How Dunkin' Donuts Has Changed in the Past Year

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For decades, Dunkin' Brands' (NASDAQ: DNKN) Dunkin' Donuts had a shockingly simple menu. The company sold coffee, doughnuts, and not much else.

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That began changing in the 1990s. The chain's menu expanded with everything from bagels and breakfast sandwiches to soups, apple pie, and more. At one point, the company even offered pizza as part of its seemingly endless efforts to draw in larger crowds.

For the past year, however, Dunkin' has changed its strategy. The chain, which has expanded its coffee and beverage offerings, has decided to simplify its menu. That's part of an overall plan designed to streamline service, focus on beverages, and use technology to improve the customer experience.

What is Dunkin' doing?

Dunkin' operates in a crowded market where it competes with McDonald's (NYSE: MCD) on the low end and Starbucks (NASDAQ: SBUX) on the high end. It's a challenging space to be in, and the company saw its 2016 growth in the United States stall at 1.6%. Those numbers got worse in 2017 when Q1 comps were flat and Q2's grew by just 0.8%.

To improve those numbers and keep up with technology leaders Starbucks and McDonald's, Dunkin' Donuts has enacted a plan to overhaul its operations. Parts of this plan are already in effect, with the company offering mobile order and pay in all its stores while rolling out a simplified menu at an increasing number of its restaurants, with plans to do the same in over 1,000 locations by October.

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"Going forward, we will continue to execute against our six-part strategy designed to drive growth and long-term competitive differentiation by positioning Dunkin' as a beverage-led, to-go brand," said CEO Nigel Travis in the Q2 earnings release.

Beverages and simplicity

The Dunkin' coffee menu serves both the people looking for higher-end espresso-based drinks and those who just want a simple cup of coffee. Focusing on that while simplifying the overall menu provides a lot of benefit to the chain's restaurants.

Speed of service may be the biggest edge, as store employees in the locations where the menu has been simplified have less to worry about. That's an advantage in training staff as well, which has become important as unemployment rates have gone down.

"Our goal is to ensure that Dunkin' is a place of positive transition in our guests' lives, the place that energizes them and sends them on their way to make the most of their day," Travis said.

Moving people through

The overall Dunkin' Donuts strategy is focused on getting people in and out of stores faster. Technology is a big part of this, but so is menu simplification and changing the chain's focus away from food to beverages. That's partly about speed of service and partly because beverages have higher margins.

Dunkin' Donuts has even floated the idea of dropping the second part of its name and simply being known as "Dunkin'." That's a pretty major change for a chain that once based its advertising on the iconic Fred the Baker character who got up early because it was "time to make the doughnuts."

The challenge for Dunkin' is that it's not the chain known as a coffeehouse (that's Starbucks) and it's not the cheapest choice (that's McDonald's). To combat that problem, Dunkin' Brands is staking out a place as being the chain that offers quick service both through technology and by offering a streamlined menu.

America runs on Dunkin'?

It's early in the process, but dropping menu items that never sold well anyway makes sense. Limiting combo deals and cutting choices probably won't hurt sales because the items being dropped just weren't that popular.

Dunkin' has been a leader in technology, following just behind Starbucks. Simplifying its menu should allow for in-store personnel to handle both the line and digital orders faster.

There are no easy fixes here. Competing with giants such as Starbucks and McDonald's makes carving out a niche a challenge. These changes, however, should help Dunkin' Donuts play to its base and perhaps win some new customers looking for a cheaper, quicker alternative to Starbucks that's higher-end than McDonald's.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends Dunkin' Brands Group. The Motley Fool has a disclosure policy.