Executive Insights | September 2010 | By Carolyn Walkup

Nigel Travis Talks Dunkin’s Strategy

Fresh off his success at Papa John’s, Dunkin’ Brands CEO Nigel Travis is taking Dunkin’ Donuts from a New England treat shop to an international coffee chain.

The midst of the worst recession in decades may seem like a tough time to take the reins of a restaurant company that sells discretionary treats not needed in the everyday diet. However, Nigel Travis, whom Dunkin’ Brands hired to head its Dunkin’ Donuts and Baskin-Robbins brands in January 2009, quickly showed he was up to the task.

Fresh from a four-year record of achieving excellent results at Papa John’s, Travis set out to do the same at the privately held, 60-year-old treats company. Dunkin’ Brands’ board of directors chose Travis to succeed CEO and industry veteran Jon Luther. Luther, who joined Dunkin’ Brands in 2003, remains as executive chairman of the board and worked with the board to develop an orderly succession plan.

In announcing Travis’ appointment, Luther singled out his accomplishments in several companies he headed of building strong franchisee networks, improving sales, and furthering global growth.

In spite of the economic downturn, Dunkin’ Donuts opened 350 new stores worldwide in 2009, with 250 of those in the U.S. When counting sister Dunkin’ Brands treats concept Baskin-Robbins, franchisees opened 550 stores last year. Dunkin’ Donuts units alone number nearly 6,400 in the U.S. and 2,700 overseas.

“We think this trend will continue and get better,” says Travis, who predicts that Dunkin’ Donuts brand openings this year will exceed last year’s to total 500 newcomers worldwide.

“The recession caused some difficulties,” he says. “High unemployment had a negative impact. The biggest impact has been the lending environment and getting new people to come in.”

He’s optimistic, though, about recent talks with banks, and has found some that “seem very positive about our brand.”

“The recession is just a problem you have to attack with vigor,” he says. “We are focused on the top line and are reducing costs of operating and construction. Our franchisees worked with their store economics.”

The brand does seem to be faring well, according to restaurant consultant Aaron Allen, founder and chief executive of Aaron Allen Restaurant Consultants, who credits Dunkin’ with doing a good job of keeping costs in line.

Dunkin’s policy of allowing franchise agreements with no minimum number of store openings required, along with its flexible unit designs utilizing smaller footprints, encouraged franchise development in these challenging times. Design choices include kiosks, gas stations, in-line units, and end caps, as well as free-standing stores.

The chain is favoring multiunit franchisees, helping to move it forward faster, says Dennis Lombardi, executive vice president of foodservice strategies at WD Partners, a restaurant development and design firm based in Columbus, Ohio. He also says that Dunkin’s pace of growth beyond New England is “right on the money.”

“We have a huge opportunity in the U.S.,” Travis says. “We have 65 percent of the U.S. still to go.” Based in Canton, Massachusetts, Dunkin’ Donuts initially developed a stronghold in the Northeast. Although units remain concentrated east of the Mississippi, stores are now located in 35 states and the District of Columbia.

“Our approach is to grow contiguously instead of all over the place,” Travis says, noting the Southeast as a major focus for future expansion. Some of the most recent multistore-development agreements inked deals in Louisville, Kentucky; Birmingham, Alabama; Madison, Wisconsin; and Erie, Pennsylvania.

Despite its growth, the company’s biggest obstacle might not be the economy, but the American consumer. Travis says the coffee-drinking culture is not as strong in other parts of the U.S. as it is in the Northeast. But he says that is changing, especially as both hot and cold specialty coffee drinks become more prevalent.

As a result, the brand targeted a triangular region from Philadelphia to Chicago to Miami as its primary expansion focus, Allen says. And to bring in consumers who might not be as caffeinated as Northeasterners, franchisees are allowed to develop some regional products in addition to the traditional menu offerings.

“America may run on Dunkin’, but it does so from behind the wheel of a car.”

Dunkin’ is growing internationally, too, particularly in the Middle East and China, as well as in other Asian countries such as South Korea and Thailand. Soon the company will double the number of units in the Middle East to 1,500 and fill in Europe, particularly Eastern Europe, with new stores and franchisees.

“China is a major focus,” Travis says. “We have two stores open in Russia, and we are excited about the early results.”

The majority of new units are stand-alone Dunkin’ Donuts, but franchisees are free to open cobranded units with Baskin-Robbins, as many have done. The pairing makes sense because of the two brands’ differing daypart strengths.

While doughnuts and morning coffee remain Dunkin’s core business, the concept is facing ever-intensifying competition for breakfast on the go, with everyone from Burger King to Subway vying for morning market share. “We welcome the challenge—it makes us better,” Travis says.

Travis may be downplaying the intensity of the breakfast battle, according to some observers. “Dunkin’ Donuts will have to fight to keep its share of breakfast; the low-level breakfast wars are continuing,” Lombardi says, adding that Dunkin’ can hold its own as long as it maintains its reputation for good coffee, which often determines where breakfast customers go for that daypart.