Dunkin Donuts Case Analysis 11/8/2014
Dunkin Donuts is on the upswing; it has been increasing in profitability and market dominance over the last 5 years. However, new market pressures are being applied. In order to meet the goal of opening 90 new stores in 1979, Dunkin Donuts will expand with a combination of Franchised and Franchisee Developed stores. To increase sales revenue in existing stores Dunkin Donuts will introduce muffins in the northeast. To attract new, and satisfy existing franchisees Dunkin Donuts will pay the entire cost of its Network TV promotion. All these strategies will help Dunkin Donuts achieve its mission to be the dominant worldwide retailer of donuts.
Between 1973 and 1978 Dunkin Donuts has nearly doubled earnings, profitability and sales per unit. The debt-to-capitalization ratio has dropped nearly in half, and the number of corporate stores has increased 10 fold.
Dunkin Donuts is the largest of 3 donut chains, however pressure from competitors is present as stores move westward.
Real estate and gas pricing are on the rise.
Dunkin Donuts has a goal to open 90 new stores in 1979.
Dunkin Donuts recently successfully launched Souper Soups in its stores.
Dunkin Donuts has been testing muffins to possibly add to product line.
$4000 equipment cost
Muffins usually sold for 50% higher at retail than did doughnuts. Doughnuts were 20 to 25 cents per unit with up to one-third off on purchases of one dozen or more.
Muffins had virtually the same gross margin as doughnuts at 30%
Dunkin Donuts recently concluded a successful network TV promotion, attributing to a 10% sales increase over the period.
80% of franchise owners agreed to pay an extra 2% of sales for Network TV ads (average out-of-pocket expense of over $5,000 a year per franchise)