Dunkin’ NextGen location – Photo: Dunkin’
Dunkin’ retreats from gas stations
Dunkin’ is pulling away from being an add-on experience for people buying gas as it continues to redirect its focus towards its standalone “NextGen” stores.
The chain is on track to end its co-location relationships in 450 Speedway gas stations by the end of 2020, according to Delish, a move that has been anticipated since February when the chain first announced it on an earnings call. At that time, Scott Murphy, president of Dunkin’ Americas, represented the move as a strategic pivot, stating that those areas that no longer had combination Dunkin’/Speedway locations would be better served with “future Dunkin’ restaurants that reflect the full expression of [Dunkin’s] next-generation restaurant design.” The Speedway/Dunkin’ locations tend to have fewer menu items than the mainline stores and, in 2019, represented only 0.5 percent of Dunkin’s U.S. sales.
The shift away from hybrid gas station locations is the latest in a series of moves Dunkin’ has pursued as it tries to reinvent itself as a more contemporary brand capable of competing with coffee category leaders like Starbucks. With the arrival of company president (and later CEO) David Hoffmann in 2016, the chain began pursuing a rebranding. This led to an expanded food and drink menu and, in 2018, the launch of a new concept store with technological enhancements such as digital kiosks and a dedicated drive-thru for app-based orders. The chain also officially dropped “Donuts” from its name.
Dunkin’ continues to experiment with a more varied product selection. Recently the chain has been testing Bubble Tea and Bubble Iced Coffee in some locations in Massachusetts, the chain’s home state, according to Fansided. Bubble Tea, which contains tapioca “bubbles,” enjoys broad popularity in parts of Asia and has developed a niche fan base in the U.S.
Dunkin’, like most if not all U.S. QSRs, has faced ongoing difficulties due to the novel coronavirus pandemic. The chain experienced sales declines of 20 percent in late-March and 35 percent in April according to Boston.com, after what had been an auspicious start to 2020 in January, February and early March.
- Dunkin’ Is Closing 450 Of Its Locations Inside Of Speedway Gas Stations – Delish
- What’s Dunkin’ without ‘donuts’ in its name – RetailWire
- Dunkin’ is testing a variety of new drinks this summer, including Bubble Teas – Fansided
- The year started off well for Dunkin’. Then the pandemic hit. – Boston.com
Discussion Questions
DISCUSSION QUESTIONS: Is it wise for Dunkin’ to get out of the gas station game as it continues rebranding and refocusing on standalone NextGen stores? Do pandemic era factors play into how quickly or cautiously Dunkin’ should pursue this move?
Poll
BrainTrust
Suresh Chaganti
Consulting Partner, TCS
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
I am sad to see this. On long trips across Texas, it was always great to see DD as a food/drink/coffee option. You just don’t see standalone Dunkin’s in small towns and if you do, you have to get off the road and go into town – most travelers won’t do that. I understand the pandemic has hit the summer trips, etc., and if this is a way to ensure the brand lives on then do what you have to do — but I will miss a very good cup of coffee and the occasional chocolate doughnut…
I was just thinking the same thing. The only time I stop at a DD (it’s still Dunkin’ Donuts to me) is when I am on the road. To put this in perspective, as I leave my apartment building I can walk one block south and find a DD, one block west and find a DD or two blocks north and find a DD. But I NEVER go to any of them. There is always a better alternative just a few storefronts away.
I would have to make an extra stop on road trips, but this move from Dunkin’ makes a lot of strategic sense. They can control the positioning and experience, which is vital.
Dunkin’ has been focused heavily on their rebranding and introduction of a new customer experience for the past several years. The smaller store formats and limited menus at these locations don’t provide the ability to have that revamped experience in a fashion consistent with their standalone stores. I think this move is a wise one insofar as it creates a consistent guest experience for their customers as they continue their push towards being known as a more modern and technology-savvy coffee and food retailer. With the gas station locations currently representing only 0.5 percent of revenue, it should not significantly impact their ability to ride out the pandemic; although they have indicated the majority of these locations are still open currently.
I can appreciate that the Dunkin’ experience isn’t fully realized as a gas station add-on. However I believe they are limiting their sales and scope needlessly. This move seems driven by pride more than profit.
What is Dunkin’? Does the presence in gas stations contribute to who they are and the brand they want to be known for? Does it make financial sense to be there? We are now learning the answers to those questions. Apparently, it doesn’t make sense for them to be there. This isn’t a decision based on the pandemic. This is something Dunkin’ has been working on for several years.
Ahhh, the joys and challenges of brand development. Building a brand from scratch is tough enough, requiring difficult choices and decisions, and many times those choices affect potential revenue. When evolving or reinventing a brand, sometimes those strategic branding decisions impact paying customers and come with actual revenues attached. Even when “only” 0.5 percent of revenues (almost $7 million dollars at Dunkin’) are impacted, these decisions are both difficult and risky. The good news, however, is that I do believe this is a wise branding decision and in keeping with their new objectives for the brand. I applaud them for having the courage and intestinal fortitude to proceed down this road.
I’ve been a fan of Dunkin’ for years and years. I love the coffee. Do I feel like they need to sell gas? I don’t think I’ve ever bought a doughnut at a gas station, really. Doesn’t feel right. So do I think it’s a good move? Yeah, I do. Less risk and fewer non-controllable factors.
These gas stations typically had some other food offering inside as well, often a counter where you could order Godfather’s Pizza and some kind of sandwiches. Hess spent a lot of money to develop in-store food offerings and got its in-store margins up higher than most of the c-store industry as a result of those initiatives. Speedway simply kept operating these things when they converted the Hess locations (I think they went with no name pizza in some cases).
We will see how many of these they replace with new locations in the future. Dunkin’s new locations do not appear to do well. In my market they opened in Carson City, NV to great fanfare a number of years ago — 24 hour freestanding operation with drive through. Location was laughably poorly run, ended up out of business. They opened a second drive-through location in Sparks, NV which has managed to stay open, but it is also poorly run, has prices higher than Starbucks for drinks, often out of donuts, and filthy inside. The equipment from the closed Carson City location was moved into a tenant space in a busy Walmart in Reno (there is an independent donut shop in the parking lot that is very popular).
To say this outfit has hubris is an understatement.
Whenever there is a discussion about Dunkin’ Donuts, I get nostalgic. I remember when you could walk in a store and smell the frying of the doughnuts. They were crisp and fresh, soft or chewy. It was hard to pass the store without your mouth watering.
It is probably best that they have eliminated the “Donuts” from their name. Today, one can get better doughnuts in a box at the grocery store.
My conclusion is that this organization is steeped in hubris. They think they have something that is unique and special and in reality they are just another place to grab a coffee or a sandwich (basically, factory food). There are too many better alternatives and Dunkin’ doesn’t have anything unique to work with.
Consistency of experience is what makes the Starbucks concept work – Dunkin’ understands this and gets that entering any store is like entering every store. They should have a familiar brand look and feel combined with service and product offerings to match. Not for all retailers, some of the best QSR chains follow this line of thinking as it reinforces the brand. Dunkin’ is no stranger to the concept and without a doubt has seen higher value and returns from their fully operational stores. With commercial real estate prices expected to be dropping this is an ideal time.
COVID-19 may delay rollout and separation from the gas stations, but has most likely accelerated the decision.
From what I see on my travels, is that Casey’s combo gas and store have the right formula. Customers love them … on-site fresh-made donuts and their pizza. They do seem to have the formula and are well trenched in their markets.
Dunkin’ locations have always been thought of as free standing around other retail at convenient locations. It’s the “go to” at 7 am on the way to work. That’s their strength position in the markets.
At only 0.5%, it doesn’t sound like a big deal either way, but I’m unclear on why this is being presented as an “either/or” … have to think Speedway made some push to end it as well.
As for the pandemic’s impact on the future, if it includes a lot more WFH, then I could see a lasting impact as I imagine a “swing-by” on the way to the office is a major source of sales … and one that would presumably be lessened.
The other issue with the Dunkin’ locations inside the Speedway locations is that they were largely self serve operations — donuts, etc. in a self serve case. Coffee, iced tea, etc. drinks all self serve with the Dunkin’ equipment and cups/lids in place of the typical gas station equipment. Depending on the amount of space the location had, the mix of products varied widely between locations. I am also not sure how much of that self-serve product was closed due to Coronavirus.
These locations did not process the Dunkin’ loyalty program since everything was rung up through the Speedway cash register, did not have the full menu, no customization of anything since everything was self serve, and provided higher than typical gas station pricing for their products. They also did not allow for the Speedway programs (drink loyalty) to be applied to Dunkin’ items.
I think this alliance provided confusion for all involved. I am sure Hess went with this program strictly to get its margins up on the coffee/donut category, by charging the much higher than typical gas station pricing on these items and Speedway kept the program for whatever reason to this point. Frequent Speedway customers did not get what they typically saw at Speedway for the coffee/donut program. Frequent Dunkin’ customers did not get the experience, loyalty offering, or service they typically saw at a Dunkin’ location.
There is also the point that with as poor of quality as the Dunkin’ “donut” is, chances are Speedway can figure out a way to source or produce (maybe even defrost) in-store a better donut.
I do not understand the rationale behind this move. There must be more to the decision then they are talking about. All DD locations are franchises. So what is the real reason to eliminate over 400 locations?
Slam dunk. If Dunkin’ wants to stay competitive with Starbucks, they need to stay focused — and on brand. This is a smart move. Implanting their new format stores with expanded menu and more tech-savvy conveniences should more than make up for lost revenue at Speedway.
In this pandemic-era, Dunkin’ should be cautious about consumer-facing communication — they want to bring these consumers along — not leave them behind or, stir feelings of losing one more thing during this pandemic. Uplifting and encouraging messages about what’s to come in the new format stores may help ease consumer transition.