Dunkin’ Brands is the parent company of Dunkin’ Donuts (DD), Baskin-Robbins, and Dunkin’ International. As DD accounts for 75% of the revenues for Dunkin’ Brands, it will be used interchangeably here as the core of both the business and operating models revolve around DD .
Business Model: DD focuses on being the everyday stop for coffee and baked goods, offering lower prices than Starbucks and faster wait times than McDonald’s. While Starbucks focuses on being the “third place,” an “affordable luxury” where people can share and enjoy a cup of coffee with friends and colleagues , Dunkin’ Donuts focuses on providing a quick cup of coffee and donut for a hard working, cost-conscious customer on the way to work. Unfortunately, with the recent entrance of McDonald’s McCafé, Dunkin’ Donuts has found itself being squeezed by on both sides. The three ways that DD differentiates itself from its competitors is through great tasting coffee, quick service, and cheap prices.
- Great tasting coffee: Dunkin’ Donuts has won many awards for the taste of its coffee. Its website explains how it is ranked #1 for customer loyalty in the coffee category for nine years . Additionally, it has been ranked #1 for both iced and hot coffee by CREST data in 2014 .
- Quick service: A Houston based news station did some research into the average wait time at Dunkin’ Donuts, Starbucks, and McDonald’s. The results put Dunkin’ Donuts in a competitive 2nd place at only six seconds slower than Starbucks (2 minutes 56 seconds versus 2 minutes and 50 seconds). McDonalds, on the other hand was quite slow at 3 minutes and 37 seconds .
- Cheap Prices: McDonald’s has entered the price-conscious coffee market and in many places sells any sized cup of coffee for $1. This has squeezed sales away from Dunkin’ Donuts. Meanwhile, Starbucks has enjoyed its premium status where customers are happy to pay a little extra for the brand .
Operating Model: The operating model is based on an asset-light, franchise strategy . Since Dunkin’ Brands owns very little by way of capital structure, the vast majority of the value lies in the quality of the products, relationships with franchisees, and relationships with customers .
- Innovative Products: Dunkin’ Brands maintains a Culinary Dream Team whose role is to work with the R&D team to create new and innovative menu choices .
- Building relationships with franchisees: Since nearly 100% of DD locations are franchises, strategic relationships must be maintained with the franchisees. These relationships are grown through a robust training program, general news and trends, and a significant marketing campaign. Additionally, initiatives like maintaining innovative product offerings and the DD Perks program help.
- Building relationships with customers: DD recently introduced the DD Perks loyalty program. While some have argued that this program has been a success, others argue that it has only bolstered an already high customer satisfaction rating. This may indicate the DD Perks program has only made loyal customers that much more loyal .
Ultimately, the intersection of the Business Model and Operating Model can be represented by same store sales growth, shown below. While the general market trend over the past four years has been a decline in same store sales growth, DD has declined at a much faster rate than Starbucks.
Conclusion: A cup of coffee is a cup of coffee, which is what the majority of customers want when they walk into Dunkin’ Donuts. DD has great coffee that many prefer over other brands, but needs to drive same store sales by leveraging its innovative products, franchisee relationships, and customer relationships. Meanwhile, DD does not lead the segment in wait time or price, two of its customer promises. Unfortunately, by competing in the price-conscious coffee segment, Dunkin’ Donuts is squaring off with and losing market share to competitors like McDonald’s. It is also failing to get customers to purchase much more than the average cup of coffee and perhaps a bakery item. This has ultimately led to a steady decline in same store growth as shown above. A lot of work needs to be done to convince customers that the brand deserves a premium price.
 Starbucks Corporation Fiscal 2009 Annual Report accessed: http://media.corporate-ir.net/media_files/irol/99/99518/SBUX_AR.pdf
 Starbucks Fiscal 2014 Form 10-K accessed: http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsAnnual