The world’s largest doughnut chain has long sold itself as a pit stop—“America runs on Dunkin’,” goes the company’s slogan. Its customers typically drop by for a prework sugar-and-caffeine jolt and then split. Now, in an effort to get customers to stick around or visit after the morning rush, Dunkin’ Brands Group (DNKN) is redesigning stores to position Dunkin’ Donuts outlets a bit closer to those of Starbucks (SBUX). That coffeehouse giant has long provided a place for people to hang, sip, and surf the Web. Dunkin’ figures that adding earth tones and jazz may do the same.
Until recently, the attitude at Dunkin’ was that “life finished” at 11 a.m., says Chief Executive Officer Nigel Travis. He says it has “attacked that mind-set” with new store designs because Dunkin’ has been losing out on the afternoon consumer. “We haven’t always been conducive to that relaxed environment,” he says. “So soft seating, the ability to watch TV, to listen to appropriate music, and just do things slightly slower than you would in the morning is what we think we’ve been missing.”
Dunkin’, which wants to double its number of stores to 15,000, is joining an industrywide rush to upgrade restaurants as quick-service joints jostle with boutique coffee shops and fast-casual chains such as Panera Bread (PNRA) for patrons who want to linger. Wendy’s (WEN) is overhauling stores with flat-panel TVs, fireplaces, and cushioned seating. Starbucks’s capital expenditures for its fiscal 2013 will be about $1.2 billion, of which about two-thirds will go to refurbish and improve cafes and build new stores, compared with $856.2 million the year before. The No. 1 coffee chain will renovate about 1,400 of its 11,100 U.S. locations in the year ending in September.
Sales at U.S. coffee shops rose 8 percent last year, while those of limited-service burger eateries increased 5 percent and full-service restaurant revenue advanced 4.5 percent, according to researcher Technomic.
Starbucks’s U.S. stores generate about 50 percent of their sales after 11 a.m., compared with 40 percent at Dunkin’ Donuts. The chain, which already offered a few sandwiches throughout the day, started selling breaded-chicken sandwiches with barbecue sauce in June and is advertising iced teas and coffees for a discounted 99¢ from 3 p.m. to 6 p.m. to encourage afternoon noshing.
Dunkin’ stores could use some improvement. In a 2012 survey from Nation’s Restaurant News and WD Partners, the chain tied for the second-lowest atmosphere score among beverage and snack shops, coming in below Starbucks, Krispy Kreme Doughnuts (KKD), Caribou Coffee, and Tim Hortons (THI). So far, Dunkin’ has opened about 90 of the new stores and plans to have as many as 600 by yearend. Franchisees can choose from four options, which cost between $175,000 and $250,000 for a remodel and between $400,000 and $700,000 to build new. The fanciest can include stained-poplar rails, faux-leather chairs, and glass partitions with LED lights that change hues—bluish light is said to have a calming effect, and store owners can switch to red or green for the holidays.
There are four color schemes, including Original Blend, Dark Roast, and Cappuccino Blend. The most expensive version, dubbed Jazz Brew, has dark orange and brown cozy booth seating, as well as hanging light fixtures that lend a soft glow to wall murals printed with words such as “break,” “fresh,” and “quality.”
Getting franchisees to buy in is particularly important for Dunkin’ because 99 percent of its stores are owner-operated. So far, Travis says, “a lot” of owners are volunteering to remodel their stores and more than 1,000 shops are putting in $13,000 digital menu boards. Dunkin’ Donuts franchisees are required to remodel their stores at least every 10 years.
“We can compete with Starbucks now,” says Yini Castaneda, manager at a remodeled Dunkin’ Donuts shop in downtown Chicago across the street from a Starbucks. Her location is doing more business in the afternoon—it gets about 50 customers during lunchtime now, compared with about 15 before the remodel earlier this year, she says. Customers “actually do a lot of interviews here now. They sit down and have meetings,” says Castaneda, whose store features a new digital menu board, glass cases displaying croissants, and more outlets for laptops and smartphones. A sign in the window says, “Free Wi-Fi.”
Relaxing music and dimmer lighting change a restaurant from a grab-and-go place to a destination, says Brian Wansink, a marketing professor at Cornell University. So he figures Dunkin’s new designs may help lure diners from fancier cafes and restaurants. “It can compete on the taste of its coffee and the taste of its pastries—which a lot of people really, really liked,” Wansink says. “They just didn’t like the atmosphere.”