Digital Platform Fuels Dunkin’s Customer Engagement
New menu items combined with contactless options helped Dunkin’s U.S. stores to lure in new customers during its recent fiscal Q2.
“New guests discovered our innovative everyday value-priced beverages and our low-contact service options, including drive-thru, On-the-Go Mobile ordering, curbside or delivery. They now know us much more than just the donut brand,” said Dave Hoffmann, Chief Executive Officer, Dunkin' Brands Group Inc. in an earnings call with analysts.
Dunkin’ has seen an increase in first-time customers and more return customers using mobile order ahead, and sales in newer markets were a bright spot.
"Our digital platform -- a cornerstone of our Dunkin' Blueprint for Growth -- drove significant customer engagement and rapid recovery during the quarter," said Hoffmann.
Digital orders, inclusive of DD Perks, On-the-Go, delivery and curbside, grew to 18% of sales from 13% a year ago.
As new customers are embracing order ahead and mobile payment, they’re also opting in to Dunkin’s Perks loyalty program. Perks’ active enrollment increased nearly 110% year-over-year in Q2, explained Scott Murphy, President of Dunkin’ Americas, in an earnings call with analysts.
“Perks transactions as a percentage of rooftop finished the quarter at just over 20%, a nearly 600 basis point increase versus last year,” explained Murphy. “With more customers preferring low-touch service, we also saw an increase in On-the-Go orders, finishing at 7% of transactions for the system, a 300-basis point increase year-over-year. And in non drive-thru locations, it was 14%,” he explained.
Dunkin' Brands Group, the parent company of Dunkin' and Baskin-Robbins, reported its fiscal Q2 earnings on July 30. At the end of the quarter, Dunkin' Brands' 100% franchised business model included over 13,000 Dunkin' restaurants and approximately 8,000 Baskin-Robbins restaurants. About 96% of Dunkin’ and Baskin Robbin’s U.S. stores are open. About 70 traditional Dunkin stores in NYC and Boston remain closed plus 300 alternative locations in transportation centers and on college campuses.
During the quarter, Dunkin’ U.S. same-store sales dropped 18.7%, but improved each month: April was down 32%; May 17%; and June was down 9%.
A full earnings release is available here.
Menu Management Matters
Dunkin’ is among the brands that has taken a long, hard look at its menu items. Prior to COVID-19, the busiest time of day was 6-9 am. Now with the morning commute replaced with WFH, its prime time has shifted to midday.
“Since the onset of the COVID pandemic, changes in guest routines shifted sales from early morning to mid-day, particularly 11 am to 2 pm, and our product innovation has addressed that shifting consumer visits to Dunkin’,” said Murphy. New items include Refreshers in two flavors, Strawberry Dragonfruit and Peach Passion Fruit that are made with iced green tea.
“…Even as we add new items, we are laser-focused on reducing operational complexity in the restaurants, so crew members can focus on our enhanced safety and cleaning protocols,” said Murphy. “… Looking forward, we will continue to focus on beverage and food innovation designed to satisfy all-day snacking occasions.
Safety Matters
Safety remains a high priority for customers and COVID-19 protocols (Masks, plexiglass dividers and enhanced sanitation practices to name a few) will remain in place.
“As a part of a desire for a safe experience, customers are increasingly interested in a quick contactless shopping experience,” Hoffman added. “No-touch has truly become the new high-touch and more customers than ever before avail themselves of our digital offerings, including through our Perks loyalty program, On-the-Go Mobile ordering and delivery for faster, low contact service.
- Ice Cream Delivered
With stay-at-home advisories widespread during the quarter, guests increasingly sought out the convenience of Baskin-Robbins delivery and online cakes, quarts and novelties and DIY sundae kits, Hoffman explained.
Delivery sales were up more than 250% and online sales of cakes, quarts and novelties were up more than 150% versus the prior period. Delivery sales peaked at more than 500% growth year-over-year in late April. Delivery is now available in 93% of Baskin-Robbins U.S. shops and represented greater than 5% of sales mix in those locations in the second quarter.
For Dunkin’, delivery also was on the rise in Q2, led by the expansion of its partnership with Uber Eats. Approximately 4,000 Dunkin’s are live with Uber Eats and 4,700 stores on Grubhub’s platform. As of the end of June, Dunkin’ offered delivery in more than 5,700 restaurants nationwide, said Murphy.
Digital Improvements
With the IP that runs the Dunkin’ app in-house, the brand is able to make app changes more quickly. Curbside was added to the app for any franchisee who wanted to offer the service option. More than 1,400 Dunkin’s offer curbside as an option accounting for 2.4% of these stores’ sales; these are primarily locations that do not have a drive-thru.
“A cornerstone of our blueprint for growth, digital technology played a strong role in driving sales this quarter and will increasingly be at the forefront of enabling brands to deliver a great guest experience. So we are doubling down on our digital platform,” said Hoffman.
The company recently hired Phil Auerbach to the newly created position of Chief Digital and Strategy Officer. In short, he’s responsible for fast-tracking the digital platform to deliver a more frictionless, personalized experience for guests. The digital engagement team assembled under Auerbach includes global IT, digital marketing, business analytics, consumer insights and media and partnership teams. “We have combined all the functions needed to fire up our digital transformation and grow our business with technology and advanced analytics at the forefront than ever before,” said Hoffman.
Drive-Thru in Demand
“Our NextGen design with its emphasis on faster, contactless service seems tailor-made for customers during this health crisis,” said Murphy. “Approximately 90% of new NextGen locations have a drive-thru, compared to approximately 70% of our existing fleet. In fact, the power of the drive-thru was never more evident than during COVID.”
With dining room closed during the pandemic, drive-thru, both NextGen and previous designs, “continued to deliver at levels we’ve never seen before in our system,” said Murphy. “Drive-thru significantly outpaced non drive-thru through stores, showing mid-single-digit positive comps in the last two weeks of the quarter.”
During Q2, stores with a drive-thru performed four times better than a non drive-thru store, said Murphy.
Expect more enhancements to the NextGen prototype to streamline off prem. “We’re ... incorporating many COVID learnings and developing a low contact store design that has options such as removable seating, no-touch faucets, larger On-the-Go pickup areas, a walk-up window, and a reconfigured frontline layout to further encourage social distancing for customers in the queue,” says Murphy.
“Basically, we are not resting and we will continue to evolve our operations to meet our changing customer needs.”
Investing in the Future
Dunkin’ is looking to close 450 self-service kiosk locations inside Speedway c-stores plus 800 “low-volume locations.”
“These locations are well below average for both sales and profitability. And more importantly, for many of these franchisees, closing these restaurants will enable them to do greater reinvestment into the brand, whether through next-generation remodels, building new restaurants, and relocating restaurants to higher traffic areas or to where they can add a drive-thru,” said CFO Kate Jaspon in an earnings call with analysts. Most of the closings will take place this year, she added.
Now Hiring
Dunkin’ franchisees are seeking to hire up to 25,000 new employees, from front counter to restaurant management. Like Chipotle and Papa John’s, Dunkin has added a program to help full- and part-time crew members to obtain a low-cost college education.
