Dunkin Donuts announced last week it is considering name change, with a test store in Pasadena, Calif. going only by Dunkin'.
For a company that spent tens of millions of dollars all through the 1980s on advertising, with the memorable line, "Time to make the donuts," this is a shocking change of direction. However, while the move has some definite risks, the rationale is also solid.
Why should Dunkin' Donuts not be all about the doughnuts? Well, for one thing, many consumers lately haven't been all about the doughnuts. Lots of consumers wake up every morning with resolve to eat healthy. While by evening they may be ready to succumb to a juicy burger, starting the day with a doughnut may be on their "do not eat" list. Doughnuts aren't seen as clean food. While there's some growth in niche doughnut operations like Stan's Donuts in Chicago or Voodoo Donuts in Portland, they are not a mainstream breakfast staple nowadays. Other carbohydrate-heavy breakfast categories like cereal are also struggling. So maybe distancing Dunkin' Donuts from doughnuts isn't a bad move.
Dunkin' Donuts sells more coffee than doughnuts. And while doughnuts aren't growing, coffee is still hot. Americans drink more coffee every year, and younger and younger people are drinking it. In the 1970s and '80s, then-coffee giants Maxwell House and Folgers struggled with the reality that the average coffee drinker was getting older every year. Efforts to get young people to pick up the coffee habit were less than successful.
But then in the '90s, upscale retailer convinced young people that coffee was not only relevant, it was worth paying for. After bringing young people back to the category, Starbucks pioneered a portfolio of variations on a coffee theme: base brews for wake-up time, lattes and cappuccinos for later, and frappuccinos and iced coffees for summertime. More users and more usage occasions at higher prices were a formula for growth. Dunkin' Donuts has done a good job of borrowing Starbucks's product innovations, adding its own and tailoring them to be accessible and right for working people.
Coffee also is more profitable than doughnuts. Starbucks's escalation of average coffee prices has done wonders for coffee profit margins. This has been so successful that even competitors with lower coffee prices, like Dunkin' Donuts and McDonald's, have seen their coffee margins grow exponentially. In the 1970s and '80s, it wasn't unusual to pay 25 to 50 cents for a cup of coffee. No more. So the shift from doughnuts to coffee subtly moves the firms' focus toward higher margin items.
We've seen such moves executed successfully before in the restaurant industry. In 1995, Boston Chicken became Boston Market for the same reason--to be more about dinner, not just chicken. Around the same time, St. Louis Bread Company reframed itself as Panera. This was a double broadening move: "St. Louis" was dropped as the firm moved toward national scope and since consumers saw no particular associations between St. Louis and great bread. And while Panera is reminiscent of the French and Spanish words for bread, this was a subtle connection, allowing Panera to broaden its menu beyond bakery items.
We can expect Dunkin' Donuts to decrease its focus on doughnuts, and perhaps also its focus on morning items, as it seeks to grow. There's always a risk to changing a name, especially one with the recognition, following, and frequency of Dunkin' Donuts. But the strategy here is clear. And don't worry--it'll still have "time to make the donuts."
Julie Hennessy is a clinical professor of marketing at Kellogg School of Management at Northwestern University.
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