Customer Loyalty and Brand Development: Dunkin’ Donuts CEO

• Introduction
• Customer experience and brand awareness
• Measurement and metrics for building brand awareness
• Listening to the customer
• Market testing based on consumer data
• Brand development process at scale
• Digital transformation at Domino’s Pizza

This transcript was lightly edited.

Introduction

Michael Krigsman: We're discussing brand building and customer experience with Robert Rosenberg. He's the former CEO of Dunkin' Donuts and author of the book Around the Corner to Around the World. I think the surprising aspect here for me is all of the pieces that underly it. Brand is not just a marketing exercise for you.

Robert Rosenberg: No, it represents everything that we do to go to market to satisfy the customer. It goes to store design. It goes to staff training. It touches every element of the business constantly.

Customer experience and brand awareness

Michael Krigsman: We hear a lot about customer experience these days. Share your thoughts on that. I think it's become a kind of buzzword, almost a replacement for the buzzword "digital transformation." Any thoughts on this notion of customer experience in this context of what you've been describing?

Robert Rosenberg: To me, it's sort of the whole ball of wax. It starts with the acquisition of the customer in terms of what will delight them and capture their attention initially. For us, we fortress markets. We don't just go everywhere any franchisee particularly wants to go.

It goes to how we're going to design the store so people can see in and see what the experience is likely to be before they get there. It gets to be advertising, so we pay a lot of attention to a way to go to market. The more brand awareness we build, the more likely it is that people are going to try us.

Then, of course, we go back to the same things that we touched on before. Once the customer is acquired, how do you keep that customer? How do you keep them excited?

You do it through product news. You do it through the trust they build in getting the same consistent product that they love and want, day in and day out, all the time. You continually take their temperature by a whole host of means in order to make sure that they keep occurring.

You have to touch all their senses and sometimes it goes way beyond that. It can get to be their concerns, the customers, and the customer experience.

In our industry, what always built it, what was really the wind in our sails was the movement of women into the workforce. Before the Second World War, one out of three women worked in the workforce. That had grown over my 50 years of association with the brand and now two out of three women.

That meant that they needed a replacement for the work that they had done in the kitchen and what appealed to them was convenience and value. That is all of what drives us in terms of what that means. Convenience today is digitization and the ability to order online, the ability to be able to belong to a loyalty club, to belong to the Dunkin' Donut brand's network and make offers to that customer base and customer relationship marketing.

It's a continually evolving pattern where you have to keep upping your game. As to consumers, as more options and alternatives, you've got to keep up and make sure you're fulfilling them better than someone else. That creates the whole overall experience of a consumer.

Michael Krigsman: What's the difference between building a brand and creating a great customer experience?

Robert Rosenberg: I don't think you can really create a brand without creating great customer experience. That is the basis of why you're doing it. The brand represents something to the customer that reflects what they want, their experience, and connection with the brand.

You basically have to be very nimble and you have to listen. You have to capture the zeitgeist of the moment in terms of what's important to the consumer and that's constantly changing.

Basically, I broke my book down into six areas. Each represented different strategic responses because, in our world in those years, some areas may be four years and some were seven years. But the customer and the competition kept changing all the time and that required new responses on our behalf to do that.

We were watching so, in our world, the customer, in watching them, were changing constantly. Their options kept changing. The competition kept changing, and we had to change along with them. That really was the source of how I looked at the world.

Today, my suspicion is the world is changing so quickly that what was five years in 1990 is now maybe two or three years today. Moore's law, it used to be that technology or the computerization capability doubles every two years. Now maybe it's every year and nine months, maybe. It's telescoped. You have to be even more nimble today than ever.

Michael Krigsman: You mentioned capturing the zeitgeist of the time. Was that your job as CEO and how did you go about doing that? How did the company go about doing that?

Robert Rosenberg: Well, it wasn't only my job. It was everybody's job. Basically, you had to be open and listen very carefully to all inputs.

I would belong to trade associations. I would go to the National Restaurant Association where I was a trustee for 12 years and see what my colleagues were doing.

I was very friendly with the CEOs of Tim Hortons Donuts and Mister Donut. They were among my friends, so I would watch very carefully what my competitors were doing. I would visit. They went so far as to invite me to be the keynote speaker at a Tim Hortons franchise meeting in Canada.

We were close and I watched very carefully, but input came from product managers. We had product managers. We had the competence of a packaged goods company. We would take attitude usage studies. We would visit stores. We would work in stores.

It also helps to have children. [Laughter] In my case, I still have a 32-year-old and I liken the fact that she was a Dunkin' customer. Every day, she would start her iced coffee with a Dunkin' product and I said, "Honey, you're not going as much. In New York, are you going to some other store?"

She said, "Well, they have soy milk or oat milk and they don't have that at my local Dunkin' store." That would be the kind of tipoff necessary to try it in a market to see how large a cohort required or wanted soy milk.

That was the beauty of our system. We had lots of places to experiment, but we would experiment with that to see if it was large enough. Once we experimented and proved it may not have been that much of a movement, it was a very small niche market, it didn't mean you didn't go back and do it again in two years or another year because everything kept moving so quickly, and it was moving quickly.

Today, I think consumers not only want convenience and value, as they always did, but they're also starting to vote on ESG, on environment, on social, on governance issues. They're starting to put their money behind brands that deliver on those concerns. You have to up your game and you have to be sensitive to those issues as well.

Measurement and metrics for building brand awareness

Michael Krigsman: The notion of measurement and getting not just intuitive feedback but very careful quantitative feedback, tell us about that.

Robert Rosenberg: I couldn't move 4,000 or 5,000 stores on a whim because my daughter drinks soy milk. [Laughter] I had to quantify, go into a test market, and determine how large a cohort there was.

We were very avid testers. For example, in a new product, product news is very important in the retail business. You have to keep exciting and enthusing the customer with either new product, price, promotion, some activity.

We would have product managers, some responsible for beverages, some responsible for bakery goods, some responsible for other matters on the offering of snacks, and their job was to survey the scene across the entire width and breadth of the competition to see what was working, listening to consumers, to get feedback from franchise owners. Some of our best ideas came from franchise owners: Munchkins, iced coffee.

Most people don't realize that iced coffee wasn't a product until the mid-'90s. It was only drunk in the state of Rhode Island. We decided to lift that product up and bring it to the world. Some markets in the summertime, it could be 20%, 30% of our business.

Munchkins was introduced in the midst of the gas lines of the early '70s. It's been a product that's been around for over 50 years thrilling customers. It came from franchise owners.

It comes from all sources, not just the CEO.

Listening to the customer

Michael Krigsman: When you talk about listening, it's not just keeping your ear to the ground but it's having all kinds of processes to gather that information in structured, very disciplined ways.

Robert Rosenberg: Absolutely and testing before you roll it out. In our case, it's too important.

For example, a good example might be that it's important every once in a while to refresh the store, called a remodel. Generally, in the trade, it's seven years. But we also had a standard that we wouldn't ask a franchise owner to invest a lot of money unless it could provide a fair rate of return.

We would be tasked with the responsibility of finding out what it took in order to ensure that they got a fair return. Let's assume for the moment that our return standard was, we wouldn't ask them to invest unless it could provide a 15% return. We would scratch our heads and sometimes just putting a new face wasn't enough to do that, so we would have to keep working at it and working at it.

In the case where we had Babson students, one of our suppliers, time and motion studies, we couldn't for the life of us find a way to up the sales enough to warrant the investment of whatever it was in those years, $50,000 for a facelift. Then they did a time and motion study and they found that when someone was passing by a Dunkin' Donuts show, if they saw in the drive-thru lane more than four cars or five cars, or more than four or five people standing in line, there was what I would call a block rate, a false move and 25% of the customers, one out of every four, would balk, would pass by and drive by to another Dunkin' store or to a competitor.

That meant the gating variable to unleash the same-store sales to pay for the remodeling was either faster drive-thru put time by putting up the windows that they talked in earlier in their entrance into the parking lot, audio stuff so that they could hear each other talk to fill the orders, or another register for another line. That paid. That would unlock the key but it took an immense amount of digging and pushing to figure that out. We would not ask the franchise owners to make that investment unless we could provide that ROI, that return on investment.

Michael Krigsman: You developed, over time, a variety, numerous, it sounds like, various types of models and processes that helped you touch or listen, to use your term, to what was going on with consumer sentiment at various times.

Robert Rosenberg: Intently watched the consumer, talk to the consumer, measure the consumer, measure the competition. It's continuing and it's changing rapidly all the time.

Market testing based on consumer data

Michael Krigsman: What are the hardest challenges associated with that kind of intently watching the consumer?

Robert Rosenberg: It puts you to a strong test. It's to build the infrastructure to do the testing to ensure that you're not asking people to go off on the wrong idea.

Early in my career, I would love to tell you that at 25, when I took the company over, I was fully baked and understood all these things. [Laughter] That's not the case. It was a long journey.

Now en vogue is the language of emotional intelligence: know yourself and know others as well. That was an evolving process of a lot of listening and looking. That was the way that we went about gaining that kind of control and understanding.

Michael Krigsman: Now, you've gotten this information, this data. How do you act on it and how did you manage the organization to adapt, especially as the company eventually became so large?

Robert Rosenberg: Basically, a strong idea has a life of its own. The testing was essential to all of this. When we tested things in the marketplace, if it provided the kind of returns and it was competing against other ideas, those that were selected out of all of the choices and options that were available would be the ones that we would put on the calendar and unveil for the coming year.

We would mobilize everybody at this annual meeting of how we were going to market. We would communicate through every means available: face-to-face, video, audio, newsletters, every which way in order to mobilize. District managers and tech people in the field would work with owners and the staff in order to execute on a daily basis.

It was a highly orchestrated plan on how we would go to market every single year – unveil from top to bottom. Everything was calendarized out. Everything was measured. Everything was pretested, so it wasn't a big surprise.

If for example we were coming out with bagels and that was going to be the brand new product, we had to have ovens. We had to teach people. We had to spend $25 million in order to get these ovens from the U.K. in order to be able to provide moist heat for a better bagel. We had to train everyone. It was like a dance all the way straight through.

But before we did that, we tested it out in test markets to ensure that it provided the right return. Before we asked them to do it, it met our standard of a rate of return that was acceptable to them. Then the training continued on throughout by everybody in the organization.

There are only so many things you can do, so it starts with planning. I mentioned our planning language to being with. I said, "What was our mission? What do we want to be? What do we want to have, which were our objectives or goals?" I used that language interchangeably.

The next thing was, what are the four or five or three or five levers that we are going to pull in order to bridge scarce resources—time, money, people—to the achievement of those objectives? Our objective, let's assume we had three of them. One of them was to grow earnings per share by 10% to 15% a year. A second was to ensure that the franchise owner earned a 15% return on investment at the unit level because that was the determinant to what was scalable and, in our view, whether or not it was worthwhile to take the license. The third one was debt capacity.

If one of those was to unveil a brand new product in order to drive same-store sales up by 3%, 4%, 5%, that was one of the levers that we were all going to do. You can't do everything. Only a certain amount.

Even a country as large as the United States can't pull every lever. If it tries, it'll get nowhere, so you have to focus on what are the major opportunities, what are the major challenges that face the business, and that's the art of leadership in that planning process and creating that strategy. That is the test and that's why we do that.

Let's assume for our case that we knew that if we could build same-store sales by 4% or 5%, if we could open new distribution to the extent of 2% or 3%, if we could get store margins up from, let's assume, 10% to 12%, in other words, those 4 or 5 things that we had to do, what were the ways that we were going to take those scarce resources and aim it against those aiming points? Then we'd all mobilize behind it.

That was what I would put out on a newsletter beforehand to every member of the company and then that was what we would tell at the annual meeting where we unveiled it. We would then work in the field to execute against that plan.

Brand development process at scale

Michael Krigsman: That very disciplined execution was the heart of that business, your business.

Robert Rosenberg: You cannot build a business without processes and procedures. That was the core of it.

We built it on three Ps.

• Exquisite planning, I mean real crisp planning – key. Standardized the planning language, you know, what you want to have, what you want to be, what your strategic levers are going to be, what tactics go to support each of those.
• People: Recruit, retain, and motivate the best people to execute that strategy.
• Then third were the best products in the world in order to woo the customer continuously.

Those three Ps were how we built our business.

Michael Krigsman: We have a question from Twitter. How do executives justify paying for quality ingredients and inputs when investors are demanding higher profit and lower costs? How do you balance that?

Robert Rosenberg: In my view, you cannot get higher profits – if in fact the consumer wants and if you believe, by listening to the consumer, the consumer wants an extraordinary product. You have to strike a balance in terms of what it is. It isn't purely quality to the extent that you can ignore costs. There is a point at which they will not pay for that.

We would price to protect margins. It's a kind of delicate balance in terms of striking the right price. In our case, we didn't charge necessarily a premium price. We were providing premium product at everyday competitive prices, not necessarily against—for the sake of argument—Starbucks with pricing probably 50% higher for a cup of coffee than we were. Our coffee met the needs of our consumers perfectly and we were matching what they wanted with what they were willing to pay for.

That was a constant look. We surveyed all the competitors every six months to see what they were paying and what they were pricing. Then within that, we would provide the best possible product available.

In our case, in the 35 years I was there, I never remember a conversation that ever made the choice of lowering quality to save money. That was never a conversation we ever had. Just the opposite.

For example, getting dairies to make 18% light cream, we thought that that colored the coffee better. The mouthfeel for fresh, light cream was better than anything else. When ultra-pasteurized cream was available with a 180-day shelf life, which was now going to be cheaper, you didn't have to deliver it a couple of times a week by the dairy to the store, it was going to be a savings. We would never, ever compromise to do that. We would stick with the fact that we wanted fresh, not ultra-pasteurized, fresh cream in order to be able to color our coffee and in order to create the mouthfeel that we thought were necessary for the end product for that Dunkin' Donut product.

Michael Krigsman: Having a real clarity around your focus, your customer, what those customers want was the absolute North Star reference point and then, of course, the execution to deliver that and all of the processes and everything else that underlies it.

Robert Rosenberg: Absolutely. That was exactly it. That's exactly how I would describe it.

Michael Krigsman: You were also on the board of Domino's Pizza as they were making the transition to becoming not just a pizza shop but a major digital e-commerce powerhouse. Tell us about that.

Robert Rosenberg: I had a front-row seat. I was a director of Domino's, after my retirement, for 12 years.

The pizza business was interesting. It was a worldwide business. It was providing the ultimate in convenience in-home delivery.

What I saw there was that they were pioneering. Domino's was pioneering what I would call the third phase of the fast-food industry.

The fast-food industry was built by lots of entrepreneurs that created great operations to satisfy women joining the workforce by alternative food products, quality and convenience, during that early era, during the '50s and '60s.

That was followed by the second era. The second era was fundamentally one where those companies that survived and thrived were ones that not only maintained the strong operational bent but also added onto that, first-rate consumer packaged goods know-how, the understanding of following the customer, defining the customer, marketing to the customer, advertising and understanding of broadcast.

The ones that were now emerging in the third phase, and that phase occurred, I would say, through the '80s and into the '90s. In the '90s, it was a switch. Those companies that were going to thrive, again, kept the strong operations, kept this magnificent marketing capability, and are grafting on a real clear understanding of the impact and investing in digitization. They were the ones that basically started point of sale registers that could track who the customer was, how often they came, what did they buy, and what did they like. (Indiscernible, 00:21:45)…

In Dominos' case, what I saw was, it was a worldwide business. They were growing dramatically overseas, but they weren't growing in the United States. In the United States, sales for about a decade were kind of stagnant. Same-store sales were not growing and the pizza business was really broken down between four major chains that controlled 50% of the business. It was Domino's, Pizza Hut, Papa John's, and Little Caesars.

The other 50% were mom and pops, local burrows, local pizzerias where everybody had their favorite pizza. You couldn't wean them away to their favorite pizza. That was half the market and, for years, it couldn't move.

Then all of a sudden, when we introduced Pulse, our point of sale register, and we had this ability to now take online orders and do home delivery, all of a sudden I watched 5% of the customers are ordering online, then 10%, then 20%, then 30%, then 40%. What was happening is, the mom and pops that didn't have the ability to provide that element of convenience of ordering online to their repertoire, we were now starting to get share that had heretofore always been unavailable to us. That opened my eyes, personally, to the impact of the digital age and what impact was going to have on food service.

Through this pandemic, those companies that had early invested in online ordering, mobile pay, mobile ordering, drive-thru lines, pickup, curbside, in order to be able to provide the customer the way they wanted to access their restaurant products in every platform available were the ones that were going to come through the pandemic and not only survive but, in my language, thrive when the dust clears. 650,000 restaurants in the United States. The National Restaurant Association maintains that 15% of them are likely to close. That's over 100,000 restaurants, a million and a half people out of work. That's real pain.

We do need PPP extended by Washington to help those people make the transition, but I think that the existing ones that have invested, both independents and chains, that were smart enough and invested early enough in those ways of touching a customer through digitization are going to be able to grow better, faster than ever before.

Digital transformation at Domino’s Pizza

Michael Krigsman: Domino's did that really well. Are there a few things that you can identify that enabled them, lessons that others can learn who are going through this type of digital transformation that enabled Domino's to do that well?

Robert Rosenberg: What I find was, it's a little bit of trial and error. It's hard to predict always how it's going to be. But if you are committed to the customer, and if you think and the customer demonstrates that convenience is important to them, then you are obliged to experiment with whatever means possible to provide that better than the competition.

It's back to the same formula we talked about before. What's your purpose? If your purpose is to satisfy the customer, you're going to watch what turns them on.

I wish I could tell you I could sit in a room and figure all that out myself. It's a little bit of trying and putting a lot of hooks in the water, seeing which ones really resonate, and go like hell. Those that don't, you close down and stop.

In business, let's assume you want to grow, as we did, between 10% and 15% compounded in earnings per share. We would try to grow as rapidly as we could and save some money to plant saplings.

What do I mean by sapling? To try all of these options that we think have high potential with the consumer. Those that work, we expand and exploit quickly. We innovate, test, and iterate, which is one of my lessons I contain in the book.

Those that don't, we close down as rapidly as we can. One of the tricks I've learned in that, if I had to do it again, is I wouldn't capitalize a lot of R&D beforehand because it makes it very hard to back away once you've made a big commitment and you've got a lot of money riding. You've got to take a big write-off. Try not to do that. Try to expense R&D as best you can as you go along.

The second thing I learned is if you're trying to do a lot of experimentation, probably keep it on the down-low until you're ready to go to market because it starts, if you're a public company, a conversation of its own. If it's not ready for prime time, that too makes it hard to retract and retrace.

I can't give you a specific percentage of what worked and what didn't work, but a lot of things didn't work. We were quick to the market, particularly when I was using sort of kitchen research to determine what products to be sold.

I had watched Marie Callender's pie shops on the West Coast and thought people would naturally love to go to a Dunkin' Donut shop at Thanksgiving and buy a fresh-baked pie. Well, that was not true. [Laughter] That wasn't the case.

There were sometimes I was way too quick to market and I had to bury some of those mistakes I made. We developed better processes to take better temperatures of more people and do more testing before we would ever go to market.

Michael Krigsman: This has been a very quick conversation and I'd really like to say thank you, again, to Robert Rosenberg. He is the former CEO of Dunkin' Donuts and he wrote this excellent book Around the Corner and Around the World. Check it out. Robert Rosenberg, thank you very much for being with us here today.

Robert Rosenberg: My pleasure, Michael.

Michael Krigsman: Everybody, thank you so much for watching. Before you go, please subscribe to our YouTube channel and hit the subscribe button at the top of our website. Check out CXOTalk.com. We have lots of shows coming up and we will talk to you soon. Have a great day, everybody.