Dunkin' Donuts 2012 Annual Report Download - page 16

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consumers. QSR is a restaurant format characterized by counter or drive-thru ordering and limited, or no, table service. QSRs
generally seek to capitalize on consumer desires for quality and convenient food at economical prices. Technomic reports that,
in 2011, QSRs comprised nine of the top ten chain restaurants by U.S. systemwide sales and ten of the top ten chain restaurants
by number of units.
Our Dunkin' Donuts brand competes in the QSR segment categories and subcategories that include coffee, donuts, muffins,
bagels and breakfast sandwiches. In addition, in the U.S., our Dunkin' Donuts brand has historically focused on the breakfast
daypart, which we define to include the portion of each day from 5:00 a.m. until 11:00 a.m. While, according to The NPD
Group/CREST® (“CREST®”) data, the compound annual growth rate for total QSR daypart visits in the U.S. has been flat over
the five-year period ended December 2012, the compound annual growth rate for QSR visits in the U.S. during the breakfast
daypart averaged 1% over the same five-year period. There can be no assurance that such growth rates will be sustained in the
future.
For the twelve months ended December 2012, there were sales of nearly 7.5 billion restaurant servings of coffee in the U.S.,
81% of which were attributable to the QSR segment, according to CREST® data. Over the years, our Dunkin' Donuts brand has
evolved into a predominantly coffee-based concept, with approximately 58% of Dunkin' Donuts' U.S. franchisee-reported sales
for fiscal year 2012 generated from coffee and other beverages. We believe QSRs, including Dunkin' Donuts, are positioned to
capture additional coffee market share through an increased focus on coffee offerings.
Our Baskin-Robbins brand competes primarily in QSR segment categories and subcategories that include hard-serve ice cream
as well as those that include soft serve ice cream, frozen yogurt, shakes, malts and floats. While both of our brands compete
internationally, over 64% of Baskin-Robbins restaurants are located outside of the U.S. and represent the majority of our total
international sales and points of distribution.
Competition
We compete primarily in the QSR segment of the restaurant industry and face significant competition from a wide variety of
restaurants, convenience stores and other outlets that provide consumers with coffee, baked goods, sandwiches and ice cream
on an international, national, regional and local level. We believe that we compete based on, among other things, product
quality, restaurant concept, service, convenience, value perception and price. Our competition continues to intensify as
competitors increase the breadth and depth of their product offerings, particularly during the breakfast daypart, and open new
units. Although new competitors may emerge at any time due to the low barriers to entry, our competitors include: 7-Eleven,
Burger King, Cold Stone Creamery, Dairy Queen, McDonald's, Quick Trip, Starbucks, Subway, Tim Hortons, WaWa and
Wendy's, among others. Additionally, we compete with QSRs, specialty restaurants and other retail concepts for prime
restaurant locations and qualified franchisees.
Licensing
We derive licensing revenue from agreements with Dean Foods for domestic ice cream sales, with The J.M. Smucker Co.
(“Smuckers”) for the sale of packaged coffee in non-franchised outlets (primarily grocery retail) as well as from other
licensees. Dean Foods manufactures and sells ice cream to U.S. Baskin-Robbins brand franchisees and pays us a royalty on
each gallon sold. The Dunkin' Donuts branded 12 oz. original blend coffee, which is distributed by Smuckers, is the #1 stock-
keeping unit nationally in the premium coffee category. According to Nielsen, for the 52 weeks ending December 29, 2012,
sales of our 12 oz. original blend, as expressed in total equivalent units and dollar sales, were double that of the next closest
competitor.
Marketing
We coordinate domestic advertising and marketing at the national and local levels. The goals of our marketing strategy include
driving comparable store sales and brand differentiation, increasing our total coffee and beverage sales, protecting and growing
our morning daypart sales, and growing our afternoon daypart sales. Generally, our domestic franchisees contribute 5% of
weekly gross retail sales to fund brand specific advertising funds. The funds are used for various national and local advertising
campaigns including print, radio, television, online, mobile, billboards and sponsorships. Over the past ten years, our U.S.
franchisees have invested approximately $2.1 billion on advertising to increase brand awareness and restaurant performance
across both brands. Additionally, we have various pricing strategies, so that our products appeal to a broad range of customers.
In August 2012, we launched the Dunkin' Donuts mobile application for payment and gifting, enabling us to engage in one-to-
one marketing with our customers. As of December 29, 2012, our mobile application had over one million downloads.