Dunkin Donuts is a part of coffee and snacks industry, which started its operations in the US in 1950. Porter’s five forces would allow to gain insight into the company’s industry.
Threat of New Entrants
The coffee and snacks industry has potential for growth, allowing the new ventures to set up the retail franchises in the market. Setting up a shop which offers hot beverages and snacks requires moderate level of investment, making it a comparatively easier business to invest in as compared to other high capital demanding industries. The industry is also seen as an easy to enter domain because of the ability of the companies to achieve economies of scale through continued production. Due to the low barrier to entry, new businesses find it easy to set up small scale coffee shops (Wahlen, Baginski & Bradshaw, 2014). The issue that the new entrants can face is the presence of large companies in this segment, which can discourage them to set up a business in such a competitive industry. Therefore, Dunkin Donuts faces moderate level of threat from new entrants.
Bargaining Power of Buyers
The buyers of coffee and snacks industry have low power to bargain, thus can’t influence the price structure developed by the company. The customers being served by Dunkin Donuts are focused on getting quality products and hygiene of the restaurant. Another factor which buyers consider before making a purchase decision is the quality of service they receive at the store. The management has included all these areas in business operations to make it appealing for the consumers (Dunkin Brands, 2017). When it comes to the component of quality, a consumer may compromise on the price of a product, willing to pay a higher price to get a good quality product. The consumer base of Dunkin Donuts is quality conscious, therefore the company can charge a higher price for its service quality than other low end coffee shops.
Bargaining Power of Suppliers
The suppliers have low bargaining power when it comes to forming supply contracts with the coffee and snacks businesses. The success of coffee and snacks business is dependent on gaining access to quality ingredients, which necessitates the company to find suppliers who can fulfil the quality expectations. The suppliers who are able to form contracts with large businesses in this industry have to compromise on their price structure, adjusting it according to the demands placed by the client organization. Even though Dunkin Donuts acknowledges the importance of having the right supplier in its supply chain, the company holds considerable amount of power over the suppliers, leaving little negotiating power with them (Dunkin Brands, 2017). Some of the large scale firms are a part of the procurement process at Dunkin Donuts, comprising names such as Continental Mills, Rich Products Corp and Dean Foods. NDCP plays an integral role in the supply processes of the company.
Threat of Substitute Products
The coffee and snacks industry is viewed as having a high threat of substitute products. There are many retail chains that are offering coffee, donuts and other snacks, which are also a part of the menu at Dunkin Donuts. In such an industry where substitutes are easily available, a company can gain competitive edge through focusing its strategy on creating satisfaction and brand loyalty among the customers. Due to the high threat of substitute products, Dunkin Donuts has focused on maintaining quality experience of the customer. In addition, the company has invested in developing a simplified version of the menu to enhance the level of convenience of the customers (Dunkin Brands, 2017).
Competitive Rivalry
The industry faces intense degree of competition from the other businesses providing hot beverages and snacks to the customers. McDonald’s as a global retail giant poses significant threat to the market share of the company. Moreover, Starbucks specializes in hot beverages and snacks, becoming a direct competitor of Dunkin Donuts. In this scenario, the management has to devise a strategic course of action which can help them in dealing with the intense rivalry. Rogers (2018) has elaborated how Dunkin Donuts has designed a comprehensive strategy to handle the competitive pressure in the industry, while maintaining its strong position in the market.
References
Dunkin Brands (2017). Annual Report. Retrieved from http://investor.dunkinbrands.com/static-files/797ff4b1-73b5-42ae-8fd1-473b938ad3ed
Rogers, K. (February 9, 2018). Dunkin’ CEO has a plan to win the coffee wars in cafes and at the grocery store. CNBC. Retrieved from https://www.cnbc.com/2018/02/09/dunkin-ceo-has-a-plan-to-win-the-coffee-wars.html
Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis and valuation. USA: Nelson Education.