Dunkin’ Donuts to EgyptCountry Market Report

Grace FoxAndreas LückertFern MarusuwanDolly Noymany

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Executive Summary

Founded in 1950, Dunkin’ Donuts is an American multinational company that sells

donuts, beverages, and other breakfast foods. Dunkin’ Donuts has been very successful, with

over 10,000 stores in nearly 60 countries worldwide at the end of 2011 (Dunkin’ Donuts, 2012).

At the end of the second quarter of this year, Dunkin’ Donuts remained strong, with revenue

rising nearly ten percent from the previous quarter to USD $172.4 million (Reidy, 2012). Being a

leading franchisor, Dunkin’ Donuts is very experienced in international business.

Since Dunkin’ Donuts has been successful in countries outside of the United States, we

are looking to establish Dunkin’ Donuts stores in Egypt. After evaluating the economic, political,

and cultural environments of Egypt, while there is some political risk and government

corruption, Egypt is still an attractive target market because there are many tourists and

international employees who visit and work in Egypt. Therefore, we have determined our target

market to be two segments: tourists/businessmen and the Egyptian upper middle class. In order

to best target these segments, we will establish our first store in Maadi, a suburb of Cairo, Egypt

where there are many expatriates and upper middle class Egyptians.

We will use the successful Dunkin’ Donuts franchise model to find a local franchisee. To

maintain a global image, we will keep our products relatively the same, which will be donuts,

beverages, and breakfast sandwiches. However, in order to be successful, we will adapt to local

customs by ensuring our food products meet religious rules. We will also adapt our marketing

mix to best target our market and be competitive. Our prices will be comparable to those in other

American fast food restaurants, and we will buy local ingredients in order to minimize import

costs. To best target our market, we will use a low cost promotional strategy, which includes

word-of-mouth promotions, newspaper advertisements, and social media tools.

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Economic Environment

Egypt has a mixed economic system in which the economy includes private freedom

combined with centralized economic planning and government regulation. According to Global

Edge, Egypt is a member of the African Union (AU), African Economic Community (AEC),

Council of Arab Economic Unity (CAEU), and Common Market for Eastern and Southern

Africa (COMESA) (Global Edge, 2012). Since June 30, 1995, Egypt is also a member of the

World Trade Organization (WTO, 2012). The integration of the Egyptian economy with the

Arab region and Egypt’s close business connections with the European Union make this country

very attractive for Dunkin’ Donuts.

However, there are several restrictions for foreign companies entering the Egyptian

market in the service sector. Dunkin’ Donuts has to meet the regulation for employment of non-

nationals, which can be only up to 10% of the labor force (Doing Business, 2012). Because our

business model is franchising, Dunkin’ Donuts will send only one representative to support the

set-up of the location and to train local employees. The representative will be the only non-

national employee.

The Egyptian economy is based on agriculture, energy, and tourism. The total imports in

2011 were $58.9bn, and total exports in 2011 were $30.6bn (Egyptian International, 2012).

Imports have exceeded exports, leading to a negative balance sheet. The largest importers are the

European Union, Asian and Arab countries, and the countries part of NAFTA (Egyptian

International, 2012). The Egyptian government drastically increased social spending in order to

address public dissatisfaction after political unrest erupted in January 2011. Political uncertainty

at the same time led to slower economic growth which reduced government revenue. Tourism,

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manufacturing, and construction are the sectors of the economy most impacted by political

unrest, so economic growth is likely to remain on the slow side at least through 2012 (CIA,

2012).

According to Business Monitor International, the retail market in Egypt has long-term

potential due to the increased demand for hypermarkets, home products and furniture, clothing

and fashion, and leather products (Doing Business, 2012). The median Egyptian age is between

18-25 years old, which is a positive factor in the growth potential of the fast food and retail

sectors. Another industry with long-term potential is the franchising industry. The African

Development Bank lent Egypt $40 million to develop this industry. The money will be used to

finance a program which supports the development of franchise businesses in Egypt (Doing

Business, 2012). Therefore, Dunkin’ Donuts’ potential franchisee would be able to receive some

funds for faster integration. However, a short-term concern that we need to take into

consideration is that the country's budget deficit is hitting record lows, which may impact our

entry into the market (BMI, 2012).

        As mentioned on Export.com, Egypt is the fourth largest export market for U.S. products

and services in the Middle East. Globally, Egypt is the 33rd largest export market for the United

States. The United States continues to be Egypt’s largest trading partner and second largest

investor. Roughly two-thirds of total investment in the United States is in the oil and gas sector,

but there is also investment in areas such as consumer goods, pharmaceuticals, automobile

production, and financial services (Export.gov, 2012). Egypt’s GDP per capita is around $6,000

and since 1994, it has been steadily growing at about 4% per year (IMF, 2012).

Remittance plays an important role in the Egyptian economy and increases income of

many households. A study on remittances and investment opportunities for Egyptian migrants

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done by the International Organization for Migration (IOM) states that Egypt ranked as the

seventh biggest remittance-receiving country in the world in 2009, with an estimated remittance

inflow of $7.8 billion (IOM, 2010). Almost one fourth of the remittances come from the United

States. This can help us with brand awareness as Egyptian citizens working in the United States

talk to their families back home in Egypt about our company.

The Egyptian pound (EGP) is the official currency of Egypt. One Egyptian pound can be

divided into 100 piasters. Historically, the EGP was pegged to the United States dollar (USD),

but since 1989 the EGP is free floating. However, the float is tightly managed by the Central

Bank of Egypt. The World Factbook points out that the government is utilizing foreign exchange

reserves to support the Egyptian pound and that Egypt may seek a loan from the International

Monetary Fund soon (The World Factbook, 2012). The current exchange rate is about 1 USD to

6 EGP. In the past ten years, the U.S. dollar has appreciated from 4.60 on July 11, 2002, to its

current position at 6.05 (Oanda.com, 2012).

The overall trend currently is mild depreciation of the EGP. Despite the political situation

in Egypt, the Egyptian pound may appreciate due to the strong influence by the Central Bank of

Egypt if they want to make imports cheaper. On the other hand, it can depreciate if they want to

encourage local exporters, especially for ones in the oil industry. For Dunkin’ Donuts, the

depreciation of the Egyptian pound would mean lower profits from franchising fees, licensing

fees, and other fees if we have to convert from EGP to USD. Vice versa, an appreciation of the

EGP would lead to higher profits from the Egyptian market. We will not be affected by the

exchange rate when importing directly because we will purchase all the ingredients from local

distributors. However, since Egypt is not a major producer of food and ingredients as mentioned

below, we will be affected indirectly through higher prices charged by our local suppliers.

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According to the International Monetary Fund, on August 22, 2012, Egypt asked for a

$4.8 billion loan from the IMF to help with political and economic transitions to restart growth

and reduce the deficit (IMF, 2012). The loan will be attached with some restrictions from the

IMF, including monetary policies, such as devaluation of the Egyptian pound. For our business

model, we will use the exchange rate of 6 EGP to 1 USD, but we will continue to closely watch

negotiations between the International Monetary Fund and the Egyptian government and adjust

accordingly.

A significant portion of imports to Egypt is wheat and food in general. Therefore, it is

important that we monitor the exchange rate carefully. With an appreciated currency, it will be

more expensive to import food, which would result in higher costs for the ingredients we need.

Additionally, Egypt indicates an average inflation rate of 10%, which in the past few months

lowered to 6% (Business Insider, 2011). An increase in prices without an increase of wages is a

risk for our business because citizens may purchase fewer food items in general.

One of the most recent challenges mentioned in the latest Business Monitor International

report is that the Egyptian government is having a difficult time paying its oil import bill amid

surging domestic import premiums and rising unrest over fuel shortages. Egypt's state-owned

Egyptian General Petroleum Corporation (EGPC) owes at least USD $3bn to foreign energy

companies as global banks resist issuing the necessary letters of credit to execute oil purchases.

The high cost of fuel subsidies at a time when import demand is rising compounds the problem

for the government and is further weighing down the balance sheet. Egypt's downstream sector

will remain under pressure until effective reforms are implemented, adjustments are made to the

fuel pricing regime, and EGPC's creditworthiness improves (Business Monitor International,

2012). Deregulation of oil prices and increase of influence from foreign oil companies in Egypt

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could result in higher oil prices and therefore also higher prices for our company such as higher

prices for flour, sugar, and electricity.

One of the most recent benefits for Egypt’s economy is a plan to build a bridge

connecting Saudi Arabia and Egypt across the Gulf of Aqaba. The benefits of the bridge are

expected to be felt on both sides. The link is anticipated to significantly boost trade between the

two countries, from the current figure of USD $4bn a year to over USD $13bn a year once

completed (Business Monitor International, 2011).

Political Environment

When entering the Egyptian market, Dunkin’ Donuts must keep in mind the current

political environment, and focus on the political risk as well as government regulations that may

pose problems in the future.

One of the main political risks is that the country is still trying to recover from the

revolution that occurred in 2011, though it is slightly more politically stable now. January 25,

2011, marked the large uprising of the demonstrations against former President Hosni Mubarak

and his party, the National Democratic Party. Protesters were highly dissatisfied with corruption,

lack of freedom of speech, and economic issues such as food prices, high unemployment, low

wages, and the widening gap between the rich and poor. He was ousted after 18 days of protests

by the Egyptian Army when the protests continued to grow and threatened to destabilize the

country. The National Democratic Party was officially dissolved on April 30, 2011 (Egyptian

British Business Council, 2012).

Egypt continued to plunge into more political instability as Mubarak turned power over

to the Supreme Council of Armed Forces (SCAF), who assumed administrative and legislative

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control until a new president would be elected. However, as the SCAF assumed power, worries

rose as the military suspended the constitution and dissolved the People’s Assembly and the

Shura Council. Around the time of elections, concerns grew as the SCAF decided to seek further

control in government by giving itself the power to veto any article it disapproves of in the

writing of the constitution (Egypt Forum, 2012).

This rapid change in the political environment in Egypt has heightened some of the

country’s major social and economic problems (Egypt in Transition, 2011). The political

instability has had an effect on Egypt’s stocks and foreign direct investments, especially as the

country operated without a firm government as Egypt waited for the elections. However, when

current President Mohamed Mursi from the Muslim Brotherhood was elected as the country’s

first civilian president, it was considered as some semblance of political stability (ETF Trends,

2012). President Mohamed Mursi assumed office in June 30, 2012, and has since then made a

series of moves that strengthen the powers of the president that were taken away by the SCAF

when they were in power. (World Bank, 2012)

A major political risk we must be cautious about is how the current president will

respond to fixing the foreign reserves and the economic crisis. One of the concerns is that the

inflation caused by the acceptance of the $4.8 billion IMF loan will increase the food costs for

our company. Also, we must be alert to any conflicts between the president and the SCAF which

may affect the company indirectly. The SCAF continues to hold a strong influence in the

government and has its own business interests, ranging from gaining control over weapon arms

to bottling water. If there were to be a confrontation between the two, it may cause some

problems for the company indirectly due to possible corruption on both sides.

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Another political risk we noted is the strong Islamic influence in Egypt at this time. With

an Islamic president and a strong Islamic presence in parliament, there may be country of origin

issues with Dunkin’ Donuts, an American company. While Dunkin’ Donuts has opened in other

Arab countries with Muslim and Islamic backgrounds, it is important to note that it may be a

future concern should the Islamic influence in Egypt turn against the United States (Chicago

Tribune, 2012).

However, Dunkin’ Donuts has to also focus on the business regulations the government

has in place, not only the political risks. In 2011, Egypt was ranked 112 out of 183 countries on

Transparency International’s Global Corruption Perception Index. According to the World Bank,

Egypt was ranked 110 out of 183 on ease of doing business (Doing Business in Egypt, 2012).

Therefore, it is important to note that other political factors will act as business impediments in

Egypt. Regulatory agencies, delays in clearing goods through customs, arbitrary decision-

making, high market entry transaction costs, an unresponsive commercial court system, as well

as corruption play huge roles in market challenges, making it hard for foreign businesses like us

to work efficiently (Doing Business in Egypt, 2012).

Dunkin’ Donuts will likely encounter corruption in meetings with public officials since

officials within various government departments are historically known for bribery,

embezzlements, and tampering with official documents. We should also note that although

facilitation payments are often required, Egypt has made steps towards improving their

performance in relation to issuing licenses, permits, and utility connections. They have also

drastically improved their performance within some regulatory areas, such as starting a company

and trading across borders (Snapshot of Egypt, 2012).

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However it is important to note that Iran, another Islamic country, is ranked similarly to

Egypt on the Global Corruption Perception Index, at 120 out of 183 countries. While Egypt has

made reforms towards improving business by making starting a business less time-consuming

and less costly, many of these reforms are largely cosmetic in nature. This is continued to be

seen by the low rankings Egypt has in the main factors of doing business that is most important

to Dunkin’ Donuts, such as getting electricity, registering property, getting credit, paying taxes,

trading across borders, and enforcing contracts (2012 Index of Economic Freedom).

Dunkin’ Donuts should recognize these business regulations and strive to find a local

partner within Egypt in order to have successful penetration within the market because foreign

companies cannot directly bid on government tenders but must act through local agents. Dunkin’

Donuts also will need to anticipate that facilitation payments will likely be required in order to

avoid any impediments from government officials in regards to doing business. Corruption

should mostly only affect the company in monetary ways through impediments from getting

imports on machinery, enforcing business contracts, and having extremely high taxes (Doing

Business in Egypt, 2012).

Cultural Environment

Egypt’s cultural environment is characterized by its ancient culture, the Islamic culture,

and an influence of Western culture. Because Dunkin’ Donuts is originally from the United

States, a challenge the company will face is a country of origin issue. In a recent study done by

the Pew Research Center, 79% of Egyptians still have unfavorable attitudes towards the United

States, and this negative attitude has remained consistent for the past six years (Pew Research

Center, 2012). Dunkin’ Donuts will have to combat this challenge by adopting local Egyptian

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religious and social customs to assure the public that despite being an American company, our

company respects and upholds Egyptian culture.

A main factor of Egypt’s culture is the importance of religion. The two leading religions

in Egypt are Islam and Christianity (CountryWatch, 2012). With Islam as the predominant

religion, it is critical for Dunkin’ Donuts to adhere to what is considered permissible for

Muslims, also known as halal. This means that the food and production standards should have no

pork or alcoholic ingredients. Therefore, Dunkin’ Donuts must ensure that their donuts do not

contain pork ingredients. Additionally, since Dunkin’ Donuts also sells breakfast foods and

sandwiches, we can adapt to the Egyptian market by eliminating pork in these food products and

clearly label on menus that the food is halal. While changing the menu and production process

may seem challenging initially, a benefit for entering Egypt’s market is that a majority of

Egyptians enjoy sweets. Food at Dunkin’ Donuts could make a good gift because when visiting

someone’s home, people are expected to give a gift such as baked goods or chocolate

(CountryWatch, 2012).

Another aspect to take into consideration is the education level in Egypt. The three main

languages taught and spoken are Arabic, English, and French (CountryWatch, 2012). Regarding

literacy rates, according to the World Bank in 2007, 96% of children successfully completed

primary education (World dataBank, 2007). However, according to the United Nations Statistics

Division in 2007, only 83% of adult men and 59% of adult women are literate (Gillespie &

Hennessey, 2011). These education levels affect Dunkin’ Donuts marketing and promotional

strategies because this may mean using simpler words for advertising or utilizing advertisements

that can be heard rather than ones that need to be read. Nonetheless, literacy rate is something we

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do not have to be too concerned about since our store is opening in a relatively wealthy area,

where people most likely have had an education.

As part of the Arab world, Egypt’s Hofstede scores are taken from the ones calculated for

Arab countries. Egypt has a very high power distance score of 80, which means that people

accept the hierarchical order in society. For example, they use titles to address each other

because status is very important (Today Translations, 2011). Additionally, in Egypt and other

Arab nations, having proximity from another coworker is a sign of confidence (Gillespie &

Hennessey, 2011).

Along with high power distance, Egypt has a low score of 38 for individualism, meaning

Egypt is a collectivist society and member groups are valued highly. The collectivist and

polychronic cultures are shown by the fact that business appointments are rarely private, and that

office visits and phone interruptions from friends and family are expected and accepted

(Kwintessential, 2012). Therefore, our store will be group-oriented by having open space with

many tables and chairs. In their spare time, Egyptians like to go out in groups to drink coffee and

tea, smoke water pipes, play games, and talk (Hoffman, 2012). The store should have large tables

since dating is not common in Egypt. An Egyptian man in his late 20s summarized the social

custom by saying, “We don’t date... You go out in groups. To the mosque on Fridays. The

parents and families are involved in the process all along the way” (Hoffman, 2012). Being a

group-friendly store is important in order to compete with the numerous popular coffee shops

already existing in Egypt.

The score for masculinity is 53, implying that Egypt leans more towards a more feminine

society. People strive for consensus and conflicts are resolved by negotiation (Kwintessential,

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2012). We must take negotiation into consideration as we find local distributors to purchase our

ingredients.

Lastly, the uncertainty avoidance score is 68. A relatively high score for uncertainty

avoidance means that Egyptians generally do not like ambiguity and they follow rules, as shown

in the Islam commitment to the teachings of the Koran and halal standards. Additionally,

business is really slow in Egypt because of the great amount of paperwork and the long time it

takes for contracts to be approved (CountryWatch, 2010). This may also explain why facilitating

payments are needed to speed up business processes. While adherence to the rules is important,

punctuality is not the norm in Egypt and sometimes people will not show up to scheduled

meetings at all (Today Translations, 2011). By knowing the Hofstede scores, we can be more

aware of business customs and Egyptian culture if we choose to enter into Egypt’s market.

Lastly, while Egypt has been consistently one of the more liberal countries in the Arab

world, Dunkin’ Donuts should consider the increased conservatism in the country due to Saudi

influence, also known as “Saudization” (Norland & Ismail, 2008). An increase in conservatism

may mean that Dunkin’ Donuts marketing strategies must have stronger adherence to Islamic

teaching and assure the public that the food and beverage items are all permissible to eat and

drink.

Competition

Customers come mostly in the morning to get coffee and donuts, but the menu and store

hours at Dunkin’ Donuts make it a fast food restaurant with food items for breakfast, lunch, and

a light dinner (Dunkin’ Donuts, 2012). Since Dunkin’ Donuts is usually open from early in the

morning until late at night, by offering not only donuts but also sandwiches, we are competing

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not only with coffee shops such as Starbucks, but also with more traditional fast food restaurants

like Subway and McDonald’s. We must bear in mind all the competition possibilities not only

from local companies, but also from international ones. As described in our mode of entry

section, because we will be located in the Maadi neighborhood, most of our direct competitors

will be international chains originating from the United States and local small coffee shops.

According to a Doing Business in Egypt report in 1993, there were only seven

operational chains in Egypt more than a decade ago. Today, there are more than fifty American

franchises that are currently operating or have imminent plans to open. Some of the popular

chains include Chili’s, TGIF, Hard Rock Café, KFC, McDonald’s, Pizza Hut, Burger King,

Hardees, Dominos Pizza, Papa John’s, and much more. The capital city, Cairo, is a large market

which attracts not only foreign visitors but also foreign enterprises. This explains why most of

international companies will set up their first branch in Cairo.

        Any company that sells coffee or sweet pastries could be considered as a competitive

threat to us. Our biggest competitor will be Starbucks because they already have 16 locations in

Cairo and serve a wide variety of coffee and dessert items (Starbucks, 2012). Even though

Starbucks does not use much advertisement, its word-of-mouth strategy is very powerful and

makes it a unique brand. Moreover, another competitor is Costa Coffee, which has six locations

in Egypt. We also must consider Cinnabon, which serves cinnamon rolls and coffee and has five

locations. Most of all, in Egypt our company will become one of the symbols of the United

States. For this reason, we should also consider other popular United States chains as our indirect

competitors. Burger King, McDonald’s, and Subway can be seen also as American symbols and

therefore our competitors.

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While there are many large American companies that are our competitors, local

companies can compete effectively as well (Gillespie, 2011, pg. 158). Therefore, we also have to

take into consideration local competitors. Because we do not speak Arabic and most local

Egyptian donut shops do not have websites, we had to find local competitor information on

discussion forums and review sites such as Yahoo! Answers. Most of the posts on these

discussion boards come from our target groups, which are foreign employees and tourists. One of

the local competitors we found is House of Donuts. House of Donuts has three locations and a

blogger has already compared it to his experience at Dunkin’ Donuts in the United States

(answers.yahoo.com, 2009). Since other small competitors are hard to find online, the best

method for us to research local competitors is to visit Cairo and conduct a survey for favorite

places to eat and drink among American employees working in Cairo. These stores can be

customer favorites due to their local owner and friendly atmospheres with local specialties that

would be hard for Dunkin’ Donuts to implement in its globally consistent menu.

        Grocery stores are also part of the competition. Prices for Dunkin’ Donuts as a premium

good might turn away some of our potential customers and push them to buy donuts in grocery

stores.  Customers could buy donuts in grocery stores because it may be more convenient as

well. Carrefour, a supermarket from France, sells donuts in their own bakery. Another big

supermarket chain from Egypt, Spinney’s, offers a wide selection of pastries and baked goods.

An opportunity for Dunkin’ Donuts is to consider the possibility of selling donuts in Carrefour or

Spinney’s, which would help rise turnover and brand awareness. Strategy on cooperation with

our competitors is described in the pricing strategy section.

Mode of Entry

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Egypt is an attractive market to enter due to its strategic location and its ability to

innovate and compete in global markets. As the United States Department of Commerce points

out, Egypt is located at the gateway of trade and commerce for Southern Europe as well as

Africa and the Middle East, is as a prime location for the transit of goods, and a key destination

for American companies seeking business in Egypt (2012). However, in the process of

expanding our market to Egypt, we have found that with the uprising of new presidential control,

we must be prepared for any political or currency risk. According to El-Din, the currency

situation has reached a level that could become critical or slip into a sudden currency crisis (El-

Din, 2012). It would be dangerous to enter a market whose currency is fluctuating, and may

result in a loss of profits for the home country. With signs of political risk or currency fluctuation

occurring in Egypt, it is in our best interest to franchise the company.

In order to understand the rules and regulations required to enter the market, it is best to

understand certain laws within our country. Labor laws in Egypt are quite similar to that of the

United States. There is a maximum of 48 hours a week that an individual can work, not including

compensated overtime. According to Riad, employees are also granted six months of sick leave

per year with pay (Riad, 2007). For foreigners, a work permit is required if they intend to work

in Egypt. An employer can contract the personnel for a limited or an unlimited period of time.

The employer can also hire the employees on a probationary period for up to three months.

Intellectual property laws are vital in the process of entering a foreign market, especially

when franchising a company. These laws are important because we will be signing over rights to

particular trademarks and copyrights. This law assures the owner trademark protection even if

the trademark is not registered in Egypt. This law is a private right that the U.S government

cannot enforce for private individuals in Egypt (Globaltrade.net, 2010).  It is the responsibility of

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us to register and take the necessary steps in securing our intellectual property in Egypt, as we

will explain further in the product and service adaptations section.

Research has assured us that the best method for our company will be to franchise. This

will make it easier to adapt to our culture surroundings as needed and target the necessary

market. This process will involve Dunkin’ Donuts making available its total marketing program,

logo, brand, products, and methods of operation. The franchisee will be a company that is

financially stable and has been for at least five years with previous experience in food-beverage

services. An important factor is to have a startup budget that will be sufficient enough to begin

the company properly; we predict this should be approximately USD $300,000.

One potential buyer we have considered is the Olayan Group, a global investor in public

and private equities, real estate, and other specialized asset classes. They have the financial

capabilities to participate in major transactions and to capitalize on new opportunities in the

market sector. They have also had previous experience in the fast food industry, particularly in

Saudi Arabia and the Arab Middle East since the early 1990’s. The Olayan Group acquired the

Burger King Franchise and became the master franchisee for the wider region. Another

corporation we had in mind as a potential franchisee is the owner of the Dancing Bean Espresso

located in Cairo, the same city where we want to open our first store. Rob Mergard started up

this franchise store as the first coffee business in Egypt. To limit competition, Mergard may find

investing in Dunkin’ Donuts will help the coffee industry in Egypt and prevent any potential

threats of losing current customers.

The franchisee will be pleased to know that Dunkin’ Donuts is a good company to invest

in. In 2011, Forbes listed Dunkin’ Donuts as one of its top 20 franchisees to start. Dunkin’

Donuts is globalized with 10,000 locations in 32 countries and is continuing to grow. In the

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highly competitive U.S. coffee market, Dunkin’ Donuts is distinguished for having superior

customer experience. Dunkin’ Donuts has been recognized for six years by the Brand Keys

Customer Loyalty Engagement Index as number one in customer loyalty in the coffee category

(Dunkin’ Donuts Press kit, 2012). The essence of this corporation is that it offers high quality

food and beverages served all day in a friendly, fast-paced environment at a good price. Our

company’s success is shown by the fact that in 2011, franchisee-reported sales were

approximately USD $8.3bn.

Target Market

We have decided that our target market would be international tourists, however, we also

want to market a certain segment of Egyptians so when the company decides to expand further,

we will already have brand recognition. We decided that the best target market within the

Egyptian market would be the upper middle class of Cairo.

The expected tourists we plan to target will be mainly from Europe, the United States,

and Arab countries. From previous years, traditional tourism markets in Egypt have been from

these regions. Expected tourists from countries such as Spain, United States, and Saudi Arabia

would be marketed towards more since many of them already have Dunkin’ Donuts locations in

their countries and therefore, it is a familiar brand to these tourists (Dunkin’ Donuts, 2011). The

tourists we are mainly focusing on are international businessmen and tourists who already

consume coffee and breakfast foods such as donuts.

We believe this is a good target market because tourism has always been a major part of

Egypt’s economy. Previously, international tourism arrivals stood at 12.8 million in 2008 from

2.6 million in 1990. Travel and tourism generated $14 billion in export revenue and accounted

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for 13% of Egypt’s GDP, making tourism the largest contributor of foreign exchange earnings

(Eurojournals, 2011).

While there was a huge slump in tourism during the 18 months of political instability

after the 2011 revolution, we believe it is still promising to have international tourists as our

target market. Currently the country fell from the list of top 20 tourism countries from 18 th to

26th, according to a report by the International Tourism Organization. However, Egypt’s

Tourism Minister, Muneer Fakhry Abdul Nour, expects an increase in tourism within the second

half of 2012 (Al Arabiya News, 2012). The World Tourism Organization has also mentioned

that tourism recovery in Egypt is very promising with arrivals up by 29% from January to May

of this year (World Tourism Organization UNWTO, 2012).

It is also important for Dunkin’ Donuts to focus on the Egyptian middle class because it

is a fast growing segment. More than 60% of Egypt’s population is younger than 30 years old

and are more likely to seek out new foreign brands. However, while Egypt has one of the largest

consumer markets in the Middle East and North Africa region, the gap between the rich and poor

is huge, which is why we will be targeting the upper middle class. The highest 10% earn about

30% of the country’s income while the lowest 20% live below the poverty line making less than

$2 USD a day (Nielson Wire, 2010).

Our target market is known as the “Rising Stars,” whose median ages are around 18-25

years old. They make up around 30% of the population in Egypt with an income of 80 to

150,000 Egyptian pounds. They are considered to be well-educated individuals who strive for

growth. The reason why we believe they will be an excellent target market is because they have

a capitalist mentality and would be considered upper middle class, and therefore able to afford

our products at premium prices (Egyptian Market Segmentation, 2008).

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The Rising Stars are brand conscious due to the recent and growing trend of improved

living standards and the increased exposure to western culture and media. We believe that the

upper middle class consumers will be drawn to the increasingly popular brands and convenient

service. While there is expected inflation of prices of food costs, we believe that we can cushion

this by offering our product in smaller sizes and at more affordable prices (Doing Business in

Egypt, 2012).

We decided that we would target both the tourist segment and Egyptian upper middle

class segments in Cairo, Egypt. Cairo is considered one of the most densely populated capital

cities in the world with 17 million people and around 36% of the city’s population is under the

age of 15. It is also home to the busiest airport in Egypt, the Cairo International Airport, alluding

to the working population possibly being able to have an increase in disposable income when the

tourism industry recovers (Cairo, 2011). The neighborhood we would like to start a franchise in

is Maadi. Maadi is an upper middle class cosmopolitan suburb located in Cairo and considered

to be very westernized. It would be the perfect location for both our target markets because of

the large number of foreigners and upper middle class that live in the area and because it is home

to the international college, Cairo American College (Cairo Neighborhoods, 2008).

Product/Service Adaptations

In order to maintain a consistent global image, Dunkin’ Donuts will need to keep its

menu relatively consistent to the one in the United States. Like the American menu, Dunkin’

Donuts product line in Egypt will consist of beverages and food. There will be hot, iced, and

frozen beverages, and donuts, breakfast sandwiches, and bakery sandwiches. First, in order to

open a store in Egypt, Dunkin’ Donuts needs to meet Egypt’s product standards. Egypt is a full

member of the International Organization for Standardization, and the official authority for

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standardization and quality control is the Egyptian Organization for Standardization and Quality

Control (ISO, 2012). The General Authority of Export and Import Control is responsible to

guarantee products pass quality control (U.S. Commercial Service, 2012). Dunkin’ Donuts must

ensure that every ingredient used in its products meets these national standards.

After ensuring products meet standards for quality control, while keeping a global image,

Dunkin’ Donuts should make product adaptations in order to meet local food customs and tastes.

One adaptation is that the donuts and beverages will be sweeter because the Arab world enjoys

sweets. Other flavors that should be considered are the basic flavors for Egyptian food: onions,

garlic, coriander, cumin, and ill (Doctor, 2012). These ingredients can be used in special donuts

only available in Egypt and also in their sandwiches. For their beverages, Dunkin’ Donuts should

make the coffee fine and served thick, while also offering tea with a lot of sugar (Rose, 1995). In

order to become a popular breakfast place, we will also consider adding common local

ingredients, such as hard-boiled eggs, fruit, and honey as a side to its breakfast foods (Rose,

1995).

Other product adaptations should be made due to social and religious reasons. As

mentioned in the cultural environment section, an important change is to remove any pork

ingredients used in the food in order to cater to the predominantly Muslim population. In order to

assure the public that Dunkin’ Donuts food is appropriate to eat, the menu items in the store and

online should be labeled as halal. There could also be special menu items during Muslim

holidays, such as Ramadan, Eid al-Fitr, and Eid al-Adha. For these holidays, Dunkin’ Donuts can

offer special large orders of a variety of donuts in order to attract customers to purchase boxes of

donuts so that groups can celebrate breaking fast together.

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In addition to product adaptations, there are services that Dunkin’ Donuts in Egypt should

adopt in order to uphold the company’s rankings of having a great customer experience. When

the customer first enters the store, the cashier will greet them in order to create a welcoming

atmosphere. The cashier will also serve all of the food and drinks, so the customer never has to

self-serve. A service that is not available in the United States but should be in Egypt is delivery

service. Customers can call a number and have fresh donuts delivered to their door. Dunkin’

Donuts has already started doing delivery in India, so the branch in Egypt can learn strategies

from other countries (Facebook, 2012). Delivery service will be a source of competitive

advantage for Dunkin’ Donuts, as exhibited by the success of McDonald’s in Egypt with their

“McDelivery” service. While we will not implement delivery service for our store initially, it is

something we would like to add if we expand in Egypt in the future.

Overall, the atmosphere should be conducive for individuals to eat while surfing the

internet or for groups to sit down and relax while eating. Since televisions are very popular in

Egyptian coffeehouses, we could also have some in the store as well (Rose, 1995). Having free

Wi-Fi in addition to televisions broadcasting the news will create an atmosphere conducive to

relaxing.

In addition to product and service adaptations, Dunkin’ Donuts needs to protect its brand

and intellectual property. For branding, Dunkin’ Donuts should keep its logo that it uses

worldwide in order to maintain a consistent global image. However, the name for Dunkin’

Donuts should always be displayed in both English and the Arabic translation to accommodate

both foreigners and local customers. Over the last decade, Egypt has strengthened its intellectual

property protection. For example, Egypt is now a signatory to the WTO Trade-Related Aspects

of Intellectual Property Rights (TRIPS) Agreement and recently added a new intellectual

22

property law in 2002 (U.S. Commercial Service, 2012).  There is also trademark protection for

ten years; however, U.S. trademark and patent registrations do not apply in Egypt (U.S.

Commercial Service, 2012). In order to protect its brand and recipes for its menu items, Dunkin’

Donuts needs to apply for trademark and patent protection as soon as possible.

Pricing Strategy

According to the latest Egypt Country Commercial Guide, Egypt traditionally is a price-

sensitive market, where quality often takes second place to cost (Commercial Guide, 2012). For

this reason, Dunkin’ Donuts must set competitive prices that will cover costs while generating

profit. In the beginning, initial costs are going to be higher due to the imported machinery which

will be charged with a 10% sales tax, 3% service tax, and 1% industrial and commercial tax, and

an additional 15% tariff (Export.gov, 2012). Dunkin’ Donuts will also have to pay an income

tax. If income is under 10 million EGP, then the income tax is 20%; if more, then 25% (FITA,

2012). Variable costs depend on the amount of products sold and include cost of ingredients such

as flour, sugar, oil, coffee, electricity, and wages. The minimum wage in Egypt is EGP 700 per

month which is about USD 115 (Wageindicator, 2012). Our supplier of ingredients will be a

local company because shipping products from the United States, besides the machinery, will not

be efficient. Buying ingredients from a local company also means we will not have to pay tariffs.

By using a local supplier, we also support the local economy, lower the risk of facing customs

delays and paying facilitation payments, and lower our costs in general.

        Because of our location in Maadi, we will be able to charge a premium price. Our target

market may be willing to pay more compared to other neighborhoods since they earn a higher

income. Rather than using a uniform pricing strategy, which is just converting our prices in the

23

United States directly to Egyptian pounds, we will use a modified uniform pricing. We can use

our competitors’ prices in the area, such as the prices at Starbucks and Cinnabon, as a benchmark

in the beginning. However, we could not find any prices for these stores, except for McDonald’s,

whose prices in Egypt were slightly cheaper compared to those in the United States. While

McDonald’s prices are less expensive than ours, we will have the advantage of a better location.

Our future goal is also to distribute donuts to grocery stores and develop more stores. For

example, we would eventually like to distribute our donuts in grocery stores such as Carrefour. If

the price for a donut in the Maadi neighborhood is 10 EGP, it may cost 6 EGP at the grocery

store but it will be sold at larger portions, such as only by dozens. A cup of coffee would also

cost around 20 EGP. Dunkin’ Donuts in Lebanon for example offers combinations of a

donut/sandwich with coffee for a better price. This strategy may also be an option for us to have

competitive prices (Dunkin Donuts, n.d.).

With a depreciated Egyptian pound, foreign visitors and employees will receive more

local currency for their home currency (in this case USD) and will be willing to spend more.

Inflation, as mentioned in the economic section, accounts for about 6-10% annually so there may

be some price changes over time.

Distribution Strategy

The Dunkin’ Donuts business model is mainly franchise-based with nearly 100% of their

locations as franchises, which allows them to focus on brand differentiation and menu

innovation. In order to drive growth of distribution internationally, Dunkin’ Donuts key

strategies are to further develop their franchise support infrastructure by providing operational

tools to be more effective in the market, which would definitely make it a more attractive option

24

to the current struggling Egyptian economy. Another key strategy is to capitalize on other

markets where they do not have a significant store presence, but still have consumer demand as

well as strong franchisee partners. What Dunkin’ Donuts plans to do in these markets is to team

up with local operators to adapt to the local business practices and consumer preferences

(Dunkin’ Brands Group, 2012). We plan on having our franchise in the neighborhood of Maadi,

which is an upper middle class suburb that houses many foreigners, expatriates, and Westernized

locals.

Our distribution strategy for Dunkin’ Donuts in Cairo will follow the stated business

model of the company, which is that the franchisee will be solely responsible for supplying its

own supplies, provided it meets Dunkin’ Donuts compliance standards. This is typically the case

for all international franchisees. The master franchisor in Egypt will have the option of virtually

sourcing everything locally or sourcing everything through the National DCP, whose closest

location is in New Jersey.

We decided that the costs of importing the ingredients for donuts, such as flour and sugar,

through NDCP would be equivalent to that of buying through local suppliers. We believe that the

cost of purchasing the ingredients, albeit at a lower price in the United States, would end up

being the same as buying local due to non-tariff barriers as well as slow regulation time.

Therefore, we decided that despite the mark-up we would experience due to the inflation of food

prices, we would save time going through our local suppliers (Dunkin’ Brands Group, 2012).

Some of the local suppliers we are looking into are North Cairo Flour Mills Company, Carrefour,

and Nile Sugar. These suppliers are all located in Cairo so we would be able to avoid high

transportation costs.

25

However, there is concern that the machinery and coffee in Egypt would not be up to the

Dunkin’ Donuts standard, so we have decided that we would pay the initial high cost of

importing machinery from the United States to ensure we have the best machinery to make our

food. We will work with Dunkin’ Donuts headquarters to order the machinery from their same

suppliers and import them into Cairo.

Also, we decided to import coffee beans from the United States through NDCP, who

already purchases over 90 million pounds of coffee per year and exports to over 23 countries.

We believe that because Dunkin’ Donuts is known for their special branded fair trade coffee,

Egypt would not have the proper type of coffee beans that would be up to par with our

company’s standards.

Our neighborhood, Maadi, is only six miles away from Downtown Cairo, so we believe

that transportation for distributors to get to our store will not be difficult, especially since it is a

very Westernized suburb. Maadi also has three different metro stations that go to central Cairo,

so we believe that our franchisee will be able to easily get supplies since Maadi is very close to

the hub of Cairo (Cairo Neighborhoods, 2008).

Promotional Strategy

Promotional strategies will help our company communicate amongst different cultures to

build awareness about our product and services. This awareness will then allow us to reach our

target market to promote brand recognition. Our approach to entering this market will start out

using a low cost marketing strategy. To save money and time, we will rely mostly on word of

mouth promotions along with advertising strategies that are low in cost but effective. We will

26

prepare to do a single-country sales force to gain acceptance in the local market and to help us

understand the local customers.

We will rely mostly on the interaction of our customers and positive buzz marketing in

order to build the trust of the upper middle class of Cairo. Due to Egypt being a collectivist

country, our main priority will be to gain the loyalty we need in order to promote positive

transactions about our store. This can also be accomplished by the use of viral marketing and

online resources.

We will be prepared to provide product samples to attract consumers to our restaurant to

provide awareness of our location and fast quality service. In doing so, Dunkin’ Donuts will have

to spend money to supply free sample items but will see profit increase by creating customer

loyalty. This approach will not only promote positive sales incentives to lure the customers into

our store, but it will also allow for direct feedback from our customers. Another form of

incentives that we can use is online coupons. These coupons can be advertised on social media

pages such as Facebook and Twitter. Social media outlets will allow us to reach a mass audience

for almost no cost.

        Additionally, the newspaper is a highly persuasive form of media in Egypt. In order to

become a welcomed business in the country of Egypt, it is important to gain the trust of the

locals. In order to reach the locals in Cairo we will be distributing advertisements through

newspapers such as Al Ahram Daily. This newspaper is circulated widely and will give our

company good exposure. The Al Ahram alone circulates roughly 900,000 newspapers in a week,

being one of the top five of the country’s largest publishing houses (Doing Business, 2012).

Another promotion that may be applicable in the near future is to hire a Public Relations

representative. This representative will communicate information about Dunkin’ Donuts by

27

enhancing brand equity. However, this will depend on the availability of qualified personnel,

which may be limited especially since Egypt is a developing country.

In the future, we may begin to devote more time and money into advertising and

marketing. Depending on the progress of the business, we may want to take a more aggressive

approach to advertising if the franchisee feels it is necessary. This would include more media

promotions through television, radio, and print ads. Like Americans, most Egyptians watch

television fairly regularly. Television advertising in Egypt has been continuing to increase which

may drive us to compete in this market. However, we are convinced that low cost marketing

tools and the location of our franchise will be enough to attract our target markets. If a stronger

marketing strategy is necessary, we will adapt as needed.

Unanswered Questions

A main important question that we were not able to research thoroughly is the local

competition in Egypt. We tried to look for Egypt’s popular local donut and dessert stores by

using internet sources and reading online discussion boards and forums; however, we could only

find a few local competitors which may be only a small representation of all the competitors we

would have to face entering Egypt. We also found it difficult to find prices for multinational

companies that have a branch in Egypt. For example, because Starbucks does not have an

Egyptian official webpage, we were limited in determining the most effective pricing strategy to

be competitive.

Another key item we had difficulty determining is finding potential franchisees. It was

difficult to understand the full potential a company has as a prospective franchisee just by

looking at their websites online. We also were unable to interview someone from Egypt to get

28

personal feedback about our understanding of Egyptian culture and how effective our strategies

would be in relation to the culture.

If we had a research budget, we would gather more primary sources of data. For example,

we would hire a local agency to do market research in order to gather an extensive list of

competitors in the Maadi area and other areas in Cairo with their respective pricing strategies.

We would also ask the local personnel for primary research about our competitors’ effectiveness

in advertising and their distribution system.

Additionally, one of the most uncertain aspects we had to consider is how to deal with

Egypt’s government since its current one is relatively new. It is difficult to determine how the

new president and his government officials will act in regards to foreign relations and

international business since the president was previously a member of the Muslim Brotherhood.

Since we cannot control Egypt’s political or economic stability, this is a question that will remain

unanswered. However, with the local information we get from our research, we may be able to

make better strategies that will mitigate political risk.

29

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