In 2d crack at China market, Dunkin' Donuts alters recipe
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The sweet potato doughnuts are a dead giveaway: This is no ordinary Dunkin' Donuts.
And it was no ordinary store opening in Shanghai yesterday for the Massachusetts chain. Dancers in lion costumes exorcised evil spirits and summoned luck and fortune. Hundreds of customers lined up for their first chance at Dunkin's offerings at the new shop, a two-story venue with couches and cushy chairs.
The new store heralds the chain's return to China after giving up on the market a decade ago. Foreign companies have long coveted the opportunity to sell products to the world's most populous country, but not everyone has succeeded. Trying to cater to 1.3 billion consumers can be daunting, and bureaucratic hurdles there only make it harder.
When Dunkin' opened its first store there in 1994, the doughnut chain struggled. Its treats were too sweet; it underestimated the challenge of converting a nation of tea drinkers to coffee; and, inexplicably, Dunkin' chose as a local partner an aerospace firm that had no experience running restaurants. By the late 1990s, Dunkin' had retreated.
Now Dunkin' is back because China is simply too big to ignore. The company plans to open 100 stores in Shanghai over the next 10 years, another 50 stores in the Guangdong region to the south, and potentially thousands more across the country. Dunkin', in the midst of a nationwide expansion in America, has 6,143 US stores and nearly 2,400 international shops, earning about $5.3 billion in sales worldwide last year.
"The single biggest potential we have outside the US is China," Tony Pavese, chief operations officer for Dunkin' international, said in a phone interview from Shanghai, where he helped cut the ribbon at the new store. "It's a milestone."
Retail analysts say companies have labored for years to understand how to make it in this irresistible but incredibly complex marketplace.
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"There is a saying that in China, 'everything is possible, and nothing is easy,' " said Dennis Lombardi, executive vice president of food service strategies for WD Partners, a development firm.
Dunkin's failure when it first entered China has made executives particularly sensitive about getting it right this time. First, it found a local partner - Mercuries & Associates - that operates numerous shopping centers and restaurants throughout Asia, and knows the ins and outs of getting permits and passing inspections.
For more than a year, Dunkin' agonized over every detail of the operation. At the company's test kitchen in its Canton, Mass., headquarters, chefs lowered the sugar level in its traditional pastries like chocolate doughnuts to appeal to the Chinese, who prefer their desserts less sweet than Americans do.
Dunkin' staff experimented with foods with a local twist, like mochi rings, chewy treats made of glutinous rice that are fried in oil, and marinated lamb sandwiches. They worked for months to perfect the right color, sweetness, and texture of the green tea latte, a concoction with the thickness and color of pea soup. Dunkin' and its local partner conducted extensive taste tests, sometimes shipping products from Massachusetts to China, to make sure consumers liked their offerings.
Dunkin' made sure to find prime real estate - its first store is in a bustling business district across the street from popular Western brands like
Moreover, Dunkin' is having an easier time making a big push for its coffee, the most profitable part of the business (a 6-foot, 5-inch-tall cup of coffee greeted customers at yesterday's event). Over the past five years, a coffee culture has emerged in China, largely because of the success of its rival
The Seattle java giant opened its first shop in China in 1999 and has been on a tear since, with more than 300 shops courting young consumers with its hip cafe setting, jazz music, and caffeinated beverages.
Starbucks declined to comment on Dunkin's expansion into Shanghai, except to say that it expects China to be one of its own largest markets outside of the United States. Starbucks, which is shuttering hundreds of shops in America, is banking on overseas stores for its growth, with 900 new international stores planned for fiscal 2009.
Dunkin' has been preparing to meet its rival in China for many years. Since 2004, Dunkin' has opened more than 600 stores across Asia.
In that time, it has tried to get a better understanding of markets, and gained confidence that it could conquer China on its second try, according to Pavese.
From its experience in other Asian markets, including Taiwan and Korea, Dunkin' learned that consumers, often living in cramped homes, wanted restaurants where they could linger with groups of friends. So Dunkin' expanded store sizes, added couches and large tables to create more of a destination, and even offered tableside service at some locations. It's an ambience far different from the grab-your-cup-of-Joe-and-leave in New England.
When sales at Taiwan shops exceeded expectations over the past two years, executives figured it was time for Dunkin' to take on China.
The biggest challenge is getting brand awareness, Michael Tan, Dunkin's international business consultant, said earlier this summer, standing outside one of Dunkin's future stores in Shanghai.
"We need to focus on our heritage," Tan said. "People want to know we're not fake, that we've been around a long time."
With its comfy couches and long wooden tables, Dunkin' is trying to attract consumers like Kiki Chang, 21, who visits Starbucks twice a week and spends about $15 on Frappuccinos. As she sipped her frothy drink recently, Chang said she had heard of Dunkin' Donuts, one of only a dozen people interviewed who recognized the name.
"I like to try new brands and am excited about Dunkin'," she said through a translator.
Dunkin' executives worried about whether they got those mochi rings right might be heartened to know: Chang likes chocolate-frosted doughnuts.
Jenn Abelson can be reached at abelson@globe.com. 
