Soon, it won't take so much "time to make the doughtnuts" at Dunkin' Donuts. The Dunkin' Brands Group (NASDAQ:DNKN) coffee and doughnuts chain is experimenting with reducing the number of varieties available at some 1,000 test stores nationwide, cutting them from 30 to 18. It's not clear which varieties are being cut in the test markets.
Coupled with its recent decision to drop the word "Donuts" from the chain's name -- it's going to start calling itself just Dunkin' as it makes most of its money from coffee -- cutting back on the types of doughnuts available makes one wonder if the company wants customers to eventually forget it makes doughnuts at all.
Doughnuts are no longer a slam dunk
Like the name change, reducing the types of doughnuts it makes available has some sound business thinking behind it. Dunkin' wants to make ordering easier and faster while also speeding up service. After a trial period, it will gauge customer opinion and decide whether to make the change permanent.
After all, it's not doughnuts that are driving Dunkin' Brands' growth. It generated 58% of its $8.2 billion in U.S. 2016 Dunkin' Donuts revenue from coffee and other beverages. Breakfast sandwiches are another bright spot for the chain. Over the first six months of 2017, hot coffee sales are down, but cold coffee and breakfast sandwiches are up. Doughnuts apparently aren't factoring much either way into the equation.
Restaurant Brands International (NYSE: QSR), the owner of Burger King, Popeyes Louisiana Kitchen, and the Tim Hortons doughnut and coffee chain, has also experienced softness in baked goods, while Krispy Kreme Doughnuts was experiencing falling comparable sales and customer traffic at its stores prior to being taken private.
A not-so-sweet reality
People have been opting for more healthy food items while passing up sugary, fattening sweets and this has impacted the doughnut chains. After growing at a 4% compounded annual rate between 2010 and 2014 to hit $20 billion, consumer appetite for sweet baked goods will slow to less than 3% growth over the next few years, according to the market researchers at Packaged Facts.
A company spokeswoman told the Boston Globe in July, "We have conducted extensive consumer research and our customers have told us that our menu was too complex and confusing."
A company executive also told Nation's Restaurant News that as the chain attempts to get its "doughnut mojo back" by streamlining the menu, it's seen sales rise where the change occurred. He noted, "We're eliminating close to a third of our menu items with minimal sales resistance."
A smart move?
By placing more emphasis on its coffee and less on its doughnuts, Dunkin' Brands is trying to remake its image as something closer to Starbucks (NASDAQ: SBUX), which also sells baked goods, but remains a destination location for its premium coffee. But Starbucks was always first and foremost a coffee shop and Dunkin' Brands is trying to reverse-engineer the move, a change that risks alienating many of its core customers.
Favorite doughnut varieties might be going away. The catchy DD nickname used in the DD Perks reward program might be going away if Dunkin' Donuts becomes just Dunkin'. And while it might make sense to emulate a premium coffee shop, a chain known for being the brand America "runs" on should be all about speed and convenience, concepts that don't necessarily translate to a premium coffee purveyor.
Dunkin' could end up muddling its brand and reputation, leaving it with fewer sales of both coffee and doughnuts.
Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends Dunkin' Brands Group. The Motley Fool has a disclosure policy.
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