III.
EXTERNAL ANALYSIS
This chapter tackles about the external environment analysis of Dunkin’ Donuts PH. Using the
PESTEL analysis, as well as providing an overview of the industry by comprehensively
discussing the market systems, market segments, the Porter’s 5 Forces, competitors’ profile,
competitive profile matrix (CPM) and external factor evaluation (EFE) that will help the
company to formulate strategies on intensifying competitive advantage.
3.1 General Environment
The environmental analysis contains the PESTEL Analysis of Dunkin’ Donuts PH, PESTEL
Analysis is a business analysis technique which considers six groups of external factors that can
affect businesses, the five categories included are: (1) Political; (2) Economic; (3) Socio-cultural;
(4) Technological and; (5) Environmental; (6) Legal.
3.1.1 Political
[Link] Sugar Import Liberalization
Such liberalization is a key factor in providing more options not only with regards to
quantity, but quality as well for businesses which uses sugar mostly as its primary ingredient for
its products. Which would mean businesses are given more freedom as to how it acquires such
ingredient. However, such liberalization would also affect local sugar producers as the
competition would only arise, increasing their vulnerability.
Relevance: OPPORTUNITY
While it is a fact standing that such liberalization would affect local sugar producers in
terms of their competition, with regards to the consumers, it is a different story. Consumers
would greatly be benefitted from this as supply of sugar increases, the price decreases. The more
supply, the lesser the demand; and the lesser the demand the lower the price.
[Link] Excise tax on sweetened beverages
Along with the Department of Health (DOH), DOF supports this as part of a
comprehensive health measure aimed to curb the consumption of SSBs and address the
worsening number of diabetes and obesity cases in the country, while raising revenue for
complementary health programs that address these problems. This is a measure that is meant to
encourage consumption of healthier products, to raise public awareness of the harms of SSBs,
and to help incentivize the industry to develop healthier products and complements. SBs, as
defined under the TRAIN Law, are non-alcoholic beverages of any constitution (liquid, powder,
or concentrated) that are pre-packaged and sealed in accordance with the Food and Drug
Association (FDA) standards that contain caloric and/or non-caloric sweeteners added by the
manufacturers. Simply, these are beverages that contain high level of certain sugars that are
viewed to provide unnecessary or empty calories with little or no nutrition.
Relevance: THREAT
While primarily focused on personal income taxes, the TRAIN act also affects Filipino
consumers, especially those who frequently purchase sugar-sweetened beverages. Businesses in
the food and beverages industry such as Dunkin’ Donuts will also be affected as they offer
beverages which is the subject of this excise tax.
[Link] Tax Exclusion on milk and coffee
Since the food and beverages industry mostly offer complimentary beverages which all
contains milk or coffee, the exclusion of milk and coffee from tax will positively affect their
expenses.
Relevance: OPPORTUNITY
This can be seen as an opportunity for the food and beverages industry. Since tax will be
excluded from all kinds of milk and coffee, they can acquire materials with lesser costs.
Meaning, it can invest more on different things rather than spending most on materials if it not
for the tax exemption.
3.1.2 Economic
[Link] Inflation
High inflation also induces monetary authorities to increase interest rates, if only to
temper it. This, in turn, makes credit more expensive for both manufacturers and service
providers. The high cost of money will inevitably be passed on to the consumer through
Relevance: THREAT
When prices rise for energy, food, commodities, and other goods and services, the entire
economy is affected especially businesses operating in the food industry. Rising prices, known
as inflation, impact the cost of living, the cost of doing business and other facets of the economy.
When replacement inventory costs more than the inventory you just sold, it can lead to inventory
shortages and profit losses.
[Link] Growing economy
The Philippines is in its golden age for economic growth. It has been growing at this pace for
several years and has grown in a sound macroeconomic environment at moderate inflation. This
growth is expected to be sustained throughout 2018 to 2019” according to the country director of
Asian Development Bank Kelly Bird.
Relevance: OPPORTUNITY
The growing demand for convenience has led to the expansion of the Philippine food service
industry in the form of fast-food restaurants and casual dining restaurants. Full-service
restaurants are also growing, especially in fashionable shopping or dining areas in Metro
Manila. Competition in this segment is keen, with restaurant operators always interested in new
and exciting menu ideas to attract customers.
[Link] GDP Increase in the Philippines
Gross domestic Product or GDP is the total value of production realized by resident producers in
an economic territory. In other words, GDP is the value of goods and services made in the
Philippines and GNP is the value of goods and services made by Filipinos.
Relevance: OPPORTUNITY
Gross Domestic Product (GDP), per se, has been growing vigorously. This greatly impacts the
growth of companies, a rapid growth of GDP in the country is essential and imperative to the
business. This is an advantage for many companies because this indicates that economy is
prospering which leads to a good reputation for the country and benefits primarily to many
businesses because it attracts investors to have an interest and to engage in companies within the
country.
3.1.3 Social
[Link] Skyrocketing cases of obesity
The Philippines faces an obesity and overweight prevalence of 5.1 percent and 23.6
percent, based on a report released by the Asia Roundtable on Food Innovation for Improved
Nutrition—a public-private partnership set up to tackle issues related to obesity, malnutrition and
non-communicable diseases.
Among the six countries studied in the report, the Philippines has the second lowest obesity and
overweight prevalence at 5.1 percent and 23.6 percent respectively. But despite low prevalence
rates, obesity has a strong impact in the Philippines due to the large number of obese persons in
the country—18-million Filipinos are obese and overweight.
Relevance: THREAT
The increasing rates of obesity will reduce the sale of the company given that the menu
range of the business is not quite health friendly and has high calorie too. People will eventually
opt for low calorie foods or healthier options. Moreover, the DOH can also alarm the public and
impose certain policies. Governments can enact policies that do not impose mandates on
everyone, but only restrict products in publicly-funded spaces. Policies may also restrict sales of
unhealthy items or ingredients to particularly vulnerable populations, such as children. This is
not only pushed by governmental authorities, but by consumers, as well.
[Link] Diabetes rate in the Philippines
In the Western Pacific, the Philippines ranks fifth—behind China, Indonesia, Japan and
Thailand—in the number of diabetics. Based on the IDF Atlas, there were already 3.9 million
diabetic Filipinos when the population was 65 million. With the current population now over 100
million, local experts estimate that we should have more than 5 million diagnosed diabetics. A
similar number will likely remain undiagnosed or have prediabetes.
Relevance: THREAT
Businesses operating in the food industry especially Dunkin’ Donuts who serves sugary
food products and beverages will be greatly affected by the growing rate of diabetes in the
Philippines. People will not only contemplate in buying sweet food products but will also take
into consideration their food choices and will choose better and healthier options instead of
doughnuts and sweet pastries. Which ultimately be a result to demand and even profit loss.
3.1.4 Technology
[Link] Internet, gadgets, and social media
There’s a kind of transparency now — interconnectedness, if you will — that wasn’t there
before. Social platforms like Instagram and Snapchat have made it easy for consumers to become
“food producers,” create user-generated content that brands can share. These days, it seems like
people are more and more interested in taking a deep dive into the food they’re eating, and where
it’s coming from — than actually eating it.
Relevance: THREAT AND OPPORTUNITY
People today are made more aware of what they put into their body by the use of social
media. Sometimes, it is used as a platform for advertising new products easily and some other
time, it is used as a way to give awareness to people of what is there that they should know about.
Through social media, people can now inform other people of the negatives and positives of
certain products they already tried. It gives way to people to have broad connection to different
businesses surrounding them. By this kind of lifestyle, social media can either be an instrument to
increase profits of the company or be a way to ruin a business reputation.
[Link] Online Delivery
With the technology evolving day by day – online food ordering system has become a key part
of the present food industry to endure the market competition and to serve your customers in a
better way. It is the process of food delivery or takeout from a local restaurant or food
cooperative through a web page or app. Much like ordering consumer goods online, many of
these services allow customers to keep accounts with them in order to make frequent ordering
convenient. A customer will search for a favorite restaurant, usually filtered via type of
cuisine and choose from available items, and choose delivery or pick-up. Payment can be
amongst others either by credit card, PayPal or cash, with the restaurant returning a percentage to
the online food company.
Relevance: OPPORTUNITY
The online food ordering system is the trend nowadays because it doesn’t only deliver your food
at your doorsteps, but it is also very convenient for busy people who don’t have time to dine in
restaurants. This kind of system let you enjoy your food in the comforts of your home or in your
office or wherever you are. The restaurant who delivers online, the better. This is a huge
advantage not only to consumers but also to businesses especially operating in the food industry.
3.1.5 Environment
[Link] Tropical weather/climate in the Philippines
The Climate of the Philippines is tropical and maritime. It is characterized by relatively
high temperature, high humidity and abundant rainfall. It is similar in many respects to the
climate of the countries of Central America. Temperature, humidity, and rainfall are the most
important elements of the country's weather and climate.
Relevance: OPPORTUNITY
Taking into consideration the place of business and its branches here in the Philippines,
people often come by Dunkin’ Donuts to relax and to enjoy the sultry ambiance of the coffee
shop. Since the climate in the Philippines is very humid and hot, people’s go-to drinks usually
includes cold beverages which is also offered by Dunkin’ Donuts. Also, nowadays, coffee is a
trend especially to students, office employees and also to bachelors which is also offered in its
menu.
[Link] Global Warming
Climate change is altering production systems and compromising food security and
nutrition for millions of people in the Philippines, according to the United Nations Food and
Agriculture Organization (UN FAO).
Relevance: THREAT
Most of the food business in the country will be negatively affected by climate change.
Dunkin’ Donuts uses agricultural products as their main ingredients such as sugar and flour to
make their products. If our agriculture is declining because of climate change that causes abrupt
floods and calamities that ruins our crops that will affect the supply of raw materials, the
business itself will also be affected. If the supply declines, the production will also be dragged as
well as the profit of the business.
3.1.6 Legal
[Link] Executive Order (EO) No. 51
President Rodrigo Duterte urged Congress during his 3rd State of the Nation Address (SONA) to
pass a law ending contractualization "once and for all."
On Monday, July 23, Duterte reiterated that lawmakers – not Malacañang – can end contractual
employment schemes.
Duterte signed Executive Order (EO) No. 51 last Labor Day after several postponements, in an
attempt to prohibit illegal contracting and subcontracting. According to the Trade Union
Congress of the Philippines, there are about 25 million contractual workers in the Philippines. Of
the figure, the government has placed 316,880 workers in permanent positions as of July 2018.
Relevance: THREAT
A permanent employee often receives perks that temporary employees aren't eligible to
receive. Permanent employees are hired to work part- or full-time hours, but full-time workers
often receive more comprehensive benefit packages. Each company establishes its own
employee benefits, but certain perks are common to most packages. In addition to benefits, job
security and advancement opportunities make permanent employment a valuable option.
Due to this pronouncement of our President, employees will be asking for benefits that regular
employees are entitled to. If employees asked to be regularized, then they will probably also ask
for higher salaries and other benefits. If this happened, the company will suffer much more
expenses to suffice the needs of their employees.
[Link] Food Safety Act of 2013
THE IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT NO. 10611, “AN
ACT TO STRENGTHEN THE FOOD SAFETY REGULATORY SYSTEM IN THE
COUNTRY TO PROTECT CONSUMER HEALTH AND FACILITATE MARKET ACCESS
OF LOCAL FOODS AND FOOD PRODUCTS, AND FOR OTHER PURPOSES”
OTHERWISE KNOWN AS THE “FOOD SAFETY ACT OF 2013.”
The objective of this law is to (1) Protect the public from food-borne and water-borne
illnesses and unsanitary, unwholesome, misbranded or adulterated foods; (2) Enhance industry
and consumer confidence in the food regulatory system; and (3) Achieve economic growth and
development by promoting fair trade practices and sound regulatory foundation for domestic and
international trade.
Restaurants, doughnut shops, coffee shops and other food businesses serves food to the
public that’s why strict supervision is applied by the government to ensure food safety and
security for the people especially to consumers. Restaurants typically have to obtain a permit to
prepare and handle food. Without a permit, the restaurant is usually not legally allowed to handle
and prepare food.
Not only is a permit needed, but restaurant owners can expect to be monitored by their
local health department. Inspectors look for many things in a restaurant, and inspections usually
go far beyond just looking at the food itself. In fact, inspectors tend to look at cooking
equipment, refrigeration systems, waste disposal and things of that nature.
Relevance: OPPORTUNITY and THREAT
Food safety regulations are imposed not only for the safety of consumers but also to give
opportunities to food businesses to make sure they are giving quality food and services to their
consumers. Maybe this is a threat for others because mishaps and errors are inevitable, but it can
also be an opportunity to others because it will help them improve their products in the long run.
Consistency in quality is one of the most crucial part of owning a food business and if this is
achieved, this can lead to a much more opportunities to give better service and in return, acquire
higher sale profits.
PORTER’S FIVE FORCES
Potential Entry of New Competitor MEDIUM
Bargaining Power of Suppliers LOW
Potential Development of Substitute Products MEDIUM
Bargaining Power of Consumers LOW
Rivalry among Competing Firms HIGH
Table 3.1 Porter’s Five Forces
Potential Entry of New Competitors - Medium
Large capital requirements required to build chain of stores
Favorable locations are already occupied
Economies of scale in distribution and raw ingredients (lower per unit costs due to the
experience curve)
Product and brand differentiation
Capital requirements for individual stores are low, however new entrants wishing to compete on
a like basis with national store networks, distribution channels, brand equity development and
advertising, face large capital requirements to gain market share. This is reflected in the large
number of individual outlets compared with the small number of large, proven top specialty
eateries.
Bargaining Power of Suppliers - Low
The bargaining power of both DD suppliers and the DD supply chain for franchisees is
significant. Both franchise stores and company stores are required to purchase all supplies from
KK Supply Chain which provides all supplies including foodstuffs, equipment, signage, and
uniforms. The KK Supply Chain unit buys and processes all ingredients used in the doughnut
mixes and manufactures the doughnut-making equipment that all stores are required to purchase.
KK Supply Chain also includes the coffee roasting operations and also ships all food ingredients,
juices, display cases, uniforms, and other items to DD locations on a weekly basis by common
carrier. This allows for maximized leverage when negotiating costs for staples such as potato
flour and sugar, by volume, and gives the supplier added bargaining power. This also allows DD
to maintain control over the price of goods supplied to the vendors, keeping operations costs
lower for the franchisee while still allowing a healthy profit margin. DD also manages contracts
to outsource the making of donuts for grocery distribution, and the reach of DD allows for a
price-making position. If those suppliers do not deliver goods on time, DD cannot supply its
company and franchise stores and they would lose valuable revenue.
Potential Development of Substitute Products - Medium
Over the past two decades competition in the fast-food market has been ever-expanding.
With both spouses working in today’s environment less and less time is being spent in the
household kitchen. It is more common, and convenient, to grab a quick meal than the traditional
home cooked meal. Therefore, it comes with no surprise that substitute products enter the casual-
dining sector to gain market share of the fast-food chains. In the doughnut and pastry shop
industry this is no different. Price wars are generated in attempts to take away revenue from
other restaurants and sustain growth. Therefore, DD must constant be aware of substitute
products from many different areas of the market place. Such substitutes demanded today
include healthier menu items include zero trans fats in all products. Going organic or using 100%
natural ingredient items to favor comparable products. Therefore, companies in this industry
must remain focused on substitute products from many different areas of the marketplace.
Bargaining Power of Consumers - Low
The QSR industry offers many substitutes for DD products and the cost of switching is
low. In fact, many consumers prefer diversity in their diet and with an increasingly health
conscious market place – the consumption of “sweets” like doughnuts is limited. Combine this
with the high promotion budgets of market like McDonald’s, Burger King, and Mister Donut –
consumers are enticed on a daily basis to exercise their right to switch. Thus, buyers have
significant bargaining power.
Rivalry among Competing Firms - High
The QSR industry boasts a variety of firms/products including DD’s indirect competitors
McDonalds and Burger King. DD’s direct competitors are Mister Donuts, Krispy Kreme, and
Tim Hortons.
EXTERNAL FACTOR EVALUATION
(EFE)
Key External Factors Weight Ratin Weighted
g Score
Opportunities
Sugar Import Liberalization 0.09 3 0.27
Tax Exclusion on milk and coffee 0.08 2 0.16
Growing economy 0.10 4 0.40
GDP Increase in the Philippines 0.09 4 0.36
Online Delivery 0.10 2 0.20
Tropical weather/climate in the Philippines 0.06 2 0.12
TOTAL 1.51
Threat
Excise tax on sweetened beverages 0.05 2 0.10
Inflation 0.10 4 0.40
Skyrocketing cases of obesity 0.08 2 0.16
Diabetes rate in the Philippines 0.09 2 0.18
Global warming 0.06 2 0.12
Internet, gadgets, and social media 0.10 2 0.20
TOTAL 1 (1.16)
2.67
Table 3.2 External Factor Evaluation of Dunkin’ Donuts
Analysis:
Above, the opportunities of the company have garnered a weighted score of 1.51 which is
a little bit higher than the company’s threats which have a weighted score of 1.16. Analyzing
table 3.2, “Sugar Import Liberalization” weighs 0.09 with a rating of 3 which totaled a
weighted score of 0.27 which is neither high nor low because in the food and beverages industry,
sugar is a key component so generally it is considered as an opportunity in this industry. “Tax
Exclusion on milk and coffee” weighed 0.08 with a rating of 2 which totaled a weighted score
of 0.16, which can be said to be somehow low. The reason being that, although this is an
opportunity for the industry, tax inclusion is but a minor thing to worry about in terms of profit
gaining for companies. “Growing Economy” weighed 0.10 with a rating of 4 which totaled a
weighted score of 0.40. This factor is important because the economy is the driving force of the
market and with good economy comes good profit for ALL industry. “GDP Increase in the
Philippines” weighed 0.09 with a rating of 4 which totaled a weighted score of 0.36. Falling
behind the previous opportunity by only 0.04, this is an important factor as well because of how
important and imperative GDP is to any business. “Online Delivery” weighed 0.10 with a rating
of 2 which totaled a weighted score of 0.20. Again, neither high nor low, online delivery, which
prospered only recently can really be seen as an opportunity for this industry because of the
convenience it gives to the consumers WHICH entices them to avail of products even more
because of how easy it is to do so. The last opportunity being “Tropical weather/climate in the
Philippines” weighed 0.06 with a rating of 2 which totaled a weighted score of 0.12. A low
score but still an opportunity nonetheless because here in the Philippines, we have almost hot
weather everyday and with the food and beverages industry, consumers would most likely avail
of beverages to alleviate the heat with refreshments.
Moving on to the threats, “Excise tax on sweetened beverages” weighed 0.05
with a rating of 2 and totaled a weighted score of 0.10. A low score but nonetheless a threat,
because tax as already mentioned earlier, is a factor that is minor compared to other factors
which GREATLY affects the industry. “Inflation” weighed 0.10 with a rating of 4 and totaled a
weighted score of 0.40. A high score as inflation really will affect the industry’s profit because of
the increased interest rates, which makes credit more expensive for both manufacturers and
service which eventually will be passed on to the consumer. “Skyrocketing cases of obesity”
weighed 0.08 with a rating of 2 and totaled a weighted score of 0.10. A low score considering the
fact that not all businesses in the food and beverages industry offers products which are
unhealthy and in a way that of which will only contribute to obesity. “Diabetes rate in the
Philippines” weighed 0.09 with a rating of 2 and totaled 0.18. Neither high nor low, as like the
previous threat, not all business in the food and beverages industry offers products which are
against diabetes. Other business actually offers vegetarian products which can help with these
cases. “Global Warming” weighed 0.06 with a rating of 2 which totaled a weighted score of
0.12. The industry mostly relies on agricultural products as their main ingredients and with
climate change, the acquisition of such may get complicated due to the negative effects of
climate change especially now with a threat looming over the horizon known as global warming.
And lastly, “Internet, gadgets, and social media” which weighed 0.10 and a rating amounting
to 2 and totaled a weighted score of 0.20, can be said to not be a threat but an opportunity,
nonetheless. This might be true in some cases however; the use of technology has been utilized
by many different users to taint the image of businesses. The food and beverage industry will not
be exempted from this, hence a threat.
In conclusion, there will always be room for improvements and ways to deal with any
threats so that in the future, the evaluation will provide us with higher opportunities than threats.
COMPETITIVE PROFILE MATRIX
Critical Success
Factor Weigh Dunkin’ Scor Mister Scor Krispy Scor
t Donuts e Donut e Kreme e
Rating Rating Rating
Advertising 0.15 4 0.6 4 0.6 3 0.45
Product Quality 0.1 3 0.3 3 0.3 4 0.4
Innovation Price 0.05 4 0.2 2 0.1 3 0.15
Competitiveness 0.1 3 0.3 3 0.3 2 0.2
Management 0.1 3 0.3 3 0.3 3 0.3
Market Share 0.1 4 0.4 3 0.4 2 0.2
Global Expansion 0.05 3 0.15 2 0.1 3 0.15
Distribution 0.05 3 0.15 3 0.15 2 0.1
Customer Loyalty 0.1 3 0.3 2 0.2 4 0.4
Financial 0.1 4 0.4 3 0.3 4 0.4
positioning
Product Selection 0.05 4 0.2 4 0.2 4 0.2
Social 0.05 4 0.2 4 0.2 4 0.2
Responsibility
Total 1 3.5 3.0 3.15
5
ANALYSIS:
Based on the table above, Dunkin’ Donuts is the leading donuts chain in the Philippines leaving
Krispy Kreme behind, then Mister Donut. Mister Donut & Krispy Kreme are as popular as Dunkin’
Donuts here in the Philippines however, in terms of who is most popular between the three, the latter
wins. This is due to the fact that Mister Donut & Krispy Kreme’s advertisements among all, falter than
that of Dunkin’ Donut’s. You would notice how popular Dunkin Donuts brand is. It’s like every city you
visit, there’s more than one Dunkin Donuts store strategically placed in the busiest streets to cater to all
walks of life. In conclusion, based on the garnered scored above, Dunkin’ Donuts has been successful in
beating its competition in some aspects. However, there will always be room for improvements all
throughout.