America might run on Dunkin', as the doughnut shop's ad campaign suggests, but just because Dunkin Brands (NASDAQ: DNKN) generates most of its revenues from beverage sales doesn't mean it's a good idea to change the name of the business.
Dunkin Brands plans to drop the word "Donuts" from its signs and begin referring to its Dunkin' Donuts chain as simply Dunkin'. It's a small change that seems to be a misguided effort to seem more comparable to rivals like McDonald's (NYSE: MCD) and Starbucks (NASDAQ: SBUX).
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Dunkin Brands says it derived 58% of its revenues in 2016 from the sale of coffee and other beverages, and its doughnut chain has evolved over the years from simply offering quick food on the go into "a predominantly coffee-based concept." In an attempt to capture even more coffee sales dollars from its rivals, Dunkin Brands plans to increase its focus on its coffee offerings.
That's not necessarily a bad move. Citing data from NPD Group's CREST service, Dunkin says there were over 8 billion servings of coffee handed out in U.S. restaurants last year, 86% of which were attributable to the quick-serve restaurant segment, and coffee sales have been growing at a 4% compounded rate annually for the last five years.
Not measuring up
Although Dunkin' Donuts has benefited from fairly consistent same-store sales growth over the past few years, much of the sales increase has been a result of it raising prices; customer traffic has actually fallen, and average ticket size is down. In fact, the second quarter was the fifth straight quarter traffic has declined at the chain, and the comps growth is significantly lower than that achieved by Starbucks, which has grown at an annual 7% rate over the last five years.
Dunkin Donuts is also facing competitive pressure from McDonald's. Dunkin said that McDonald's is stealing market share from competitors due to the success of its $1 McCafe beverage drinks, something the doughnut shop refuses to match. Reuters quotes CEO Nigel Travis as saying, "We think there are other ways of communicating value."
Attacking the wrong problem
Yet these are things a rebranding such as the one Dunkin Brands contemplates won't fix. Maybe it feels Starbucks gained traction when it dropped the word "coffee" from its name in 2011 and believes it can replicate that success, but it's ultimately a rebranding without real purpose. It might have been referring to itself as simply Dunkin for many years now, as the "America runs on Dunkin'" promotion says, but it still looks more like change for the sake of change.
"Dunkin" might hide the food aspects of its operation, but it also doesn't suggest coffee or beverages. Starbucks was a business synonymous with coffee so having it in the company name as well was superfluous; people are still going to think of doughnuts whenever they see or hear Dunkin.
At least Dunkin Brands is starting small, with one store in Califronia, and slowly trying it elsewhere. That way, it can quickly bury the idea alongside other poorly thought-out rebrandings if it fails, like RadioShack's The Shack. Or AOL insisting on a lowercase Aol. (yes, the period is mandatory).
Dunkin' Donuts has been a marketing presence for almost 70 years, and it has developed significant brand value over that time, topping the Brand Keys coffee customer loyalty list for 11 years running. It risks messing with that record and damaging its brand by confusing its customers for something that ultimately has little to do with why they buy their coffee there. Or their donuts.
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