Summarize key Industry Trends

Within the consumer discretionary sector, the cafe space is expanding day-by-
day. New market entrants are trying to create unrest in the market and the existing
players are trying to fight for their survival and brand image. Recently, Strange Donuts
has opened its franchise and is eager to expand within the United States and into
Mexico. The coffee and confectionary industry is highly competitive having global
brands such as Dunkin, Starbucks, and Krispy Kreme that are expanding their
operations to all over the world. According to the CHD Experts LLC., (2018), within
the United States there are more than 13,000 shops with the proportion of 9,140 Dunkin
Donuts, 316 Krispy Kreme, 470 Daylight Donuts and other donut brands.
Alone, Dunkin Donuts is worth upwards of $35B. From 2016-2024, the confectionary
industry is expected to grow from $40 billion to the $55 billion. North America
accounts for 49% of the entire market for the coffee and confectionary industry, with
the rest of the entire world making up only 51% of the market. The confectionary
market is continuously growing at the rate of approximately 5.2% annually.

CPM Matrix

Dunkin Brands Starbucks Krispy Kreme

Critical Success Factors Weight Rating Score Rating Score Rating Score

Advertising 0.09 4 0.36 2 0.18 3 0.27

Promotions 0.10 3 0.30 3 0.30 3 0.30

Customer Service 0.08 3 0.24 3 0.24 3 0.24

Store Locations 0.08 2 0.16 4 0.32 2 0.16

R&D 0.04 3 0.12 2 0.08 1 0.04

Employee Satisfaction 0.06 2 0.12 3 0.18 3 0.18

Quality 0.10 3 0.30 3 0.30 1 0.10

Customer Loyalty 0.16 4 0.64 4 0.64 4 0.64

Market Share 0.06 2 0.12 3 0.18 2 0.12

Innovation 0.04 2 0.08 2 0.08 1 0.04
Resources 0.10 2 0.20 4 0.40 1 0.10

Price Competitiveness 0.09 3 0.27 2 0.18 4 0.36

Totals 1.00 2.91 3.08 2.55

Competitive Overview
Starbucks Analysis
Opportunities

1. Customer Loyalty: When looking at the internal strengths and weaknesses

assessment of Starbucks, one thing that comes to attention is their customer
loyalty. Starbucks has been able to create one of the strongest brand loyalties of
any firm in the industry. While many factors are required to make this possible,
the results are very impressive. During a management access forum, the CEO of
Starbucks revealed that not only has revenue from new customers increased, but
so has spending of retained customers. This show that Starbucks understands
the value of retaining the business of previous clients. As a result Starbucks has
one of the most comprehensive customer rewards programs in the nation, and
has turned their clients into fanatics who promote the brand.
2. Global Market Growth: These priorities are our main focus to grow our core
business with new customer acquisition through store growth, digital
engagement and innovation, while we continue to foster long-term customer
relationships. To successfully achieve these priorities, we will undertake a
number of initiatives, including the pending transaction to acquire full
ownership of our joint venture in East China and converting our Taiwan and
Singapore markets to fully licensed operations. We are in the process of exiting
certain activities including closing Teavana™ retail stores and certain Starbucks
company-operated stores in Canada, the pending sale of our Tazo brand and
related assets, and aggressively rationalizing merchandise in our U.S. retail
stores. These strategic actions will enable us to focus on businesses and
 products with the highest growth potential and greatest prospect for returns. We
expect revenue growth to be in the high single digits for the underlying business
in fiscal 2018 driven by comparable store sales and the opening of
approximately 2,300 net new Starbucks stores globally. An additional 2 to 3
points of revenue growth is expected related to the aforementioned strategic
initiatives

Threats
1. Economic conditions in the U.S. and international markets could adversely
affect their business and financial results. This is basically saying that if the
global economy does not perform well, people will have less money to spend on
their products, because Starbucks is seen as a luxury more than a necessity. This
is a factor that spans across virtually the entire restaurant and is not exclusive to
Starbucks.
2. Environmental Impact: Starbuck’s purchases, roast and sell high-quality whole
bean Arabica coffee beans and related coffee products. The price of coffee is
subject to significant volatility and has and may again increase significantly due
to one or more of the factors described below. The high-quality Arabica coffee
of the quality we seek tends to trade on a negotiated basis at a premium above
the “C” price. This premium depends upon the supply and demand at the time
of purchase and the amount of the premium can vary significantly. Increases in
the “C” coffee commodity price do increase the price of high-quality Arabica
coffee and also impact our ability to enter into fixed-price purchase
commitments. We frequently enter into supply contracts whereby the quality,
quantity, delivery period, and other negotiated terms are agreed upon, but the
date, and therefore price, at which the base “C” coffee commodity price
component will be fixed has not yet been established. These are known as price-
to-be-fixed contracts. The supply and price of coffee we purchase can also be
affected by multiple factors in the producing countries, such as weather
(including the potential effects of climate change), natural disasters, crop
disease, general increase in farm inputs and costs of production, inventory
 levels and political and economic conditions, as well as the actions of certain
organizations and associations that have historically attempted to influence
prices of green coffee through agreements establishing export quotas or by
restricting coffee supplies. Speculative trading in coffee commodities can also
influence coffee prices. Because of the significance of coffee beans to our
operations, combined with our ability to only partially mitigate future price risk
through purchasing practices and hedging activities, increases in the cost of
high-quality Arabica coffee beans could have an adverse impact on our
profitability. In addition, if we are not able to purchase sufficient quantities of
green coffee due to any of the above factors or to a worldwide or regional
shortage, we may not be able to fulfill the demand for our coffee, which could
have an adverse impact on our profitability

Krispy Kreme Analysis

Opportunities
1. Promotion: Krispy Kreme believes their promotion opportunities will grow
from an expected increase in the number unit volumes from store sales and
shops. To achieve this goal, Krispy Kreme is focused on increasing traffic by
offering additional doughnut and beverage varieties, using strategic promotions,
and encouraging special and “everyday” reasons for consumers to visit Krispy
Kreme (Krispy Kreme 10K, 2016). Krispy Kreme’s plan is to further develop
and leverage a new mobile guest engagement platform described below to build
visit frequency and promote social media sharing of the Krispy Kreme
consumer experience. Being an opportunity for Krispy Kreme, their firm is
technologically expanding with their mobile platform. This opportunity for
them is a positive impact for their company since our society has become more
technologically advanced, and people are leaning towards ordering online and
have their items ready for pick up when they arrive.
2. Customer Service: Competing in the industry of food quality, convenience,
location, customer service and value, Krispy Kreme offers their employees
 incentives based on customer service. By offering incentives, Krispy Kreme
emphasizes the importance of performance by linking a portion of both a
company shop manager’s and assistant manager’s incentive compensation to
profitability and customer service. Encouraging high levels of customer service
and the maintenance of our quality standards by frequently monitoring our
stores through a variety of methods, including periodic quality audits, regular
mystery shop visits and a toll-free consumer telephone number. Customer
service, including frequency of deliveries and maintenance of fully stocked
shelves, is an important factor in successfully competing for convenience store
and grocery/mass merchant business. There is an industry trend towards
expanded fresh product offerings at convenience stores during morning and
evening drive times, and products are either sourced from a central commissary
or brought in by local bakeries (Krispy Kreme 10K, 2016). In Krispy Kreme’s
most recent annual report for 2016, they highly emphasized the importance of
customer service. The positive direction Krispy Kreme is taking shows an
importance of what their quality, convenience, location, customer service and
value means for their customers.

Threats
1. Advertising: The amount of costs associated with Krispy Kreme products,
including advertising and other brand promotional activities, are expensed as
incurred, and were approximately $10.3 million, $9.8 million and $8.2 million
in fiscal 2016, 2015 and 2014, respectively (Krispy Kreme 10K, 2016). Overall
the amount Krispy Kreme is spending on advertising has significantly increased
over the past 3 years, which could lead to a threat. Potentially being a threat to
the company by comparing other competitors spending cost on advertising. If
other competitors are spending less on advertising, Krispy Kreme may be over
spending and have their costs tied up in the wrong focus. To be sure the
company is spending its resources properly, they could: run an analysis of what
other companies are spending on advertising, and see how effective Krispy
 Kreme’s advertising is by having a survey to see how customers are receiving
advertisements by Krispy Kreme.
2. Price: Although we utilize forward purchase contracts and futures contracts
and/or options on such contracts to mitigate the risks related to commodity price
fluctuations, such contracts do not fully mitigate commodity price risk,
particularly over the longer term. In addition, the portion of our anticipated
future commodity requirements that is subject to such contracts varies from
time to time. Flour, shortening and sugar are our three most significant
ingredients. We also purchase a substantial amount of gasoline to fuel our fleet
of CPG delivery vehicles. The prices of wheat and soybean oil, which are the
principal components of flour and shortening respectively, and of sugar and
gasoline, have been volatile in recent years. We attempt to leverage our size to
achieve economies of scale in purchasing, but there can be no assurances that
we can always do so effectively. Adverse changes in commodity prices could
adversely affect our profitability. Although price may be a threat towards a
company, especially if prices rise. The outcome of changing different sugar,
flour, and shortening distributors could lead to a change in the quality of
products Krispy Kreme serves. Even though price has its downfalls, finding a
cheaper producer of their ingredients could lead to lower quality of products
which could result in less sales which would really have a negative impact on
Krispy Kreme.

Dunkin’ Brand Analysis

Opportunities
1. Products and Development: New products and development can be a good
opportunity for Dunkin’ Brands. As the new products develop, customers are
drawn to in to sample the company’s newest products offered. Dunkin’ Brands
competitor, Krispy Kreme offers one of the largest list of products and services.
However, Dunkin’ Brand’s list of products is shorter, especially new products.
Therefore, it is a huge opportunity for Dunkin’ Brands to have new products
available on the menu to serve new and existing customers. By offering new
 products it will help the company to acquire new customers as people love to
expand their tastes. Inside North America, consumers view donuts as treats and
have the idea of biting into something sweet and savory. Interestingly, outside
of North America, market is not saturated and it is a good opportunity for
Dunkin Donuts to take benefit of it.
2. Store Locations: In any business, store location is the backbone for attracting
new customers and makes the customers to notice your business most
frequently. Therefore, it is also an opportunity for the Dunkin to expand the
stores to different locations in North America and also to the outside of North
America. Krispy Kreme is also expanding its stores locations from whole sales
outlets to the retail outlets in order to capture more market. It is also an
opportunity for Dunkin Donuts to expand the market as retail stores to the
different locations where it can capture new market. Dunkin Donuts has a
strong brand image North American market and it can cash this goodwill in
other Europe and Asian markets as well.

Threats
1. Government health and regulatory laws: Dunkin Donuts presently dominates
the U.S. Market as well as outside of U.S. with more than 700 stores worldwide.
Company is expanding to the international market but the problem it has in the
foreign markets is the health issues and consciousness. Although, Dunkin
Donuts has already included the healthier options in its menu but still it is a
threat for the company because people are becoming more selective in their
choices concerning health. It has been notices that governments and some cities
have restricted the drinks and sugary items usage in different locations.
Therefore, it could a problem for the company.
2. Price: Price is the cause of war between brands. The brand offering lower prices
with greater quality enjoys the market share and customers’ loyalty. So, there is
the case of Dunkin Donuts which offer medium and competitive prices to its
customers but some of the products have higher prices than the competitors
such as Krispy Kreme and Starbucks. The price of Grande latter at Starbucks
 costs $3.65 but the same latte cost $3.29 at Dunkin with extra flavors, sugar,
cream, and milk with no extra charges. There is not a much difference in the
prices of Starbucks and Dunkin Donuts. So, it is a big threat for the Dunkin that
if it increases the prices then the nearest competitors such as Starbucks and
Krispy Kreme will attract the customers to themselves. However, Dunkin
Donuts has to be vigilant in setting prices. Dunkin must compare its prices with
its competitors who are charges more or less such as Starbucks and Kreme.

Dunkin’ Brand EFE Matrix

Weighted
Opportunities Weight Rating
Score

1 Columbia, world’s 2nd largest Arabica grower is

0.06 1
increasing production 0.06

2 Doughnut market in US is a $13 billion industry 0.09 3 0.27

3 40% of industry sales comes from drinks 0.04 3 0.12

4 Restaurant sales increasing in Europe and Asia 0.06 2 0.12

5 Largest customer segment prefers price over quality 0.03 3 0.09

6 Popularity of single serve coffee cup makers has

0.05 4
increased drastically in the last 2 years 0.2

7 Demand for coffee and breakfast food increasing 0.07 2 0.14

8 Hispanics are project to account for 25% of increase in

0.04 3
spending on food away from home 0.12

9 Starbucks can add new customers to its loyalty program 0.04 4 0.16

10 Technology becoming crucial in reaching customers 0.01 2 0.02

Weighted
Threats Weight Rating
Score

1 Coffee prices doubled between 2013-2014 0.10 2 0.20

2 Coffee harvest was the lowest in 3 years in 2014 0.08 1 0.08

3 Government push for increased minimum wage 0.05 2 0.10

4 Barrier to enter the market are relatively low 0.03 4 0.12

5 Other QSR competitors have pushed into the breakfast
0.07 3
market 0.21

6 Tim Hortons plans to build new restaurants in Dunkin

0.03 2
Donuts 0.06

7 Coffee production could drop as much as 40% in the

0.07 1
coming years 0.07
8 Low-carb diets are extremely popular around the world 0.04 3 0.12

9 Governments are imposing laws restricting portion sizes

0.03 3
of sugary-laden snacks and drinks 0.09

10 Supplemental Nutrition Assistance Program cut from 1.2

0.01 2
Million Americans 0.02

Total EFE Score 1.00 2.37

In the External Factors Evaluation (EFE) Dunkin has scored 2.37 weighted score which
is below average score. It indicates that Dunkin Company does not have higher
opportunities but threats. It also means that company is not strong enough as it should
be. So, there is a strong need to address the external matters of the company.

Key Takeaways from the External Assessment

One of the largest takeaways from the EFE matrix was that the majority of
coffee drinkers referenced price over quality. Dunkin’ Brands can utilize this to their
advantage, by offering specialized deals based off price, since the company has already
managed high quality products. Starbucks already has a solid niche in the more
premium side of the coffee and pastry business, so Dunkin can fulfill a cheaper coffee
that costs much less and will secure a large portion of the market. An opportunity in
Dunkin’ Brands advantage is the amount of profit in the donut industry. As discussed in
our CPM matrix narratives, donuts are a sweet delicacy that can be enjoyed any time of
the day. Dunkin’ Brands does have an advantage over Starbucks regarding their donut
selection, but Starbucks does offer a variety of other breakfast options.
Dunkin’ Brands breakfast competition is not only it’s immediate competitors, it
is now all the other breakfast markets that are joining in. It was ranked the highest on
the EFE matrix for being a threat. The dominance Dunkin’ Brands has over other
competitors is the length of time they have been in the coffee and breakfast food
industry is longer, and have accumulated more loyal customers over newer competitors.

References
1. Krispy Kreme. (2016, January 31). Krispy Kreme 2016 Annual Report.
Retrieved from
http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_KKD_2016.pd
f
2. Starbucks. (2017, January 31). Starbucks 2017 Annual Report 10K. Retrieved
from https://s22.q4cdn.com/869488222/files/doc_financials/annual/2017/01/FY17-
Starbucks-Form-10-K.pdf
3. Tristano, D. (2018, April 11). Growth In Upscale Doughnut Chains Becoming
A Little 'Strange'. Retrieved from
https://www.forbes.com/sites/darrentristano/2018/04/10/growth-in-upscale-doughnut-
chains-becoming-a-little-strange/#7ba074b1f647