Boston: With Starbucks on its way in, can Dunkin’ Donuts be far behind?
Dunkin Brands Inc., the owner of Dunkin’ Donuts, the world’s “largest coffee and baked goods chain,” is in preliminary discussions with potential Indian partners to roll out the brand, which sells nearly one billion cups of java each year.
“We are ready with our India strategy and are hopeful that we will tie up with a local partner in the next 6-12 months to be our master franchisee and roll out the brand across India,” said Srinivas Kumar, vice-president of international business, in an interview with Mint at the company’s Canton, Massachusetts, headquarters. He declined to identify the potential partners.
Dunkin Brands, which has annual sales of $6.4 billon (Rs26,240 crore), has about 7,300 Dunkin’ Donuts outlets across the world that generated $5 billion in sales last year. Some 5,300 of these stores are in the US. Dunkin Brands is not entirely unfimilar with India as its Baskin-Robbins icecream brand has been here for almost a decade.
But the coffee retailer, which has spent almost two years studying the Indian market, says it is in no hurry even if the likes of Starbucks have sought approvals from the Indian government to set up stores.
“India is a huge opportunity,” says Kumar. “It is a strategic market for us and we have done a large amount of preparatory work towards taking Dunkin’ Donuts there. We have studied the market closely—the models that the existing coffee chains have been following and the beverage drinking habits of Indians.”
Unlike Starbucks, which makes no bones about the premiumness of its offerings and prices its coffee accordingly, or Indian chains such as Barista, Dunkin’ Donuts plans to go for the masses.
“We want the wallets of the country’s 250 million middle-class households,” says Kumar. “We are not interested in the one million Indian households who lead aspirational lifestyles and pay too much just to be seen having coffee at a particular chain. We want to be a no-fuss, no-pretension brand in India. We are aware that to be successful in India, you have to budget for the fact that it is a highly price-sensitive market.”
To cater to the price-sensitive India coffee drinker, the Dunkin’ India menu will have a mix of local coffees as well as its trademark Dunkin’ Original Coffee, a higher-end 100% Arabica blend. “This will ensure that consumers across categories will have something for them in the store,” said Srinivas. Tea, the predominant beverage in India, could also find a larger representation on its menu.
Dunkin’ Donuts is in talks with Indian partners, some of whom have access to real estate. Despite a building boom, the organized retail boom in the country has meant that emerging retail chains, in a hurry to roll out their brands nationally, are snapping up all available space.
Market watchers already talk of pitched battles between brands for prime locations with deep-pocketed ones such as Reliance Fresh muddying real-estate deals and costs for others. The shortage of real estate has also meant that brands either pay exorbitant lease rentals or trim their ambitions in terms of how quickly they can roll out outlets.
“Real estate is the real challenge in India just now and having a partner with real estate holding will smoothen the way for us,” said Srinivas. The brand will initially be launched in malls. The brand will initially go into tier 1 and 2 cities, metros in the north and west and key cities in the south, before chasing volumes in smaller cities and towns.
Dunkin’ Donuts, which goes by the tag line “America runs on it”, sells over 2.7 million cups of coffee every day to Americans, in addition to doughnuts and other primarily breakfast foods such as bagels and muffins. A large portion of the brand’s business is in the “take-away” segment, often consumed by those walking or driving to work.
“India too has that segment now and that will be our initial target,” said Srinivas, though locating in malls, with their traffic and parking problems as well as their hours, could make it an interesting challenge when it comes to the commuting population.
Dunkin Brands plans to use India as a bit of a launch pad for the region as well and will consider Sri Lanka, Nepal and Bangladesh. “We want to go into these countries but only after we are successful in India,” said Srinivas, who is currently steering the brand’s growth in markets in Europe.
Dunkin’ Donuts, meanwhile, is also gearing up for its entry into the Greater China market where it is also looking for local partners. The move into other markets in the region was marked by the opening of its first store at Taipei, Taiwan, in January. “Greater China is our biggest focus in Asia right now,” said Srinivas.
Internationally, there are about 1,900 Dunkin’ Donuts locations in 30 countries with the largest concentration in the Philippines, Indonesia, South Korea, and Thailand.
The brand typically goes into new markets with its trade-mark products but innovates with offerings which have a local touch to pull in customers from their established habits. In Taiwan, for instance, it has a range of special doughnuts, such at the green and pineapple doughnuts, or Mochi Ring, a doughnut made of tapioca flour that is used in Asia. Markets in the Caribbean, for instance, have a more extensive cold beverages menu instead of its usual hot coffee menu.
Dunkin’ Donuts, first started in 1950, was acquired by a consortium of global private equity firms consisting of Bain Capital Partners LLC, the Carlyle Goup and Thomas H. Lee Partner LP in March 2006 from Pernod Ricard SA for $2.43 billion. Most Dunkin’ Donuts stores are franchise outlets.
Coffee is the No. 3 beverage in India, after tea and milk and an Indian, on average, consumes 69 grams per year. The last couple of years has seen this changing, as a young population with large disposable incomes frequents coffee chains that in turn have become a symbol of new-age lifestyles.
One estimate predicts that India will have over 1,000 branded coffee outlets by the end of 2008, with the number expected to eventually jump to 5,000.
India’s Coffee Board, which also seeks to promote coffee consumption in the country, said recently that coffee consumption in 2006 stood at 85,000 tonnes. It is launching extensive campaigns to convert occasional coffee drinkers and non-drinkers into coffee consumers
Starbucks, with its 9,400 stores and counting, is the largest branded coffee chain in the world. About 6,000 of those stores are company-owned.