits to Dunkin' franchisees. The benefits include:

A long-term agreement with Dunkin' Brands for the procurement and distribution of products;

A more streamlined system that will provide significant future cost-efficiencies for the franchise community;

A consolidated cooperative board structure, and; Greater consistency in supply and distribution service levels to all U.S.

restaurants.

The agreement allows Dunkin’ Donuts to realize the benefits of long term, performance-based procurement and distribution. Most importantly, the agreement supports the company’s current domestic expansion plans by opening of franchisees in new markets with the same product costs (supplychaindigital.com).

With 98 percent brand recognition, one would think that mostly everyone would have heard of Dunkin’ Donuts. But depending on where they grew up, this might not be the case. Many people outside of the Northeast, U.S. are not familiar with the Dunkin’ Donuts brand. The fact that much of the U.S. has not heard of Dunkin’s yet, provides great opportunity for the company’s expansion strategy.

Franchises Even with high brand recognition for the markets it currently operates in, Dunkin’ Donuts goes the extra mile to make its franchises locally connected. The company believes that having a local point of view is one of the most important traits for having successful franchises.

Dunkin’ Donuts supports its franchises with established systems and training, as well as national and local development, construction, operations and marketing support. The company encourages franchisee input with advisory boards, marketing steering committees, and other opportunities. They continue to expand their brand, offering franchise opportunities in more than seventy markets coast to coast. Dunkin’ is also interested in franchise owners who are interested in opening a Dunkin’ Donuts in alternative points of distribution that serve captive audiences like colleges, transportation centers, travel centers and military bases. An average Dunkin’ Donuts operator owns an average of six stores.

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operational tools and services such as native language restaurant training programs and new international retail restaurant designs in an effort to more effectively operate in these new markets and become more profitable (Team). Global Presence With over 2,600 stores in 30 countries outside of the U.S., Dunkin' Donuts has been serving loyal customers around the globe for over 27 years. From Asia to Latin America and everywhere in between, you can count on Dunkin' Donuts for delicious coffee and espresso, cool Coolatta®, delectable donuts, sandwiches and more (dunkindonuts.com). STRATEGIC CONTROL ISSUES Strategic Partnerships Strategically, control issues in company operations and challenges to successful operations and continued sustainability stem from external factors. Whether policy changes as relates to changes in laws as applied to Foreign Direct Investment constraints, or other policy related matters pertaining to successful entry in foreign markets. As expressed by Dunkin’ CEO, Travis, the necessity of continued expansion into the foreign markets is part of the company’s strategic vision, therefore, these control issues must be explored. On February 24, 2011, Dunkin’ Donuts signed an agreement with Jubilant FoodWorks to develop and plan for the opening of five hundred restaurants over a fifteen year time horizon. The agreement is the largest international effort of its kind within Dunkin’ Donuts history and materializes the strategic commitment of management in capturing the market potential in India (dunkindonuts.com). The equity stake and the explicit philosophy of Dunkin’ Brands corporate to seek out, encourage, and support entrepreneurial innovation and continue the franchisee business model enables continued control of the brand and its operations. This is seen in both a large capacity as demonstrated with the Jubilant FoodWorks agreement, and on the smaller side with domestic signings of franchisees to the concept. For an entrepreneur to become a Dunkin’ Donuts franchise there are strict requirements on the franchisee and explicit controls set forth by the franchisor. The commitment in agreements for both Dunkin’ Donuts and the franchisee shows a commitment that tackles the issue of exposure on the part of Dunkin’ where the franchisee and franchisor enter a “community of interest.” Strategic partnerships alongside restaurant-based entities with a proven track record and expansive expertise in fast growing BRIC nations (Brazil, Russia, India and China), speaks to strategic command and control maintenance action.

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Travis states, “With a deep understanding of the Indian consumer, solid operational expertise and best in class marketing, Jubilant will play a key role in delivering on our goal to bring Dunkin’ Donuts coffee, baked goods, and snacks to more people around the globe. We look forward to a long and mutually beneficial alliance.” Strategic alliances and joint ventures will entrench and establish better success and develop brand weight especially in markets where Dunkin’ Donuts is a new entrant. Control Systems Dunkin’ Donuts uses controls operationally such as Cemtrex-based climate control systems and LEED certified locations where occupancy loads are measured and accounted for in providing better head and cooling provisions. “Environmental studies have shown that savings using the system can be as high as $1 per sq. ft.” (environmentalleader.com). Operational goals dictated by management must also be aligned with the Point of Sale , POS, system as a control brought forthwith by corporate. The solution to these goals is Radiant Systems. “The Radiant solution is expected to provide benefits that support Dunkin’ Donuts’ operational goals such as improving speed of service and order accuracy. The easy-to-use solution will also provide heightened visibility into store performance, facilitate more effective regional product tests and new product rollouts, and improve the customer experience” (businesswire.com). Operational goals must support the strategic goals in that Speed, Speed, Speed, is what comprises Dunkin’s core competencies. By using and integrating one source in POS control rollout Dunkin’s has better control, streamlined performance, and an increased learning curve in operation and rollout in new franchisee establishments. Effectiveness of Control The effectiveness of Dunkin’ Donuts’ control through the supply chain and franchisee model is extremely effective. Through the franchisee model there are complete support systems established for the entrepreneur in which steps in the control process are governed such as:

Standard control Performance Measures Actual Performance Measures Financial Performance controls paired with Budgets

The heavy sunk costs absorbed by the franchisee and the established twenty-year lease with renewal cost to be negotiated in the future adds further security and recognizes the commitment of both franchisee and franchisor.

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Sunk Cost Table:

Type of Fee Low High

Initial Franchise Fee $40,000 $80,000

Building Costs $182,000 $582,000

Site Development Costs $40,000 $400,000

Additional Development Costs $10,000 $100,000

Real Estate Costs Varies Varies

Equipment, Fixtures and Signs $100,000 $245,000

Electronic Cash Register / Retail Technology System $17,000 $35,000

Opening Inventory $8,000 $20,000

Miscellaneous Opening Costs $9,500 $50,000

Licenses, Permits, Fees and Deposits $3,500 $5,500

Uniforms $400 $1,200

Insurance $4,500 $15,000

Travel and Living Expenses While Training $2,000 $25,000

Marketing Start-Up Fee $10,000 $10,000

Additional Funds for First 3 Months of Operation $114,000 $167,000

Estimated Total (doesn't include real estate costs) $688,250 $1,329,850

Operating Fees:

Name of Fee Amount

Continuing Franchise Fee 5.9% of gross sales

Continuing Advertising Fee 5.0% of total gross sales

Franchise Transfer Fee (for a majority interest in the first 3 years)

$6,000 or 5% of the Adjusted Sales Price, whichever is greater.

Franchise Transfer Fee (for a majority interest, after 3 years have elapsed)

An amount based upon the Gross Sales of the Store for the 12 months preceding the date of the contract of sale.

Franchise Transfer Fee (for less than a majority interest)

The Then-Current Document Preparation Fee, which is currently $1,000.

Franchise Transfer Fee (transfer to spouse or children)

The Then-Current Document Preparation Fee, which is currently $1,000.

Audit Costs The franchisors cost to audit your gross sales reports, including legal and accounting fees.

Immigration Status Review The franchisors out-of-pocket costs to hire

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Costs attorneys or others.

Interest, Late Fees, and Collection Costs

Then current late fee or dishonored check fee, and if applicable, interest on unpaid amount at 1.5% per month or highest rate allowed by law.

Indemnification Varies

SDA Transfer Fee $10,000

SDA Transfer Fee (for a less than majority interest)

The Then-Current Document Preparation Fee, which is currently $1,000.

SDA Transfer Fee (transfer to spouse or children)

The Then-Current Document Preparation Fee, which is currently $1,000.

Loan Guarantee Fee 1% of the loan amount

Document Preparation Fee The Then-Current Document Preparation Fee, which is currently $1,000

Costs for tests used to approve additional supplier(s)

The franchisors out of pocket and internal costs allocated to this activity, typically $1,000 to $10,000 depending on the complexity of the testing.

(franchisedirect.com) PRESCRIPTION To be competitive in any market there must be an awareness of the corporate “self” in conjunction with the world surrounding the corporation. A firm must be able to change, and bend with the winds of change like a reed in the wind – and maintain its ability to be adaptable in whichever market it does business. As members of leadership in any company such as at Dunkin’ Donuts, it is imperative to see and be aware of the “signals” present through such indicators as changes in earnings reports, commodity price fluctuation, and the demographic changes that are organically on-going. Dunkin’ Donuts takes on a “market follower” approach to product offerings rather than leading the market and setting trends. Dunkin’s leadership takes on an approach as “Dunkinization.” Dunkinization in action as observed by Harvard Business School professor Nancy Koehn is where products in the market such as the replication of Starbucks Frappuccino and turning it into the Coolata – is an example of this internal corporate philosophy in action (datamonitor.com). Dunkinization is the following of trends and taking the small luxuries and mass marketing them. The formula is working. The formula is applicable – as demonstrated by continued year over year growth and matched with the on-going mandates from corporate to explore new markets and enhance the local product-mix to match the transplanted operation.

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Strategic Shift Through crisis and changes in market conditions whether it be through market share, and or earnings reports – companies must be sensitive to such changes and adjust its strategy in allocating resources to counter competitive action.

“Time to Make the Donuts” Vs. “America Runs on Dunkin’” Dunkin’ Donuts saw a considerable drop in market share in the early 2000’s losing its 77 percent market share in donuts drop to 57 percent. Such a market share drop required a shift in focus and the ability to retool and reinforce strategic focus. As consumer taste changed towards the “yupification” of coffee offerings into the espresso and latte side of the coffee beverage market – Dunkin’ responded by investing $10,000 on espresso machines that beat competitors such as Starbucks on speed and price. Espresso drinks saw a dramatic increase as a percentage of sales in revenue and with the learning curve in place for solid carb-laden products in the likes of pastries, bagels and donuts, Dunkin’s continues to innovate and follow the trends of what is next. As seen with the latest barrage of Artisan Bagel marketing ads displayed regularly throughout the broadcast media outlets. Beverages are a key element: 57 percent of the chain's sales—and the most profitable product group—are beverages, with the remaining profits comprised largely of bagel, muffin, and breakfast sandwich sales. Starbucks, by comparison, does 78 percent of its store volume in beverages, with 12 percent in food, and 5 percent in whole beans. With the espresso-based drink market showing a 68 percent increase since 2000, it would appear to be an area with wide-open possibilities for several players (Tischler). After the shift in brand through its marketing prowess, Dunkin’ Donuts is currently the largest coffee beverage retailer in the U.S. (Munshi). Strategic Problem To gain market share, preserve brand equity, and compete in a highly competitive environment where McDonald’s and Starbucks are key players in the QSR concept. Coffee beverages have been in high demand and profitable and McDonald’s and the ability of other QSR facilities to enter the market and offer the coffee beverage in its product mix is easy. As a result Dunkin’ Donuts must be ready to reinvent product lines and maintain sustained competitive advantage by following trends. In conjunction with this approach towards the preservation of the coffee segment, Dunkin’ Donuts’ management should also continue as a “market follower” in its “Dunkinization” effort by launching a world-wide campaign towards “Dunkinizing” the local foods and flavors of markets abroad.

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STRATEGIC PRESCRIPTION Modestly expand franchisees within the Northeast market in efforts to prevent

self-cannibalizing erosion in revenue locally and push forward aggressively into growing markets both domestically and abroad.

Domestic drivers should be on a retail spectrum such as bagged coffee at grocery

stores, continued K-Cup sales, and innovative movement towards future products that will bring earnings up in U.S. markets. Innovation through trend observation and “Dunkinization” of said trends are keys to success.

For the overseas strategic plan, part of this effort is specific tailoring of food

offerings in markets showing explosive growth through economic growth indicators as evidenced with the continued high performing BRIC nations.

In order to be the best in the sector it is important to enter markets with market specific customization in the forefront. It is necessary for Dunkin’s leadership to continue to strategically draw upon the previous decades of logistical delivery of Dunkin’ Donuts paired with its franchisee model—where the local talent of entrepreneurs in developing nations can fuel success. Dunkin’s CEO, Travis, is aware of the necessity of implementing global reach, and acknowledges that oversea expansion is a key part of the strategic blue print moving forward. Furthermore Travis states, "We think the best strategy is to execute on brand differentiation…While we compete in very competitive markets, I think the key is to focus on the consumer, to understand their needs better than anybody and deliver on that" (Danubrata). ACTION PLAN The action plan and governing philosophy at Dunkin’ Donuts is the company’s ability to partner with the right talent, i.e. franchisee with the right entrepreneurs and create relationships that strengthen its supply chain domestically and abroad. Maintaining strict co-operation with talent through the qualitative and quantitative process is key paired with an aggressive campaign to grow in fast growing economies within the umbrella of the BRIC nations. Aggressive BRIC Nation Rollout Strategy In our estimation: BRIC nation development is key to future success. China With a population of 1.33 billion and a total Gross Domestic Product (GDP) of $11.2 trillion—second only to the U.S. in market capitalization—China must be considered a prime market for expansion (www.stats.gov). Travis is steering Dunkin’ Donuts into this market and the company is integrating local tastes into the Dunkin’ model. Continued marketing campaigns and strategic alliances with celebrities such as LeBron James where

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Brazil Planned expansion is expected in Brazil but at a much slower pace. There may be an opportunity for Dunkin’ Donuts to package Iced Coffee Drinks, however, our recommendation is to get into “gelato based” offerings, smoothies, and frozen yogurt; these are trends that are not only popular stateside but have taking root in Brazil as well. CONCLUSION

Continued entry into high footfall areas where creative co-operations with sites such as large-scale grocery stores in domestic and foreign markets, retail operations, and banks should be on the radar.

Joint Ventures with companies of a proven track record in the hospitality industry

in the BRIC nations should be forged with specific points of action on “Dunkinizing” local products.

Domestically co-branding with national chains such as Stop and Shop, Wal-Mart,

Exxon Mobil, Regional Banks such as RBS Citizens – all with the continued pursuit of building brand and increasing sales. This Joint Venture model can be applied to the international arena.

Joint Ventures as seen recently with Coca Cola where the co-branding effort

brings better value and reach to consumers especially in BRIC areas where more western brands triggers sales.

Brand Ambassadors should match the corporate profile specific to each region

inter and intra nationally – and aggressive Dunkinization of trends should be launched sooner than later in Brazil.

Investing in regions and countries with growth must remain a vital component of the corporate philosophy to see continued financial growth.

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REFERENCES Adamy, J. Brewing Battle. The Wall Street Journal. April 8, 2006. Ahmed, R. Dunkin’, Starbucks to duke it out in India. The Wall Street Journal. February 22, 2012. Retrieved on April 12, 2012 from http://online.wsj.com/article/SB10001424052970203358704577236491329247950.html America’s Greatest Brands. Retrieved on April 17, 2012 from http://www.americasgreatestbrands.com/volume6/pdf/DunkinDonuts.pdf Barth, C. Can Dunkin's New Deal Brew Enough Growth To Catch Starbucks? Forbes. January 4, 2012. Retrieved on April 4, 2012 from http://www.forbes.com/sites/chrisbarth/2012/01/04/can-dunkins-new-deal-brew-enough-growth-to-catch-starbucks/ Brand Transformation: Dunkin’ Donuts. Retrieved on April 16, 2012 from http://www.ivycohen.com/MarketingCoach/BrandTransformationDunkinDonuts.html Communique of the National Bureau of Statistics of People’s Republic of China on Major Figures of the 2010 Population Census. Stats.gov.cn. Retrieved on April 10, 2012 from http://www.stats.gov.cn/english/newsandcomingevents/t20110428_402722244.htm Curtin, S. Coffee Wars: Is Dunkin' Donuts More Valuable Than Starbucks? Yahoo! Finance. July 27, 2011. Retrieved on April 22, 2012 from http://finance.yahoo.com/blogs/daily-ticker/coffee-wars-dunkin-donuts-more-valuable-starbucks-200552789.html Danubrata, E. Dunkin’ tempts China palates with pork donuts. March 5, 2012. Retrieved on April 20 from http://www.msnbc.msn.com/id/46626285/ns/business-us_business/t/dunkin-tempts-china-palates-pork-donuts/#.T6ht1etrNW8 Datamonitor.com. 2012. http://www.datamonitor.com/store/Product/dunkin_donuts_case_study_refocusing_the_quick_serve_strategy_onto_coffee?productid=CSCM0203 Dunkin’ Brands website. 2012. www.dunkinbrands.com Dunkin’ Brands selects Radiant Systems as exclusive POS provider. August 15, 2007. Retrieved on April 20, 2012 from http://www.businesswire.com/news/home/20070815005532/en/Dunkin-Brands-Selects-Radiant-Systems-Exclusive-POS Dunkin’ Brands. May 2, 2012. Retrieved on April 20, 2012 from http://www.qsrmagazine.com/content/dunkin-brands Dunkin’ Donuts’ website. 2012. www.dunkindonuts.com Dunkin’ Donuts tries out Cemtrex Climate Control System. December 30, 2008. Retrieved on April 20, 2012 from http://www.environmentalleader.com/2008/12/30/dunkin-donuts-tries-out-cemtrex-climate-control-system/ Edgar Online. Retrieved on April 14, 2012 from http://sec.edgar-online.com/dunkin-brands-group-inc/s-1a-securities-registration-statement/2011/06/07/section7.aspx Entertainment Close-up. Dunkin’ Brands Posts Fourth Quarter and Full Year 2011 Results. February 16, 2012. Retrieved on April 17, 2012 from http://www.highbeam.com/doc/1G1-280133690.html Fontevecchia, A. Dunkin' Beats Estimates But Falls Hard On Plan To Sell 22M Shares. Forbes. November 1, 2011. Retrieved on April 23 from http://www.forbes.com/sites/afontevecchia/2011/11/01/dunkin-beats-estimates-but-falls-hard-on-plan-to-sell-22m-shares/

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Fontevecchia, A. Dunkin' Tanks On Rising Commodity Costs. Forbes. August 3, 2011. Retrieved on April 23, 2012 from http://www.forbes.com/sites/afontevecchia/2011/08/03/dunkin-tanks-on-rising-commodity-costs/ Fontevecchia, A. Dunkin's Brands CEO Travis: We've Got The Best K-cup Out There. Forbes. February 9, 2012. Retrieved on April 9, 2012 from http://www.forbes.com/sites/afontevecchia/2012/02/09/dunkins-brands-ceo-travis-weve-got-the-best-k-cup-out-there/ Greenberg, H. Hole in Dunkin’ Story?: Greenberg. March 20, 2012. Retrieved on April 12, 2012 from http://www.cnbc.com/id/46787470 Jannerone, J. Dunkin’ Rally Still Has Room to Run. Wall Street Journal. February 13, 2012. Retrieved on April 14, 2012 from http://online.wsj.com/article/SB10001424052970204642604577215591355655170.html Kowitt, B. Meet Dunkin’s Culinary Masterminds. Fortune. May 13, 2010. Retrieved on April 20, 2012 from http://money.cnn.com/2010/05/13/magazines/fortune/team_dunkin_donuts.fortune/index.htm Kowitt, B. Dunkin’ Brands’ kitchen crew. Fortune. May 24, 2010. Munshi, N. Dunkin’ Donuts in India: all about doughnuts, not coffee. February 21, 2012. Retrieved on April 20, 2012 from http://blogs.ft.com/beyond-brics/2012/02/21/dunkin-donuts-in-india-all-about-doughnuts-not-coffee/#axzz1tAH4yQqE Rocha, I. LeBron will be taking his donut dunking talents to Asia. March 6, 2012. Retrieved on April 18, 2012 from 1 http://foodbeast.com/content/2012/03/06/lebron-will-be-taking-his-donut-dunking-talents-to-asia/ Rulz, A. Dunkin’ Donuts: a franchise success story. July 8, 2010. Retrieved on April 12, 2012 from http://andrea-ruiz.suite101.com/dunkin-donuts-a-franchise-success-story-a258702 Scarpati, K. Dunkin’ Donuts signs long-term supply chain deal. January 4, 2012. Retrieved on April 17, 2012 from http://www.supplychaindigital.com/global_logistics/dunkin-donuts-signs-long-term-supply-chain-deal Sniegowski, D. Dunkin’ Donuts President to Leave. January 2009. Retrieved on April 17, 2012 from http://www.bluemaumau.org/7982/dunkinrsquo_donuts_president_leave Supplychaindigital.com. 2012. Retrieved on April 19, 2012 from http://www.supplychaindigital.com/global_logistics/dunkin-donuts-signs-long-term-supply-chain-deal. Team, T. Dunkin’ updates: experiments with menu as Baskin-Robbins Intl. expansion continues. April 13, 2012. Retrieved on May 3, 2012 from http://www.trefis.com/stock/dnkn/articles/113682/dunkin-updates-experiments-with-menu-baskin-robbins-inal-expansion-continues/2012-04-13 TheFranchiseMall.com. 2012. Thorn, B. Dunkin’ Brands: U.S. units will double in 20 years. February 2012. Retrieved on April 17, 2012 from http://nrn.com/article/dunkin-brands-us-units-will-double-20-years Tischler, L. Its not about the doughnuts. December 1, 2004. Retrieved on April 20, 2012 from http://www.fastcompany.com/magazine/89/dunkin-donuts.html?page=0%2C0 Walkup, C. Nigel Travis Talks Dunkin’s Strategy. September 2010. Retrieved on April 16, 2012 from http://www.qsrmagazine.com/executive-interviews/nigel-travis-talks-dunkin-s-strategy?microsite=9340 www.franchisedirect.com. 2012. Dunkin’ Donuts franchise cost and fee. Retrieved on April 20, 2012 from http://www.franchisedirect.com/foodfranchises/dunkin-donuts-franchise-07676/ufoc/