Dunkin’ Looks To Upgrade Its Image Beyond Breakfast On The Run

Since eating on the go has become a convenient and an integral part of the American lifestyle, customers have developed a certain image or experience associated with a particular restaurant. For example, Starbucks is seen as a place to go relax at and sometimes get work on your laptop, whereas Dunkin’ Donuts is a place to takeaway your coffee or doughnut. However many well known chains are trying to change diners’ mindsets to attract new customers and ultimately drive incremental sales.

A large proportion of Dunkin’ stores are relatively small in area with only a few seats. As a result, once the office goers or the university students are done with their daily round of breakfast coffee/doughnut, the traffic dries up. This is evidenced from the fact that the restaurant generates only 40% of its sales after 11 a.m. ^[1]

To address its afternoon blues, many new Dunkin’ stores will feature sofas and televisions so that diners can enjoy their meal at a slower pace. The management hopes to sell the idea of lunching at Dunkin’ Donuts to the public. Dunkin’ has been trying to boost the sales of its afternoon segment for a while now, and it has added sandwiches like the Roast Beef Bakery Sandwich, Angus Steak and Egg Breakfast Sandwich etc in the past. We expect more product announcements and efforts like this are in the pipeline as well.

Similarly, the idea of eating a meal doesn’t occur naturally to customers at Starbucks. Until now, only one-third of the transactions involved a food item at Starbucks. The coffee chain is now expanding its bakery menu to drive more sales, and the company’s La Boulange acquisition was aimed at improving the quality and attractiveness of its food items. These incremental sales can help drive growth and improve profit margins for the company.

See full analysis for Dunkin’ Brands

Fast Food Chains Go Upscale

Fast food chains are also trying to project themselves as more upscale, thanks to the success of fast-casual chains like Chipotle Mexican Grill (NYSE:CMG) and Panera Bread. The success of the fast-casual segment has illustrated that the customers are ready to spend more if they indeed find value in the menu items. The restaurant chain having the lowest prices will not necessarily be the one who will be more successful.

The restaurant chains work hard to project themselves in a certain way. The home page of Panera Bread’s website features a picture of a salad prominently, which goes well with its image of a chain serving fresh and healthy food. Similarly, one look at Chipotle’s website will tell you just how seriously they take their commitment in serving organically raised food.

This is also a side effect of the general public’s growing predilection towards eating healthier food. If a food is ‘fast,’ it cannot be healthy. That’s why some of the fast food chains are also refurbishing their existing restaurants in order to make them appear more upscale. An upscale environment creates the notion of fresher and better ingredients used. In addition to Dunkin’, some of the remodeled McDonald’s stores feature sofa seating, televisions and free Wi-Fi. It has also added healthier items to their menu in the past.

We have a $40 price estimate for Dunkin Brands, which is roughly in line with the current market price.

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1. Dunkin’ Donuts Upgrades Stores to Be More Like Starbucks, June 13, 2013, businessweek.com [↩]