Slam Dunkin'

What c-stores can learn from the coffee-and-doughnut king as DD continues to grow and expand.

Erik J. Martin, CSP Correspondent

Article Preview: 

Consumers Crave Quality

While Dunkin’s products and accomplishments are impressive, its recipe for market dominance shouldn’t simply be admired from a distance—it should be replicated across the convenience retailing industry, industry experts suggest. And that starts by appreciating two key concepts that have helped shape DD’s success: quality and freshness.

“Today’s c-store shoppers crave fresher ingredients, quality products and good-tasting foods at an attractive price point. You can’t let that coffee sit on that burner too long, and you have to offer good coffee variety,” says Bonnie Riggs, restaurant industry analyst for The NPD Group, Port Washington, N.Y.

Riggs says The NPD Group has conducted several recent studies revealing that consumers desire more food choices and variety, “but far and away, no matter the category, quality of product is No. 1 among customers. If it’s a good product, reasonably priced and consistent in terms of how it’s delivered, it’s not going to go away. Just think of the Egg McMuffin—it will be there forever.”

When it comes to promoting freshness, however, c-stores have a bad reputation to overcome and a long climb ahead.

“When you go into a c-store, you pour yourself a cup of coffee and worry if it’s even fresh. And how often can you get a fresh doughnut or breakfast sandwich at a convenience store?” asks Nahmias.

One way to energize c-stores’ clientele and change a stale public perception is to expand a hot and cold beverage line with fresh offerings prepared by a dedicated server or team.

“[StudyLogic] has found that c-stores that have tested the concept of offering in-store barista service or at least someone dedicated to making fresh beverages on the premises have more than doubled their sales in that category,” says Nahmias, who cites Sheetz and Wawa as two examples of this trend. “When a customer is on his way to work, he’s often got a lot of places to go before he gets there; he’s got to get gas, coffee and breakfast. For c-stores to be better able to adapt and grow, they need to accommodate those needs by becoming a one-stop shop offering fresh food and more variety.”

Nahmias says convenience retailers can learn a great deal from the McCafe concept McDonald’s rolled out in 2006, providing a wider array of specialty coffee and chilled beverages than the normal menu, resulting in $2 billion in average beverage sales growth annually.

“C-stores are in a unique position to capitalize on this concept,” says Nahmias. “If they can execute a strategy that allows customers to come inside, buy coffee and gas, save time and get a great product at a great price, they can succeed.”

Serendipitous Schedules

The adage “If you can’t beat ’em, join ’em” may apply when it comes to competing against DD. It may pay greater dividendsto bring Dunkin’ under a c-store’s roof as an owned or leased franchisee than merely mimic its best practices.

Consider that 34% of c-store traffic occurs at breakfast, reports The NPD Group, making the morning a vital daypart. Doughnut-category QSRs are equally dependent on mornings for big business. That’s why a partnership between a convenience retailer and a coffee-and-doughnut leader such as DD can potentially be a winwin for both, says Riggs, especially if the c-store itself lacks a fresh breakfast and beverage destination.

“We may have a lot more one-stop shopping today because of high gasoline prices and consumers trying to be more conservative. They’re likely to stop and get their gas and take advantage of what’s there, especially if you offer a brand with high recognition and awareness that consumers know what to expect from,” says Riggs.

And therein lies a win-win proposition for operators in the right markets: the opportunity to cross-promote gas, snacks, tobacco and lottery with a beloved brand of hot joe and sweet dough.

“Expanding with c-stores has proven to be an effective way to continue Dunkin’ Donuts’ strategic expansion in both new and existing markets, while assisting complementary businesses to differentiate themselves from local competition and expand their presence with a powerful, well-recognized brand,” says King of Dunkin’ Brands.

Riggs says doughnut-category QSRs boast a customer demographic that is closely aligned with c-stores, because each appeal to blue-collar consumers.“I wouldn’t see a gourmet-coffee concept partnering easily with c-stores because of the demographic profile and because the gourmet-coffee places have a higher skew toward 18- to 49-year-old women, who are not the typical c-store customer,” Riggs says.

For c-stores, where the bulk of business is usually snacks, specialty beverages can also look particularly attractive, Riggs says. Offering such can lure more traffic into the store and potentially contribute to impulse buying of other items.

“[DD] is also perceived as a daily destination for coffee and baked goods,” Powell of Technomic says. “These are two of the big barriers for c-stores, besides the perception that they are ‘gas stations with food.’ ”

The perks of partnering with Dunkin’ will depend on a c-store’s corporate strategy, however.

“If you’d like to build traffic and pay royalties, then Dunkin’ is the way to go. There is no ramp-up period, and Dunkin’ will provide the brand and distribution,” Powell says. “However, if you’re a company like Sheetz or Wawa, you would prefer to build on your own foodservice brand, but execution becomes challenging. Dunkin’ is very good at executing systemwide across all its stores.”

Click here to download full article