American-based doughnut and coffeehouse company Dunkin’ Donuts (DNKN, Financial) is losing consumers to fast-food restaurants McDonald’s (MCD, Financial) and Burger King (BKW, Financial) as it faces competition in afternoon coffee sales.
As per CNBC reports, Dunkin’ Donuts is struggling to attract customers for the afternoon menu as McDonald’s has started McCafe promotions besides widening its menu options. Evidently the company’s afternoon sales are getting hurt.
As far as the pricing policy is concerned, McDonald’s keeps its beverage prices low as compared with Starbucks (SBUX, Financial) and Dunkin’ Donuts, making it more difficult for the latter to draw customers.
The good news is that Dunkin’ Donuts remains strong financially despite facing midday coffee sales trouble. The company’s overall sales have been boosted by franchisee fees and royalty income in past quarters. The company reported flat same-store sales in the first quarter. The company’s net income stood at $47.5 million or 51 cents a share while revenue for the quarter surged a little to $190.7 million.
The growth driver
What separates Dunkin’ Donuts from other fast-food competitors is that it offers speciality drinks as well as cold brew coffee. In addition, the company will offer the all-new frozen coffee at $1.99 all year.
The company plans to improve customer service by simplifying and streamlining its menu. Besides improving customer service, this will help the company shorten restaurant operations and reduce employee turnover. Thus, the company can witness all-around development.
Dunkin’ Donuts is strategizing to offer products and services that will attract a young crowd. The company will also get rid of its artificial and unnatural ingredients from its doughnuts so as to tap the health-conscious customer base. In the era of intensified competition where customer satisfaction becomes important, these steps are absolutely necessary.
The management is spending time and effort in building stores and entering new regions, keeping in mind the franchise profitability. The franchisees approved the company's step of streamlining the menu.
Dunkin’ Donuts has also started offering digital ordering using mobile phones. The company looks to create and win loyal customers through this technology which can give it a slight edge over its competitors. In March, Dunkin’ teamed up with Waze, the world’s largest community-based traffic and navigation app, to enable Waze users to book while being on the way and, at the same time, skip the queue.
Last word
CEO Nigel Travis believes Dunkin's key challenge in pricing its products lies in the fact that its stores operate as franchises. The increasing labor cost across various markets has risen the operating expenses of franchisees, leading them to press on increasing prices. This strategy would make customers opt for cheaper offerings available at rival stores. Dunkin’ Donuts is closely working with its franchisee chains to keep prices low. Undoubtedly, the company does not have the brand perception such as that of Starbucks to keep prices high for offering lattes and cappuccinos. As such, it is wise to not overprice its products. But will cheap be enough? Only time will tell.
Disclosure: I do not hold any position in the stocks mentioned in this article.
