1) What a Porter’s Five Forces analysis reveal about the industry in which Dunkin
Donuts and Starbucks compete, and what are its strategic implications for Dunkin
Donuts?
2) In what ways is Dunkin Donuts presently using strategic alliances, and how could
cooperative strategies further assist with its master plan for growth?
Introduction
Dunkin’Donuts is part of the American multinational doughnut company and the coffeehouse
chain that has its headquarters in Canton, Massachusetts. William Rosenberg founded the
company in the year 1950 in Quincy, Massachusetts. It’s one of the largest coffee houses that
also deal in baked goods and other hot and iced eateries and products. Dunkin’ Donuts has
over 15,000 restaurants in 37 different countries.
1) What a Porter’s Five Forces analysis reveal about the industry in which Dunkin Donuts
and Starbucks compete, and what are its strategic implications for Dunkin Donuts?
Porter’s five forces reveal that the industry is very competitive. The bargaining power of
customers is limited just as much as the suppliers. The threat of new entrants to the market is
real as there are no inhibiting high costs of capital requirements to establish a business in the
industry. However the trademarks of the leading brands have huge impact on the sales in the
industry. The companies are well established and have huge economies of scale that can tilt
the cost advantages to themselves. Starbucks and Yum are the major competitors for Dunkin
Donuts. (Porter, 90)
The threat of substitute products is also applicable but its effect would be minimal. After
many years of market segmentation some companies have increased their efficiency in
marketing operations by narrowing the market specifically toward a designated and defined
segment in a way that is consistent with the characteristics of the segment. Market
segmentation has led to product differentiation from each segment while tangibly or
intangibly differentiating it from the rival products and the competitors.
Over the years these companies have positioned and developed their brands as the images
of the company’s products. The combination of all the required elements of marketing mix
has been utilized to achieve the required strategy. These companies have positioned their
products to explain the uniqueness of their company products in the market place and also its
advantages against the products on the shelves. Branding has been utilized to position the
products by designing their packaging and the writing styles used on the posters. These
makes their communication strategies to be effective as the customers form a picture
mentally about their perception of the product which eventually influences the prices they are
willingly or a ready to pay for the product.
Given the above facts, it’s obvious that the competitors of DD have an upper hand because of
their huge financial base and the magnitude of their sizes but compared to the industry’s
average, DD is operating far above its other peers in the industry. Its GM (Gross Margin)
average is above those ones of its major competitors as it’s very efficient. For instance, DD’s
PE is the highest in the industry at 41.23% while SBUX and Yum have 38.04% and 28.01%
respectively while the industry average is 28.1%. DD also has a larger operating margin at
0.39% compared to 0.14% and 0.15% of SBUX and Yum respectively. The industry average
is 0.09.
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Dunkin’ Donuts is operating at very stable economic environment considering that the food
and beverages industry is one of the industries with relative stable earnings. Dunkin Donuts
Inc is still very competitive in the market despite the fact that its competitors command huge
economies of scale and have large financial bases that can be used to expand into other
emerging markets in the industry.
2) In what ways is Dunkin Donuts presently using strategic alliances, and how could
cooperative strategies further assist with its master plan for growth?
Dunkin Donuts is using strategic alliances to expand to other regions in the United States. In
the year 2015, it’s expected to expand and establish outlets in Los Angeles and also in other
centres within California. Dunkin Donuts has utilized the Franchising technique to expand in
regions where their competitors also have their outlets. By cooperative with other firms and
also forming alliances with other companies in the industry it’s able to capture adequate
market for its own survival and also for its expansion and growth strategies. (Kowitt, 161)
3) Do you see evidence of strategic leadership in Dunkin’s U.S. expansion plans? If so, how?
Dunkin Donuts is strategically acquiring franchises to establish itself in some markets that are
largely dominated by its rivals. Dunkin Donuts has exploited all options that its major
competitor, Starbucks has not discovered. In 2008, Dunkin Donuts offered to work extra
hours in the night to offer their preferred latte cappuccino and espresso promotions to all its
customers who were in need. (Kowitt, 161)
Dunkin Donuts embarked on Promotional strategy of informing, persuading and influencing
the decisions of their potential customers. Its major objective was to develop and promote its
products primary demand. It developed varied promotional strategies. Some of the strategies
were used to expand in different markets while others were utilized to reach selected and
particular markets. Most of the promotional strategies provided the basic necessary
information about their latest products and differentiated them in order to increase their sales,
value and to stabilize their overall market demand.
4) Further research: Gather information of industry trends, as well as current developments
with Dunkin Donuts and its competitors. Use this information to build an up-to-date SWOT
analysis for Dunkin Donuts. If you were the CEO of the firm, what would you consider to be
the strategic management implications of this analysis, and why?
Dunkin’ Donuts (DD) has a market capitalization of $5.1 billion compared to the industry
average of $918.26 million. Its major competitors, Starbucks Corporations and Yum! Brands,
Inc each has a market capitalization amounting to $59.71 billion and 29.77 billion
respectively. DD enjoys a quarterly revenue growth of 0.06% per quarter while Yum has a
negative growth of -0.03% and 0.13% for SBUX. The total revenue earned in the year 2012
amounted to $677.77 million for DD while SBUX and Yum each earned $14.46 billion and
13.6billion while the industry’s average is $458.59 million.
The Gross Margin for the year 2012 was 0.79% of the total sales while SBUX and Yum have
0.57% and 0.26% respectively for the same period. The industry average is 0.3%. EBITDA
for DD, SBUX, Yum and the industry average is $311.1 million, 2.72 billion, 2.69 billion and
55.66 million respectively. www.Yahoo.finance
Given the above financial facts, it’s obvious that the competitors of DD have an upper hand
because of their huge financial base and the magnitude of their sizes but compared to the
industry’s average, DD is operating far above its other peers in the industry. Its GM (Gross
Margin) average is above those ones of its major competitors as it’s very efficient. For
instance, DD’s PE is the highest in the industry at 41.23% while SBUX and Yum have
38.04% and 28.01% respectively while the industry average is 28.1%. DD also has a larger
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operating margin at 0.39% compared to 0.14% and 0.15% of SBUX and Yum respectively.
The industry average is 0.09.
Dunkin’ Donuts is operating at very stable economic environment considering that the food
and beverages industry is one of the industries with relative stable earnings. (Werner, 180)
Investing in Dunkin Donuts Inc would be a very wise decision. The strengths of Dunkin
Donuts are found in its branding and registered trademarks that allow it to sell its product as a
brand while its major opportunities are still in the United States where it’s very popular and
preferable to other less renowned brands.
Its major weaknesses lie in its limited financial resources unlike Starbucks that have large
financial bases that can be used to expand to any market globally. DD has restricted most of
its expansion in the United States largely because of its limited resources. These companies
also form the major threats to its existence and continued profitability.
The strategic management implication of this analysis is to counter the effects of the large
established companies in the market and their economic implication to Dunkin Donuts.
Dunkin Donuts has to develop ways of countering the effects of these large well established
companies in the market and adopt strategies to survive in the competitive market.
Conclusion
Dunkin Donuts is a well established Company and its brand is favourable to most
people in the United States. Currently its operations are efficiently managed making it to be
more profitable compared to its share in the market and its total market capitalization.
Works Cited
Beth, Kowitt. “Dunkin’ Brands’ Kitchen Crew”. Fortune 161 (7) May 24, 2010.
Porter, Michael. “The Five Competitive Forces that Shape Strategy”, Harvard Business
Review , January 2008, p.86-104.
Felt, Werner, B. A resource-based view of the firm, Strategic Management Journal, Vol. 5,
(April-June): pp. 171-180, 1984.
