Dunkin' Donuts Seeking to 'Cafe Up'

Published in CSP Daily News

New design meant to go beyond current mantra that "life finished at 11:00 a.m."

CANTON, Mass. -- In an effort to get customers to stay beyond the morning daypart, Dunkin' Brands Group Inc.. has is working on a cafe-style store redesign with echoes of Starbucks, reported Bloomberg. It features earth tones and jazz soundtrack to encourage customers to hang out, sip coffee and surf the Web.

Until recently, the attitude at Dunkin' was that "life finished" at 11:00 a.m., CEO Nigel Travis, told the news agency. "We've attacked that mindset" with the new store designs because Dunkin' has been losing out on the afternoon consumer. "We haven't always been conducive to that relaxed environment," he said. "So soft seating, the ability to watch TV, to listen to appropriate music and just do things slightly slower than you would in the morning is what we think we've been missing."

Dunkin' is joining an industrywide rush to upgrade restaurants as quick-service joints jostle with boutique coffee shops and such fast-casual chains as Panera Bread Co.

Wendy's Co. is overhauling stores with flat-panel TVs, fireplaces and cushioned seating. Seattle-based Starbucks' capital expenditures will be about $1.2 billion, of which about two-thirds will go to refurbish and improve cafes and build new stores, in its fiscal 2013, compared with $856.2 million the year before. The coffee seller has said it will renovate about 1,400 U.S. locations in the year ending in September.

Dunkin', which plans to double the number of stores to 15,000 as it pushes west across the United States, is also looking to retain its position in the fast-growing coffee and snack-shop category. Sales at U.S. coffee shops rose 8% last year, while those of limited-service burger eateries increased 5% and full-service restaurant revenue advanced 4.5%, according to the report, citing Chicago-based Technomic Inc.

In a 2012 survey from Nation's Restaurant News and WD Partners, the chain tied for the second-lowest atmosphere score among beverage and snack shops, coming in below Starbucks, Krispy Kreme Doughnuts Inc., Caribou Coffee and Tim Hortons Inc. Starbucks received the highest score.

So far, Dunkin' has opened about 90 of the new stores and plans to have as many as 600 by year-end, said Bloomberg. Franchisees can choose from four options, which cost between $175,000 and $250,000 for a remodel and between $400,000 and $700,000 to build new. The fanciest can include stained-poplar rails, faux-leather chairs and glass partitions with LED lights that change hues--bluish light is said to have a calming affect while store owners can switch to red or green for the holidays.

There are four color schemes, including Dark Roast and Cappuccino Blend. The most-expensive version, dubbed Jazz Brew, has dark orange and brown cozy booth seating, as well as hanging light fixtures that lend a soft glow to wall murals printed with words such as "break," "fresh" and "quality."

Getting franchisees to buy in is particularly important for Dunkin' because 99% of its stores are owner operated. "A lot" of owners are volunteering to remodel their stores and more than 1,000 shops are putting in $13,000 digital menu boards, Travis said. Dunkin' Donuts franchisees are required to remodel their stores at least every 10 years.

"We can compete with Starbucks now," Yini Castaneda, manager at a remodeled Dunkin' Donuts shop in downtown Chicago across the street from a Starbucks store, told the news agency. The location is doing more business in the afternoon--the store gets about 50 customers during lunchtime now, compared with about 15 before the remodel earlier this year, she said.

Customers "actually do a lot of interviews here now; they sit down and have meetings," said Castaneda, whose store features a new digital menu board, glass cases displaying croissants, as well as more electric outlets for laptops and smartphones. A sign in the window says "Free Wi-Fi."

Dunkin' is catering to the increasing number of Americans who graze and eat between meals, Andy Barish, a San Francisco-based analyst at Jefferies & Co., told Bloomberg. The chain this month started selling breaded-chicken sandwiches with barbecue sauce and is advertising iced teas and coffees for a discounted 99 cents from 3:00 p.m. to 6:00 p.m. to encourage afternoon noshing.

The donut chain has room to sell more afternoon fare. Starbucks' U.S. stores generate about 50% of sales after 11:00 a.m., compared with 40% of sales at Dunkin' Donuts.

Relaxing music and dimmer lighting changes a restaurant from a grab-and-go place to a destination, Brian Wansink, professor of marketing at Cornell University in Ithaca, N.Y., told Bloomberg. He is the author of Slim by Design: Mindless Eating Solutions for Everyday Life. Dunkin's new designs may help it pull customers from fancier cafes and restaurants, he said.

"It can compete on the taste of its coffee and the taste of its pastries--of which a lot of people really, really liked," he said. "They just didn't like the atmosphere."