6 surprises from Dunkin’ Donuts

Investors were invited to a behind-the-scenes look last week at how Dunkin' Donuts intends to challenge Starbucks and McDonald’s for the loyalty of customers on the go. The plan laid out by management was packed with particulars that promise to shake up the whole limited-service sector.

Here are some of the surprises:

1.  Vending, carts lie in Dunkin’s future

Overseas, Dunkin’s sister concept, Baskin-Robbins, is already dispensing its treats via unattended machines, a means of capturing sales where traffic is too low to support a store. “Vending is something we need to look at for both brands,” said Nigel Travis, CEO of Dunkin’ Brands, the parent of the two quick-service brands.

The chain also intends to intercept customers on the go by dispatching a fleet of mobile carts, said Chris Fuqua, SVP of operations and supply chain.

2.  ‘Menu simplification’ has eaten into sales …

A major component of Dunkin’s near-term strategy is trimming its menu by about 10%. “We had more food items on our menu than McDonald’s, and more beverage items on our menu than Starbucks,” explained Dunkin’ COO Scott Murphy. The sprawling array slows service, confuses customers, and eats up menu space that could be used for products more consistent with the chain’s redirection, he noted.

But the streamlining, scheduled to be completed next month, isn’t without its short-term pain, executives revealed.

“There is in fact about a one-point short-term hit to sales until we get the rest of the menu introduced in the afternoon,” said Murphy, referring to the afternoon sandwiches that are already in the works.

He downplayed the effect, adding, “In the test versus control markets last year, we only saw a loss of about 15 transactions per week per store.”

3  ... But it’s a super labor play

“On the plus side,” Murphy continued, “there’s about a 1% improvement on the cost of goods sold, because of fewer throwaways, and about a point improvement on labor costs.” Order accuracy has improved 2% with the new menu, so fewer botched meals have to be discarded, he explained.

The real game-changing effects, he suggested, are on the labor side. The new menu promises to brake employee turnover by taking considerable pressure off the staff, Murphy noted. He revealed that crew satisfaction scores have jumped 15 percentage points at the sandwich station and 5 points at the beverage station.

There’s also a hugely positive impact on service, Murphy continued. “Those labor savings? They’re about 90 minutes per day” per store. That translates into about 10 hours per week per store that can be redirected to serving guests.

4.  A value deal 2 years in the making

A number of new draws for value-hunting customers are being given a try, all playing off two or $2, revealed Dunkin’ CMO Tony Weisman, a McDonald’s veteran who recently joined the doughnut operation.

Currently in a four-market test is a new tiered value menu. Products are grouped into three categories. Customers can pick two items from the first group for $2, two from the second bracket for $3, or a two from the third class for $5. The deal has been in the works for two years, Weisman revealed.

5.  New snack push: The Dunkin’ Run

About to be tested is a push for afternoon food sales, a part of Dunkin’s plan for netting more p.m. business. Patrons who pop into a Dunkin’ store for an afternoon beverage—what they’ve taken to calling a Dunkin’ Run, according to Weisman—can add a snack for $2.

The chain is already offering a beverage-focused bargain. In what’s being promoted as Dunkin’s version of happy hour, patrons can get a medium latte for $2 between 2 p.m. and 6 p.m.

6.  No hole in doughnuts strategy

Dunkin’s emphasis on beverages and sandwiches doesn’t mean the brand is walking away from doughnuts, executives stressed. As proof, they pointed to how the chain’s signature product is being showcased at Dunkin’s new prototype, a just-opened unit in Quincy, Mass.

Doughnuts are featured in a glass case that’s front and center as customers enter the restaurant, a major shift from current stores, where all baked items are displayed on racks behind the service counter.

Execs also noted that Dunkin’s new digital menu boards mark the first time in the chain’s 50-plus-year history that different types of doughnuts are pictured on the bill of fare.

Their comments suggested that Dunkin’ will develop more doughnuts tied to the calendar, such as the ones offered for a limited time at Halloween and other occasions.

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