The following report is a part of a project that also includes presentation, and the purpose of this report is to support the presentation with some key financial information and a comprehensive company analysis of a foreign company that has recently entered the Saudi Arabian market and now operates in Saudi Arabia.
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As more companies from the United States enter the Middle Eastern markets, the impact of the divergent cultural climate has certain and financial effects on these companies. The following report will highlight the experience of the Dunkin Donuts Company, which set up a franchise operation in Riyadh, Saudi Arabia in 2009. This report will include the following sections:
A detailed discussion of the parent company background, including its history and strategic objectives. The report will highlight the incentives that encouraged the Dunkin Donuts Company to choose the Saudi Arabian market to invest in.
This report will also provide an overview of the Dunkin Donuts franchise model. As a franchised company in Saudi Arabia, this report will look at some of the main problems that have been faced by the company when they tried to enter the Saudi market, including cultural difficulties.
This report will provide comprehensive financial information about the Dunkin Donuts Company in Saudi Arabia, including the following: How many branches it has in Saudi Arabia, how many employees work for the company, the revenueand net income for the company, and the products that it currently sells.
The following report also discusses the current Dunkin Donuts Company strategy and core competence? It will also offer insight into the main competitors of Dunkin Donuts in Saudi Arabia.
The report also discusses the main reasons why the Dunkin Donuts Company prefers to use the franchising model to operate its business in Saudi Arabia, particularly considering the other modes of entry to the Saudi Arabian market such as joint ventures and direct investment.
The report will highlight the pros and cons of franchising in general as well as why this model was chosen for the Saudi Arabian market.
The report also discusses the cultural issues that Dunkin Donuts Saudi Arabia is concerned with. The laws and customs of Saudi Arabia are vastly different from those found in the parent company’s home territory of the United States.
The report will highlight the effect of the separation between male and female customers and the effect of closing the stores during prayer time. The report will discuss the costs associated with meeting these and other cultural and religious requirements in order to operate in the Saudi Arabian market.
The report details what the Dunkin Donuts Company can do in Saudi Arabia to increase its market share and best its competitors, both local and international.
The effects of rules and regulations are also discussed in this report, specifically the impact of the Saudization Law on the Company’s hiring policies. This law compels companies to employ local Saudis through enforced legislation, according to a certain percentage depending on the company’s revenue and activity.
In the case of Dunkin Donuts, the employee sales force should not be comprised of less than 30 percent of Saudi Arabian citizens.
The report will discuss the financial impact of this legislation on the company’s profits. It will also detail how many Saudi Arabian people work for the Dunkin Donuts Company in Saudi Arabia, and whether or not this law increases Dunkin Donuts’ operating expenses because Saudi Arabian employees have minimum wage level that is 3000 Saudi Riyals.
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Finally, the report will highlight the company’s plan for future growth, including other Middle Eastern countries that the company intends to expand into in the coming months and years.
Dunkin Donuts in Saudi Arabia
Dunkin Donuts (NASDAQ: DNKN) is a quick service restaurant chain based in the United States. This company competes mainly in the breakfast beverage category and sells coffee and breakfast pastries such as donuts, bagels and muffins.
Dunkin Donuts is owned by the Dunkin’ Brands Group, Inc. (NASDAQ: DNKN). This parent company of Dunkin’ Donuts (DD) also owns Baskin-Robbins (BR), an international vendor of ice cream and desserts.
Dunkin Brands is a global leader both by sales volume and revenue in the quick service restaurant category (“Dunkin Brands Celebrates the Opening of its 15,000th Store” par. 5).
In 2009, the company opened its 15,000th store, and has expanded globally to count a number of stores in the Middle East, including Dunkin Donuts in Seeb Cornich in Oman, and Dunkin Donuts at the Bawadi Mall in Al Ain City, the United Arab Emirates (“Dunkin Brands Celebrates the Opening of its 15,000th Store” par. 5).
In Saudi Arabia, Dunkin Donuts operates two branches in Jeddah: one on Rawdah Street and one on Corniche Street ((“Dunkin Brands Celebrates the Opening of its 15,000th Store” par. 5; “Dunkin Donuts” par.1). There is also a Dunkin Donuts location on the Khurais Road in Riyadh, Saudi Arabia (“Dunkin Brands Celebrates the Opening of its 15,000th Store” par. 5; “Dunkin Donuts” par.1).
The Dunkin Brands Franchise Model
Dunkin Brands operates “16,800 points of distribution in 58 countries” via the Dunkin Donuts and Baskin Robbins quick service restaurant franchises (“Dunkin Donuts 2011 Annual Report” 11).
The Dunkin Brands runs a nearly 100 percent franchised business model, similar to other successful quick service restaurant brands such as Subway and Domino’s Pizza (“Dunkin Donuts 2011 Annual Report” 11). This model has served the company well and continues to provide “strategic and financial benefits” to the company and its shareholders (“Dunkin Donuts 2011 Annual Report” 11).
One of the principal benefits of the franchise model is that the reduction in operations cost. Since the company does not directly operate or oversee a large number of outlets, the business can shift its focus to “menu innovation, marketing, franchisee coaching and support, and other initiatives to drive the overall success of our brand” (“Dunkin Donuts 2011 Annual Report” 11).
From a financial perspective, the franchise model facilitates rapid growth at low cost, as it allows the company to “grow our points of distribution and brand recognition with limited capital investment by us” (“Dunkin Donuts 2011 Annual Report” 11). The franchise model also presents limited risk to the parent company, since the risk is borne by the franchise owner (“DunkinDonuts 2011 Annual Report” 11).
Dunkin Brands’ franchise model underpins much of the company’s success (“Dunkin Donuts 2011 Annual Report” 11). The franchise model facilitates rapid expansion with minimal risk to the parent company (“Dunkin Donuts 2011 Annual Report” 11). If the franchisee succeeds, so does the parent entity (“Dunkin Donuts 2011 Annual Report” 11).
However, if the franchise owner fails in his or her endeavour, the parent company simply moves on (“Dunkin Donuts 2011 Annual Report” 11). The growth strategy of the Dunkin Donuts brand will be highlighted later on in this report under the section Growth Strategy.
Dunkin Donuts Business Segments
The Dunkin Brands Company runs its business under the auspices of four business segments. These include the following: “Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins International and Baskin-Robbins U.S.” (“Dunkin Donuts 2011 Annual Report” 11).
According to the Dunkin Brands 2011 Annual Report, the combined revenue generated by this quartet of business units was 603.3 million USD (“Dunkin Donuts 2011 Annual Report” 11). In 2011, the Dunkin’ Donuts stores collectively earned $453.0 million USD, which amounted to 75 of the company’s total segment revenues (“Dunkin Donuts 2011 Annual Report” 11).
Within this breakdown, $437.7 million was generated in the U.S. segment of the business, while $15.3 million originated in the international segment, such as businesses in Saudi Arabia and the rest of the Middle East (“Dunkin Donuts 2011 Annual Report” 11).
Also in 2011, the Baskin-Robbins arm of the business earned profits of $150.3 million USD; $108.6 million USD came from the international segment, while $41.7 million USD came from the segment based in the United States (“Dunkin Donuts 2011 Annual Report” 11).
Dunkin Donuts Points of Distribution
According to the Dunkin Brands Annual Report, 10,083 Dunkin’ Donuts points of distribution existed globally speaking up to and including December 31, 2011 (“Dunkin Donuts 2011 Annual Report” 11).
Of these outlets, 7,015 existed in the United States, while 3,068 were located in international locations (“Dunkin Donuts 2011 Annual Report” 11). In addition, the company operated 6,711 Baskin-Robbins points of distribution; of these, 4,254 locations were found in the international markets, while 2,457 existed in the United States markets.
There are several different types of Dunkin Brands points of distribution. These include “traditional end-cap, in-line and stand-alone restaurants, many with drive thrus, and gas and convenience locations, as well as alternative points of distribution…such as full- or self-service kiosks in grocery stores, hospitals, airports, offices, colleges and other smaller-footprint properties” (“Dunkin Donuts 2011 Annual Report” 11).
Dunkin Brands Revenue Generation
The Dunkin Brands Company produces its revenue from four main sources (“Dunkin Donuts 2011 Annual Report” 11). These include the following:
- Royalties and other fees that the company earns from its franchised restaurants (“Dunkin Donuts 2011 Annual Report” 11)
- Money derived from rental fees on the restaurant properties that Dunkin Brands gives to its franchisees, either through leases or subleases (“Dunkin Donuts 2011 Annual Report” 11)
- Profit from the sales of ice cream and ice cream foodstuffs to the Dunkin Brands franchisees located in specific international venues (“Dunkin Donuts 2011 Annual Report” 11)
- Miscellaneous fees and other forms of money earned via licensing charges for the use of the Dunkin’ Donuts logo and brand collateral (“Dunkin Donuts 2011 Annual Report” 11). This income is derived from the brand’s products that it sells in “non-franchised outlets” (“Dunkin Donuts 2011 Annual Report” 11). An example is the packages of Dunkin Donuts ground coffee that is available in certain retail outlets in the United States and internationally (“Dunkin Donuts 2011 Annual Report” 11)
- Fees derived from the issuing of rights licenses (“Dunkin Donuts 2011 Annual Report” 11). This income is earned when the company gives a third party the right to “manufacture Baskin-Robbins ice cream and related products sold to U.S. franchisees” (“Dunkin Donuts 2011 Annual Report” 11)
- Other revenue, including transfer fees, money earned when an outlet refranchises, income derived the stores that company owns and operates, and training fees garnered from distance education courses that the company operates (“Dunkin Donuts 2011 Annual Report” 11)
The modern franchise model has demonstrated significant and sustained growth since it was introduced in the United States in the 1950s from the Singer Corporation’s sewing machine distribution growth strategy (Eser, McCuddy and Pinar 101).
Global brands including Domino’s Pizza, McDonald’s, Holiday Inn, Coca-Cola, Dunkin’ Donuts, Midas Mufflers and Pizza Hut have utilized the franchise system with great success and attribute much of their growth to this system (Eser, McCuddy and Pinar 101).
As Eser, McCuddy and Pinar note, due to “recent domestic and global growth, franchising has become a major channel in retail marketing, exerting a significant impact upon consumer buying decisions [and] the major business sectors for growth globally are reported to be in the restaurant and fast food industry (p. 101).
The franchising model is seen as transportable; it allows essentially any brand or business to enter new markets and acclimatize to a number of disparate cultures and business regulatory environments anywhere in the world quickly and with a minimum investment on the part of the parent company (Eser, McCuddy and Pinar 102).
In the case of the Dunkin Donuts brand, Saudi Arabia represents only one of the many countries the world over that has embraced the ubiquitous donut and coffee vendor.
However, franchisors are not guaranteed immediate success in the franchise model, and franchisors in the Middle East have struggled with cultural clashes and regulatory issues, which will be covered in the sections Cultural Concerns and Saudization Law respectively.
Dunkin Donuts Company History
The Dunkin Brands are both well-established American brands that originate from the prosperous period that the United States entered into after the completion of the Second World War. The first Dunkin Donuts restaurant was founded in the 1940s by entrepreneur Bill Rosenberg (“Dunkin Donuts 2011 Annual Report” 12).
Baskin and Robbins was founded by Burt Baskin and Irv Robbins during the same period of history when the two ice cream vendors decided to merge and formed Baskin-Robbins (“Dunkin Donuts 2011 Annual Report” 12). The two brands Baskin-Robbins and Dunkin’ Donuts were both acquired by Allied Domecq PLC: Baskin-Robbins was acquired in 1973, and Dunkin Donuts in 1989 (“Dunkin Donuts 2011 Annual Report” 12).
In 2004, the brands were reorganized under the auspices of the Allied Domecq Quick Service Restaurants subsidiary; the subsidiary was subsequently rebranded as Dunkin’ Brands, Inc. in 2004 (“Dunkin Donuts 2011 Annual Report” 12).
In 2005, the Allied Domecq parent company was acquired by Pernod Ricard S.A. (“Dunkin Donuts 2011 Annual Report” 12). Shortly thereafter, the new parent company then divested Dunkin’ Brands as part of its strategic plan to concentrate on the spirits industry (“Dunkin Donuts 2011 Annual Report” 12).
After the divestiture, Dunkin Brands was acquired by a group of investors – Bain Capital Partners, LLC, The Carlyle Group and Thomas H. Lee Partners, L.P. – and the company was rebranded as the Dunkin’ Brands Group, Inc. in 2006 (“Dunkin Donuts 2011 Annual Report” 12).
Initial Public Offering
The Dunkin’ Brands Group, Inc. started on the road to becoming a public company in 2011. In July of that year, the Dunkin’ Brands Group, Inc. “issued and sold 22,250,000 shares of common stock and certain of our stockholders sold 3,337,500 shares of common stock at a price of $19.00 per share in our initial public offering” (“Dunkin Donuts 2011 Annual Report” 12).
Following the Initial Public Offering, the stock listed on the NASDAQ Global Select Market as “DNKN.” (“Dunkin Donuts 2011 Annual Report” 12). According to the Wall Street Journal, the Dunkin Brands Group now boasts a value on the NASDAQ stock market of $2.4 billion USD (Ovide n.p.). These figures are derived from the company’s initial public offering share price of $19 per share (Ovide n.p.).
Dunkin Brands Future Prospects
The Dunkin Brands Company’s primary competitive advantages are its strong brand name and ability to expand quickly and relatively cheaply into the global quick service restaurant market thanks to the franchise model of business.
In this regard, the company shares many similarities with the quick service restaurant chain Subway, Subway boasts an aggressive and rapid expansion mandate and earns over $15 billion in revenue every year. Now that the brand giant McDonalds has entered into the coffee market, Dunkin Donuts will face stiff competition from this brand, both domestically and internationally.
Other key competitors that Dunkin Donuts will face in the Saudi Arabian market include Krispy Kreme According to Euromonitor International, the main competitors for the Dunkin Donuts brand in the fast food market in Saudi Arabia include Herfy, Krispy Kreme, McDonald’s, Burger King and Yum! Brands, the parent company of KFC (“Country Report: Fast Food in Saudi Arabia” par. 10).
According to the report issued by Euromonitor International in 2011, the growth in fast food sales in Saudi Arabia continued to be derived from the aforementioned global fast food brands, and “all gained share thanks to strong advertising support and frequent price promotions” (“Country Report: Fast Food in Saudi Arabia” par. 10).
The top four brands did not include Dunkin Donuts, but did include direct competitor Krispy Kreme (“Country Report: Fast Food in Saudi Arabia” par. 10). Whether or not the Saudi Arabian Dunkin Donut stores will be able to best Krispy Kreme sales in the Saudi Arabian market in the coming years remains to be seen.
According to Euromonitor International, fast food customers in Saudi Arabia were also favoring “western concepts in burger fast food and chicken fast food. Overall, these brands gained almost a percentage point in chained value share in 2010 over the previous year to reach a combined 31% share in fast food” (“Country Report: Fast Food in Saudi Arabia” par. 10).
Saudi Arabia Fast Food Market Information
According to a report from Gulf News, Saudi Arabia fast food consumers eat around 75 per cent of the total amount of fast food products consumed in the Gulf fast food markets (n.p.). This whopping volume of consumption in the Saudi Arabian fast food sector has developed quickly in the Gulf region in recent years, according to a study conducted by the Gulf Organisation for Industrial Consulting (Gulf News n.p.).
The growth of the fast food sector has been largely attributed to “lifestyle changes and the spread of Western trends” (Gulf News n.p.). In 2008 there were 60 fast food outlets in the Gulf region, according to Gulf News, and 29 of these operations were located in Saudi Arabia (n.p.).
Booming foreign investment and franchise activity in the fast food sector has been stimulated by the “overwhelming consumption of fast food, especially by Saudi youth” (n.p.). Gulf News also indicated the United Arab Emirates was second to Saudi Arabia in terms of fast food intake, with an investment of nearly $11 million USD in the fast food industry as of 2008 (n.p.).
Dunkin Donuts is one of many global fast foods brands that have set up operations in Saudi Arabia in recent years. Dunkin Donuts has done particularly well in Riyadh and Jeddah, Saudi Arabia, where it operates three stores as of 2012 (Gulf News n.p.).
In 2007, the Al-Watan newspaper reported the results of a survey conducted amongst several schools in Jeddah by researchers from the King Abdul-Aziz University department of medicine which demonstrated that over 80 percent of the students at the schools ate fast food (Gulf News n.p.).
Similarly, the King Abdul-Aziz University researchers conducted a survey into the eating habits of the teachers at these same schools in Jeddah and discovered that over 60 percent of them also ate fast food on a regular basis (Gulf News n.p.). Since then, other studies have demonstrated that a huge appetite for fast food exists in the Middle Eastern market and that it is definitely growing with each successive generation.
The Saudi Arabian market is ripe for fast food outlets, according to information gleaned by Euromonitor International, a market research firm that offers strategic global business information and analysis of current and future market conditions (Arab News par. 4).
The Saudi Arabian fast food market for brands such as Dunkin Donuts is anticipated to grow to $4.5 billion USD over the course of the next three years (Arab News par. 4).
Much of this growth will be fueled by the large percentage of the Saudi Demographic that is under the age of 25. According to Michael Schaefer, the chief researcher in consumer food service at Euromonitor International, brands such as Dunkin Donuts fulfill a social need as well as a practical need:
Fast food outlets have become important social spaces for a growing cohort of Saudi young people. Future expansion will be driven by those operators which offer a combination of indulgence and inviting, comfortable outlets, with hamburgers, ice cream, and sweet baked goods all in high demand (Arab News par. 7)
Fast food chains have recognized the opportunity. The research firm Euromonitor International anticipates that fast food chains will spearhead and reap most of the benefits from this projected growth (“Country Report: Fast Food in Saudi Arabia” par. 7).
Fast food chain operators and global brand franchises such as Dunkin Donuts are “projected to account for nearly 20 percent of Saudi foodservice transactions by 2015” (“Country Report: Fast Food in Saudi Arabia” par. 7).
However, the growth of Dunkin Donuts in Saudi Arabia may be tempered by the concern for the cultural influences of Western brands as well as the concern voiced from the healthy eating lobby in the Middle Eastern countries where global fast food brands have taken up residence.
According to Arab News, Sami A. Al-Nwaisir, the chairman the ALSAMI Holding Group in Saudi Arabia, has expressed dismay at the rise of the fast food culture in his country:
The food market including restaurants in all types and fast foods are growing exponentially as some estimated to be in the range of 20 percent for food transactions. This is due to the fact as we have more than 50 percent of the population is under the age of 25…
Part of the world globalization epidemic is to be effected by spread of consumption especially toward fast food if one country sneezes the rest of the world will catch a cold so the effect is spreading worldwide as well (Arab News par. 8).
Dunkin Donuts and other fast food brands that are entering the Saudi Arabian market have a social impact as well as a financial and health impact, according to Sami A. Al-Nwaisir (Arab News par. 8).
In Saudi Arabia, the social environments available to young people remain quite limited and the concern is that their health will deteriorate as a result of spending more time in fast food outlets for social reasons including recreation, meeting friends and spending time with peers (Arab News par. 8).
As Sami A. Al-Nwaisir notes, “I have no problem with the issues of consumers’ choices but we need to create a culture of awareness about the pros and cons about these newly trends so we can start from where others end by media awareness and social responsibilities” (Arab News par. 8).
However, despite these concerns, the research conducted into the fast food market in Saudi Arabia in 2011 by Euromonitor International revealed several favorable social and economic trends that would support continued growth in the fast food sector (“Country Report: Fast Food in Saudi Arabia” par. 7). These trends were noticed primarily in the way that workers spend their mealtimes:
There was a marked rise in lunchtime fast food sales towards the end of the review period. The economy of Saudi Arabia is changing, with workers working for longer hours and a growing number of expatriate workers.
Consequently, there was a shift away from traditional extended lunches. A growing number of workers thus opted for fast food for their lunch, with the leading brands in fast food viewed as providing swift service and reliable quality” (“Country Report: Fast Food in Saudi Arabia” par. 7).
Thus, while the Saudi Arabian culture may worry for its youth, the economy itself appears to be transforming into a more Westernized version, wherein workers have little time for meals and so become more and more attracted to quick service restaurant chains which offer fast food at minimal cost (“Country Report: Fast Food in Saudi Arabia” par. 7).
Dunkin Donuts is perfectly poised to take full advantage of this trend in the coming years.
The Dunkin Donuts franchise in Saudi Arabia has encountered some cultural difficulties, primarily in the area of concern for the preservation of the Saudi Arabian culture as well as perceived discrimination against women.
As Sami A. Al-Nwaisir notes, there is a need to “create stringent rules and regulations to protect consumers and advocate their rights otherwise we will find ourselves in cowboy mentality and our culture will become only for consumption rather than for production” (Arab News par. 8).
The desire to protect the Saudi Arabian culture from the Western influences and also allow Saudi Arabian entrepreneurs access to the market in ways other than through purchasing Western franchises is also top of mind for many people in the Saudi Arabian food service markets (Arab News par. 8)
The Saudi Arabian culture enforces strict codes that separate males and females in public, even when they are married, which does not sit well with visitors from other countries, particularly those who expect an American cultural climate when they enter the store.
In recent years, the Dunkin Donuts stores in Jeddah have found themselves in controversial and adversarial stances with customers due to the enforcement of the Saudi Arabian codes of conduct between the genders. One customer’s experience is outlined herein:
We visited the Dunkin Doughnuts on Rawdah Street and the one off of Corniche and were very happy with our doughnuts, but displeased with the service. We will not be going back. Both appear to have very sizable family sections upstairs, but at both locations we were told that they did not have a family section.
At Rawdah, we thought maybe the family section was closed, or it was a slow shop and the upstairs was being used for storage or something along that line. No problem, we left and ate in the car. At Corniche we inquired further, because this was the second Dunkin Doughnuts we had been to with a deceptive family section.
We were informed that I was not allowed to sit with my husband and daughter and enjoy our purchased treats in an empty restaurant with two floors. Being an American woman in Saudi Arabia I honestly expected to run into this discrimination a lot more, but this was the first place in over six months living here that I was not allowed to eat in (“Dunkin Donuts” par.3).
This customer had an expectation of the Saudi Arabian franchise based on her experience of the brand in the United States:
The ironic thing is that Dunkin Doughnuts is a very American chain, and that half the doughnuts they have are pink or have smile faces on them. I don’t think a lot of 35 year old Saudi men are in there eating these feminine and childish looking doughnuts. It is amazing and disgusting to me that Dunkin Doughnuts alienates two thirds of the population by not letting them have a seat in a private restaurant (“Dunkin Donuts” par.3)
The franchise model sometimes encounters problems when an American brand expands into a foreign country with divergent cultural practices. The Middle East is a prime example of this phenomenon. The Saudi Arabian society is a culture run by “stark moral choices in which liberal-minded Westerners have rarely felt entirely comfortable” (“Turning back the tide” 23).
The globalization spearheaded by brands such as Dunkin Donuts that base their growth strategy on the franchise model therefore often present a quandary for a conservative culture such as Saudi Arabia. This occurs because a trade off occurs when a conservative society allows a business built in a liberal society to interact with its people.
While the economic benefits seem clear for all to see, from the vast shopping complexes under construction in Riyadh to the huge variety of exotic foodstuffs, clothes and electronic gadgets on offer in the market stalls of downtown Jeddah…it is a world order that respects hard cash, not cultural or political boundaries” (“Turning back the tide” 23)
In 2011, the labor ministry in Saudi Arabia announced a comprehensive program of regulations designed to create more job opportunities for Saudi Arabian citizens, especially females (“Labor Ministry Outlines Saudization Percentage” n.p.).
According to Arab News, the unemployment rate among Saudi Arabian citizens remains high, at 10 percent, and this figure jumps to 30 percent among Saudi Arabian women (“Labor Ministry Outlines Saudization Percentage” n.p.).
Due to the strict cultural codes that enforce barriers between males and females, many jobs are not open to females – especially jobs where they will come into contact with males – and this causes problems for franchise fast food brands such as Dunkin Donuts who find themselves severely limited in their hiring practices.
According to the Arab News, the labor ministry is taking steps through this legislation to address the employment needs of females in the region:
The Riyadh Chamber of Commerce and Industry ordered the immediate
Saudization of shops selling women’s clothing, including abayas and lingerie. All saleswomen should be Saudis and the working time should be as per the ministry’s regulations. There should be exclusive working zones for women, the order said (“Labor Ministry Outlines Saudization Percentage” n.p.).
The Saudization percentage affects different industries according to how many employees they have (“Labor Ministry Outlines Saudization Percentage” n.p.). Commercial establishments such as quick service fast food restaurants must adhere to a “19 percent Saudization quota — meaning 19 out of 100 employees must be Saudis” (“Labor Ministry Outlines Saudization Percentage” n.p.).
Public schools, media outlets and insurance companies will also be legislate to follow the 19 percent quota also (“Labor Ministry Outlines Saudization Percentage” n.p.). For banks and other large organizations that employ more than 500 individuals, the minimum percentage of Saudi Arabian employees must be 49 percent (“Labor Ministry Outlines Saudization Percentage” n.p.).
A report issued by the Saudi Commission for Tourism and Antiquities (SCTA) in 2010 stated that the “Saudization of jobs in the tourism sector, [particularly in]… the restaurant and café sector, accounted for 52 percent of the total” increase in jobs for Saudi Arabians, which jumped from 10 percent to 26 percent in 2010 (Fakkar n.p.).
The restaurant industry and cafeteria sector is also expected to create 307,000 more jobs for Saudi Arabian citizens between 2012 and 2014 (Fakkar n.p.). Fast food chains such as Dunkin Donuts may contribute to this number, although it remains unclear how this gains will help unemployed Saudi Arabian women (Fakkar n.p.; “Labor Ministry Outlines Saudization Percentage” n.p.)
Fast Food Industry Context
According to Euromonitor International, the industry context of fast food in Saudi Arabia is poised to benefit significantly from the following trends in 2012:
- Robust growth that diminishes only at the end of the quarter (“Country Report: Fast Food in Saudi Arabia” par. 7)
- Saudi Arabian consumers continued to be attracted to brands (“Country Report: Fast Food in Saudi Arabia” par. 7).
- Niche sales bolstered by powerful and global fast food brands (“Country Report: Fast Food in Saudi Arabia” par. 7).
- Global fast food quick service restaurant chains will continue to acquire market share in 2012 (“Country Report: Fast Food in Saudi Arabia” par. 7).
- A boost in the fast food market growth is predicted for 2012 (“Country Report: Fast Food in Saudi Arabia” par. 7).
- A boost in economic growth is also anticipated, and this will be mitigates only by high inflation (“Country Report: Fast Food in Saudi Arabia” par. 7).
- The large youth population in Saudi Arabia is anticipated to fuel growth (“Country Report: Fast Food in Saudi Arabia” par. 7).
- Also anticipated growth due to the perception among Saudi Arabian consumers that “eating out is entertainment” (“Country Report: Fast Food in Saudi Arabia” par. 7).
The one threat to market share that may affect Dunkin Donuts in Saudi Arabia is that consumers are developing more awareness of the health risks associated with consuming fast food on a regular basis, including obesity, diabetes and heart disease (“Country Report: Fast Food in Saudi Arabia” par. 7).
This may cause Dunkin Donuts to lose market share to competitors such as Subway which offer healthier menu items such as salads and other low fat alternatives.
Dunkin’ Brands intends to maintain its current pace of steady growth over the coming years. The company’s strategic growth strategy “includes expanding in existing markets while entering new cities throughout the world” (“Dunkin Brands Celebrates the Opening of its 15,000th Store” par. 5).
Dunkin’ Brands Group, Inc. has developed a growth strategy targeting the international markets and developing markets in the Middle East. According to the 2011 Annual Report, the company intends to “grow in our existing core markets” (Dunkin Donuts 2011 Annual Report 15).
The growth strategy of the two brands – Dunkin Donuts and Baskin Robbins – is focused mainly in the Middle East and parts of Asia, which the company considers to be areas of high growth potential, and the company is confident that the market will develop (“Dunkin Donuts 2011 Annual Report” 15).
The plan for the Dunkin’ Donuts brand is to “focus on growth in South Korea and the Middle East, where we currently have 857 and 229 points of distribution, respectively” (Dunkin Donuts 2011 Annual Report 15). For the Baskin-Robbins brand, the company also plans to “focus on Japan, South Korea, and key markets in the Middle East” (“Dunkin Donuts 2011 Annual Report” 15).
Specifically, Dunkin’ Brands Group, Inc. plans to use the franchise model to develop the store bases for both brands in these markets (“Dunkin Donuts 2011 Annual Report” 15) “During fiscal 2012, we expect our franchisees to open approximately 350 to 450 net new points of distribution internationally, principally in our existing markets” (“Dunkin Donuts 2011 Annual Report” 15)
According to Euromonitor International, the fast food market in Saudi Arabia is primed for expansion and a number of factors are anticipated to fuel robust and sustained growth for the fast food sector during the coming years.
The country has a very large population of young people, and this demographic is anticipated to continue to embrace Western fast food brands with “increasing enthusiasm” (“Country Report: Fast Food in Saudi Arabia” par. 7).
For robust fast food brands such as Dunkin Donuts, “frequent TV advertising support” is also likely to generate sales in Saudi Arabia(“Country Report: Fast Food in Saudi Arabia” par. 7).
In addition, the increasingly popularity of using fast food restaurants for social purposes among Saudi Arabian youth and Saudi Arabian workers, as well as many families, will also contribute to the company’s strategic growth plan (“Country Report: Fast Food in Saudi Arabia” par. 7).
As lifestyles become busier in Saudi Arabia and more people gain employment, growth will also be facilitates by the low cost of fast food and by its convenience (“Country Report: Fast Food in Saudi Arabia” par. 7).
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Dunkin Donuts 2011 Annual Report. 2012. Web.
Dunkin Brands Celebrates the Opening of its 15,000th Store. 2009. Web.
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Fakkar, Galal. Big Jump in Number of Saudis Employed in Tourism Sector. 2010. Web.
Labor Ministry Outlines Saudization Percentage. 2011. Web.
Ovide, Shira. “Face Off! Dunkin Donuts vs. Starbucks.” Wall Street Journal 27 July 2011: n.p. Web.
“Turning back the tide.” MEED Middle East Economic Digest 23 July 2004: 23-26. Academic One File. Web.