Executive Insights | September 2010 | By Carolyn Walkup

Nigel Travis Talks Dunkin’s Strategy

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Although coffee is not part of Dunkin’s name, it is an integral part of Dunkin’ Brands’ heritage. “We are about coffee, doughnuts, and ice creamÑthose remain our strengths,” Travis says. Not only hot coffee, but iced versions have extended the coffee line to more than a dozen choices.

“We are No. 1 in market share in terms of iced coffee,” he says. “It’s fascinating that Dunkin’ Donuts has transitioned itself from being strongest in the colder months to being strong in the summer. It has an energy drink attraction to younger customers, especially in New England.

“Beverage is a growing category; coffee is the second-biggest beverage after water in the world,” Travis says.

With that kind of following, coffee is finally getting the attention it deserves from the quick-serve industry. And as more companies expand their premium coffee offerings, Travis is taking note. “We pay attention to everyone who serves beverages. I have huge respect for McDonald’s and Burger King, and Starbucks is a tremendous competitor,” says Travis, who previously worked for Burger King as managing director, Europe, Middle East, and Africa before moving on to Blockbuster and then Papa John’s.

In building his own executive team at Dunkin’ Brands, Travis even picked two former Starbucks executives, Paul Twohig, now brand operating officer, and Christine Deputy, senior vice president of human resources.

Starbucks, which considers Dunkin’ a direct competitor since the doughnut chain upped the varieties of its coffee drinks, succeeded in delaying Twohig’s start date at Dunkin’ in a settlement of a lawsuit it filed after Twohig joined Dunkin’, charging him with violating his noncompete agreement. The agreement also required him never to share any of Starbucks’ trade secrets with Dunkin’.

And then, of course, there’s McDonald’s, a newer kid on the premium coffee block. McDonald’s Premium Roast Coffee began to receive positive public reception as far back as 2006. The mega-chain supported that major roll out with extended drive-thru hours and technological advances. And analysts credited the upgraded coffee, along with expanded breakfast menu offerings, for much of the chain’s consistent same-store sales growth.

More recently, McDonald’s expanded its espresso drinks and other beverages, widely touted as its biggest menu modification in 30 years, accompanied by its own moniker, McCafé. There is no doubt that coffee will continue to be a major and growing part of McDonald’s brand identity.

On the doughnut front, the much smaller Krispy Kreme and Tim Hortons, which is expanding outward from its Canadian home base to the U.S., are lesser competitors, but competitors to watch nonetheless.

Travis went outside the industry to hire John Costello, chief global customer and marketing officer, who formerly held marketing positions with Home Depot, Sears, and Yahoo. In addition to increasing television advertising in its strongest markets, Dunkin’ continues to emphasize local-store marketing, which Travis says he learned to appreciate while he was in the pizza industry.

Some markets, for example, ran limited-time offers to capture more late-afternoon business, offering 99-cent coffee drinks between 3 p.m. and 6 p.m. Couponing also emphasizes coffee beverages.

But it’s not just promotions that are getting customers through the doors. Travis sees the drive thru as an ever-important edge in the competition for customers in a hurry. About two-thirds of Dunkin’ Donuts’ units have drive thrus, and he expects the percentage to increase as new stores open. “Everyday Americans want to get their coffee very quickly,” he says. “People are looking for convenience. The world is speeding up.”

Consultant Lombardi says Dunkin’ should expand its drive thrus in locations where they make sense because of their proven ability to increase average unit volumes. “America may run on Dunkin’, but it does so from behind the wheel of a car,” he says, referring to the brand’s advertising tagline.

With the record of tripling online sales during his four years at Papa John’s, Travis is bringing his strengths in technology to his new post. “I like technology. We are currently focused on a consistent platform of technology at both Dunkin’ and Baskin-Robbins,” he says, adding that franchisees are enthusiastic about advancing technology, both to speed customer service and to improve operations in a variety of ways.

“We are moving from selling franchises to supporting franchisees throughout their lives,” Travis says. “Our relationship with our franchisees is spectacularly good. If you focus on a collaborative relationship, everything else will follow.”

Jim Coen, president of the Boston-based Dunkin’ Donuts Independent Franchise Owners (DDIFO) organization, declined to comment on the status of franchisor-franchisee relations. “There have been changes,” he says. “Right now we are negotiating on a couple of different fronts; there are some extremely important negotiations ongoing.”

The DDIFO represents about 2,500 shops, or 40 percent of the U.S., Coen says.

Good franchisor-franchisee relations have not always been the case, as witnessed by some 350 outstanding lawsuits against franchisees at the end of 2009. Consultant Allen credits Travis with shifting away from “a culture of fighting with franchisees. They were one of the most eager-to-sue companies in the franchise industry,” he says.

Most of those suits accused franchisees of various brand-noncompliance issues. “When you’re 100 percent franchised, it’s important to keep on good terms with franchisees,” Allen says.

“If you focus on a collaborative relationship, everything else will follow.”

Lombardi is not bothered by Dunkin’s record of some friction with franchisees. “In any system that has stores that have been built over decades and where you have a large number of franchisees, there is a constant battle to make sure that the bottom 20 percent improves their quality,” he says.

“It’s critical that the franchisor protect the brand, both for the franchisor and franchisees who are pulling their weight. It’s an ongoing thing that they will continually have to do,” Lombardi says.

Overall, he says Travis was a good choice for the job. “He knows franchising and foodservice. The succession was orderly, and I think it was done absolutely correctly,” he says.

Whether Travis stays at Dunkin’ for the long term or moves on to a newer challenge in a few years remains to be seen. When deciding to hire him as part of its succession plan, Dunkin’ Brands’ board of directors looked to his proven track record of delivering outstanding results at Papa John’s, Blockbuster, and Burger King as an indication that he was the right executive to succeed Luther.

Now that Travis has had time to grow into his position, he says, “The opportunity ahead of us is spectacular. When you are doing good work, it’s fun.”

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