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The pandemic might have helped Dunkin' in one crucial way

The quarantine forced customers out West to think of the chain more than just a doughnut shop, says RB’s The Bottom Line.
Photo courtesy of Dunkin'

The Bottom Line

As Dunkin’ has expanded out West, one thing has always weighed it down: doughnuts.

Specifically, many customers outside of the Northeast have viewed the chain as a doughnut shop that also sells coffee, even though beverages are a more important source of revenue. The reputation made it difficult for the chain to break into the consumer mindset in many of its newer markets in the South and West, so much so that it removed “donuts” from its name.

The pandemic, it seems, helped that along. Or, perhaps more to the point: Starbucks’ decision to close many of its locations helped that along.

“We’re so pleased with the South and West, which, as a reminder, is where our future development is really coming from,” CFO Kate Jaspon told investors on Tuesday, according to a transcript on the financial services site Sentieo.

“When our competitors decided to close, we decided to stay open,” she said. “And that forced people that really saw us as a … bakery-only concept to come in and try our beverages.”

That, she said, was “perfect timing,” because Dunkin’ recently launched espresso-based beverages and other products. “So all those products that they felt they weren’t sure they would try for us that they were getting in those other places,” Jaspon said.

The comment appears to be aimed primarily at Starbucks, which closed many of its locations in March and April after the pandemic hit, opting to keep open only those locations that have a drive-thru.

In this instance, it could have forced Starbucks customers to go to Dunkin’, where they tried the chain’s beverages.

That could provide a benefit to the company in the coming years because the pandemic has introduced customers in newer markets to Dunkin’s beverages, which they apparently had been avoiding because they just thought the chain sold doughnuts.

Jaspon said the company offered value during that period and also was “really on our game” with its digital services. The company also started offering oat milk nationwide, beating Starbucks in a game it has theoretically owned over the years.

“We really believe we have convinced folks in those markets where it was outside our core,” she said. “We are a beverage player.”

It’s notable that Dunkin’s same-store sales declined 18.7% in its second quarter, while Starbucks’ U.S. same-store sales declined 40% during the corresponding period. Dunkin’ has a lot of locations in the hard-hit Northeast.

In many of these newer markets, Dunkin’ operates drive-thru locations, which have been popular during the pandemic. The performance of late has given operators of these newer units a big boost in confidence. “Our franchisees are fired up in those markets,” Jaspon said. “We’re loving what we’re seeing. And even though our competitors are reopening, we believe that we are maintaining those customers.”

Breakfast is a notoriously difficult daypart to break into, Wendy’s performance notwithstanding. Getting customers to break out of their habits is a challenge. For Dunkin’, there has been the added challenge of its reputation, as customers think it’s a doughnut shop.

By introducing more customers to its beverages, the pandemic may have been a benefit for Dunkin’ in ways it probably didn’t expect a few months ago.

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