With new flavors, Dunkin’ Donuts again targets China, after two failed attempts
BEIJING — Just try to find a sticky table at this outpost of Boston’s workingman coffee chain, tucked between a spa and an organic health food store in the city’s northeastern suburbs. Luxury cars fill the complex’s parking lot. Inside, fresh coffee scents the air, and a friendly employee directs customers to a self-service rack of glistening doughnuts.
This is not the Dunkin’ Donuts that America runs on. But the Canton, Mass., company is betting China will.
The spotless Beijing venue represents the first of more than 1,400 stores the company aspires to open in China over two decades. This tea-devoted country is fast developing a taste for coffee, and Dunkin’ aims to entice an increasingly discerning, well-heeled consumer with stores that convey more hang-out than pit-stop.
“We’ve worked hard to make it more of a coffee-shop feel and less of a doughnut-shop feel, said George McAllan, Dunkin’ Brands Group’s international vice president, nursing a dark roast on a July visit. “We want to encourage people to sit and visit.”
In its largest development deal ever, Dunkin’ Brands last year announced a franchise agreement with Philippine fast-food giant Jollibee Foods Corp. and Jasmine Asset Holding, a subsidiary of the Hong Kong and Singapore investment firm RRJ Capital. The two invested $300 million in a joint venture named Golden Cup that will open Dunkin’ stores from China’s tropical southern coast to its far north.
The doughnut chain is also working with two smaller franchisees in the eastern cities of Shenyang and Shanghai, where a two-level store looks out at an ancient Buddhist temple.
Its plans are as risky as they are ambitious. Averse to breakfast sweets, Chinese consumers didn’t take to two previous efforts Dunkin’ launched in the world’s most populous country. But business opportunities are exploding as China’s prosperity fuels an expanding consumer market.
“With the middle class growing as fast as it is here, it’s a highly aspirational place to go,” McAllan said.
Dunkin’ first tried to break into China in 1994, anticipating delight in an American novelty. The company took a Chinese name that roughly translates to Dang Ken Sweet Sweet Ring and promoted the brand by handing out doughnuts at the Great Hall of the People on Tiananmen Square, the symbolic center of the nation.
It didn’t work. Chinese knew little about the coffee chain and disliked the sugary-sweet taste of a glazed doughnut. By the late 1990s, Dunkin’s franchises had pulled out.
“They were kind of stale and even worse because there was no volume,” said Michael Wester, a Newton native in Beijing who runs a publishing company. “There would be one rack with a lonely-looking doughnut.”
Dunkin’ tried again in 2008, with a new partner. Food developers lowered sugar levels and shipped products for taste testing. The company anticipated 100 outlets within a decade. A few years later, Dunkin’ switched the franchisee.
The 2008 reentry “was a disaster,” said Benjamin Cavender, principal at Shanghai-based China Market Research Group. Chinese weren’t looking for a no-frills doughnut chain, he said. They wanted sophistication.
“People have traveled to the US and are aware of the brand, but it doesn’t confer status,” Cavender said. “They are a breakfast and dessert play. And the dessert segment here is hypercompetitive and the breakfast is difficult because people tend to be traditional in what they eat.”
Dunkin’ struggled to find the same acceptance as it did in South Korea, a coffee-loving nation that is now its largest international market. The company and its franchisee, Golden Cup, needed a new recipe.
The new stores have logos that highlight Boston ties. A canopy over the counter resembles a Cape Cod cottage. Outlets feature New England-style windows and hold free doughnut days. Country music recently played at a shop near the Beijing airport while a young man sat in a maroon armchair and pounded his laptop.
Not everything would look familiar to Bostonians. The doughnut rack included one topped with chili oil, another dusted with slivers of dried pork, and one with seaweed, a little more than $1 each. The menu priced a small latte at around $3.50, or $2 less than at Starbucks.
“I heard from the movies that usually cops eat these,” said Zou Yufei, a 26-year-old marketing manager with black-rimmed glasses, who swung by a store.
He looked at his chocolate-covered doughnut and then over at his friend, Zhao Rui, a 26-year-old flight attendant. She grimaced. “Too much sugar,” she said.
International sales are still a fraction of sales for Dunkin’ Brands, which also runs the ice cream chain Baskin-Robbins. About 76 percent of revenue comes from the US-based Dunkin’ Donuts. But the company’s long-term growth will be determined by overseas markets, and China is the biggest, with nearly 1.4 billion people.
Coffee consumption in China has nearly tripled in the past four years, according to the US Department of Agriculture. And yet the country still lacks a prolific coffee culture. Customers often opt for frothy milk drinks, and coffee shops are rarely open before 9 a.m.
Dunkin’, which counts more than 11,000 restaurants worldwide, declined to specify the chain’s investment. But it advises Golden Cup on key aspects such as menu and location. Beijing will have six outlets by the end of July and continue to unveil bakery items. A Dunkin’ banner in Beijing’s Financial district declares a future spot, next to a Starbucks.
The Seattle coffee giant believes China could become its biggest market. Starbucks already has more than 2,000 outlets in China and plans to add 500 annually for the next five years.
Dunkin’ is also competing against a new crop of independent coffee shops with obsessive baristas and in-house roasting machines.
Not all nostalgia for the brand is lost here, though.
Qun Ning, a 54-year-old dentist, associated the chain with a trip he took to the United States 17 years ago. When Qun noticed the new store, he grabbed a box of chocolate doughnuts and chronicled the visit with a photo.
“Today is a lucky day,” he said.