Management Fundamentals 5th Edition by Robert Lussier

Exercise 20

When Dunkin' Donuts founder William Rosenberg opened the first Dunkin' Donuts, he had a simple philosophy: "Make and serve the freshest, most delicious coffee and donuts quickly and courteously in modern, well-merchandised stores." This philosophy still holds true today and is the foundation that has enabled Dunkin' Donuts to grow into America's favorite everyday, all-day stop for coffee and baked goods. Founded in 1950 by Rosenberg in Quincy, Massachusetts, Dunkin' Donuts became famous for its many varieties of donuts and wide range of bakery products, such as bagels and muffins. Located primarily in the Northeast and Mid-Atlantic, most of Dunkin' Donuts' business competition came from small locally owned stores. However, Dunkin' Donuts began facing formidable competition from both Krispy Kreme and Starbucks in the 1990s. Krispy Kreme began a phase of rapid expansion, opening stores outside the southeastern United States, where most of its stores were located, and Starbucks was opening a new U.S. store every workday. By 2002, Dunkin' Donuts had become a sleeping giant. Krispy Kreme was running circles around it and Dunkin' Donuts hadn't even bothered to offer the lattes that Starbucks offered. However, armed with a new business strategy, Dunkin' Donuts' luck began to change in the mid-2000s.
Krispy Kreme, which traditionally offered only its very sweet glazed donuts, began to see its domination over Dunkin' Donuts vanish. As a result of mismanagement, overexpansion, and faltering sales due to the low-carb diet craze of the early 2000s, Krispy Kreme posted a staggering loss of $135.8 million in 2006 and has never been able to make a comeback. With Krispy Kreme out of the way, Dunkin' Donuts set their sights on Starbucks. To better compete with the coffee giant, Dunkin' Donuts decided to focus its growth on its coffee and began offering a larger variety of lattes, espressos, iced coffee, and other beverages at a lower price than Starbucks. The strategy worked. While Starbucks's overexpansion and high prices hurt the company during the economic recession of the late 2000s, Dunkin' Donuts' business boomed. By 2008, 63 percent of its U.S. sales were from beverages, including more than 226 million servings of iced coffee that year. It also edged out Starbucks in a national taste test of coffee each year from 2007 to 2009, even in Starbucks's hometown of Seattle.
Today, Dunkin' Donuts is the largest coffee and baked goods chain in the world, serving 2.7 million customers per day at approximately 8,800 stores in 31 countries. The company is continuing its push toward global coffee-and-donut dominance, opening 338 new locations in the first half of 2010, with plans to have 15,000 locations worldwide by 2020. Nigel Travis, CEO of Dunkin' Brands, Dunkin' Donuts' parent company, said: "The strength of our brand and the quality of our products continue to enable us to be one of the fastest growing brands in the quick-service restaurant industry."
Cumulative Case Questions
Which environmental factors were most instrumental in Dunkin' Donuts' competition with Starbucks during the late 2000s?