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

3.1.1.1 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.

3.1.1.2 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 such as Dunkin’ Donuts will also be affected as they offer

beverages which is the subject of this excise tax.

3.1.1.3 Tax Exclusion on milk and coffee

Since Dunkin’ Donuts serves pastries and doughnuts with their 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 Dunkin’ Donuts. Since tax will be

excluded from all kinds of milk and coffee, they can acquire materials with lesser costs.

Meaning, they can invest more on different things rather than spending most on

materials if it not for the tax exemption.

3.1.2 Economic

3.1.2.1 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. 

3.1.2.2 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.

3.1.2.3 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

3.1.3.1 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.

3.1.3.2 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

3.1.4.1 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.

3.1.4.2 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

3.1.5.1 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.

3.1.5.2 Climate Change

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

3.1.6.1 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.

3.1.6.2 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 MEDIUM

Products
Bargaining Power of Consumers LOW
Rivalry among Competing Firms HIGH

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 Dunkin Donuts – 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 Dunkin’ Donuts,

Starbucks Corporation, and Tim Hortons.

EXTERNAL FACTOR EVALUATION

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
Climate Change 0.06 2 0.12
Internet, gadgets, and social media 0.10 2 0.20
TOTAL 1 (1.16)

2.67

Analysis:

Above, the opportunities of the company have garnered a weighted score of 1.51

which is significantly lower than the company’s threats which have a weighted score of

1.16. 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 Weight Dunkin’ Score J.CO Score Krispy Score
Donuts Rating Kreme
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 3.05 3.15

ANALYSIS:

Based on the table above, Dunkin’ Donuts is the leading donuts chain in the Philippines

leaving Krispy Kreme behind, then J.CO. J.CO & 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 J.CO & Krispy Kreme’s advertisements among all, falter

than that of Dunkin’ Donut’s.