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 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.

3.1.1.3 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

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 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

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 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.