Case Study: A Tale of Two Doughnuts, MNC Success is Being Both Global and Local
By the early 1800s, consumers in Europe and North America were enjoying the precursor to the modern doughnut, a sweet Dutch cake fried in lard, known as olykoeck, or “oily-cake.” But something was missing from that early treat as the mushy centers never cooked through. Legend has it that in 1847, Hanson Crockett Gregory, a 15-year-old baker’s apprentice in Camden, Maine, tried frying the Dutch cake without a center. As a result, the doughnut was born, and, thanks to Hanson, a global eating revolution was set in motion.
One hundred and one years later, in 1948, Bill Rosenberg building on the success of his Industrial Luncheon Services, a company that delivered snacks to customers in Boston, Massachusetts opened his first doughnut shop, Open Kettle, in Qunicy, Massachusetts. Two years later, Rosenberg changed the name of his doughnut shop, to Dunkin’ Donuts.
In 1955, Bill Rosenberg and his Dunkin Donut partner, Harry Winouker, started a second doughnut shop, Mister Donut in Boston, Massachusetts. Harry, who was Bill’s brother-in-law, disagreed with Bills’ plans to franchise Dunkin Donuts, so one year later, Bill and Harry broke off their partnership. Bill continued with Dunkin Donuts and Harry with Mister Donut. Dunkin Donuts and Mister Donut both went public in the 1960s. In 1970, Mister Donut of America became a wholly-owned subsidiary of the American food processing company, International Multifoods Corporation.
By 1970, both doughnut companies were well established in America and were considering overseas expansion and were especially interested in a possible business launch in Japan.
In 1969, the Japanese government liberalized its capital controls and as a result it became possible for foreign companies, including food service companies, to invest directly in the Japanese market. As a result, beginning in the 1970s, many foreign fast food companies entered the Japanese market through a variety of business models, from joint ventures to technical cooperation agreements. In 1970, Kentucky Fried Chicken was the first fast food company to enter Japan, followed by McDonald’s, Dunkin Donut and Mister Donut.
In 1970, Dunkin Donuts completed a cooperative agreement with the Japanese food service company, Seibu. The April of the same year, and prior to the sale of Mister Donut America to International Multifoods Corporation, the Japanese cleaning service company, Duskin Co. Ltd., completed negotiations with Mister Donut America under which the Japanese company became the master franchisee of all Mister Donut shops in Japan. Under this agreement, Duskin was the exclusive master license for all of Japan. Duskin opened its first Mister Donut outlet in Mino City in Osaka in April 1971.
The battle for doughnut supremacy in Japan had begun.
Initially, in 1970, the Japanese market appeared to be Dunkin Donuts to win or lose. Dunkin Donuts was seen has having the more powerful brand and sure to succeed. Perhaps this thinking is what actually doomed the company to failure in Japan. Dunkin Donuts approached the Japanese market with a lackluster promotional campaign and did little more than offer the standard American menu to the Japanese consumer.
Under Duskin’s master franchisee agreement with Mister Donut of America, Duskin felt it was not bound to follow the strict rules of most franchisee agreements that are seen as necessary for maintaining product and outlet uniformity. Thus, Duskin altered, without Mister Donut’s consent, doughnut formulas and recipes. Duskin also sold, without Mister Donut’s approval, non-doughnut food items such as soups, sandwiches, hard-boiled eggs and pastries. Thus, Mister Donut’s strategy in Japan, by comparison to Dunkin Donut, was quite resourceful involving a wide range of unique food offerings tailored to Japanese tastes as well catchy promotional campaigns (many involving monthly gifts).
In December 1983, Mister Donut America sold all the goodwill, including trademarks registered in Japan to Duskin, for $7.7 million. Duskin also acquired an exclusive and perpetual right to and license to manufacturer and sell in Japan and to license other operate in Japan. The agreement extended to other Asian countries. In effect this gave Duskin 100% control over Mister Donut Japan, and Asia as well.
In 1989, the U.K. firm, Allied-Lyons plc made an offer to acquire Dunkin' Donuts Incorporated. The board of Dunkin' Donuts unconditionally recommended the offer and the American government approved the deal in January 1990.
According to company reports, Allied-Lyons paid £196 million (about $325 million) for Dunkin Donuts. Within days of Dunkin' Donuts becoming an Allied-Lyons company, the British company made an offer to buy the Mister Donut chain from International Multifoods Incorporated.
At the time of the offer, Mister Donut claimed to be the number two chain in the U.S. market after Dunkin' Donut. After the US government’s approval of the Allied-Lyons purchase, the sale was completed by the end of February 1990. Under the terms of the agreement, the franchisees of Mister Donut stores were offered the opportunity to convert to Dunkin' Donuts stores if they so wished. Most franchisees in the U.S. elected to do so. Duskin Co. Ltd. of Japan, however, elected not to convert.
In 1988, Yoshinoya, the “beef-bowl” restaurant company in Japan, completed a merger with D&C Company, which at the time was running Dunkin Donuts Japan. By 1990, Dunkin' Donuts had 1,850 outlets worldwide, with about 120 in Japan.
In Japan, Mister Donut, under the complete control and guidance of Duskin, continued to widen its customer base over Dunkin Donuts. In 1998, Yoshinoya announced that they were abandoning their Dunkin Donut business in Japan.
Of the two American doughnut companies that entered Japan in 1971, only one, Mister Donut, remained.
In 2005, the Dunkin Donut company website noted that their donuts were sold in 29 overseas countries or territories, but Japan was not among them. Despite Dunkin Donuts’ global presence, South Korea is the only country in East Asia where its doughnuts are sold today. Other Asian outlets are in Malaysia, the Philippines and Thailand.
Mister Donut, under the leadership of Duskin, continues to penetrate Japan by storm. According to the Mister Donut company web site, thirty-five years after its first outlet opened in Osaka, the number has grown to 1,319.
Mister Donut Japan also has its sights set on other Asian markets. Late last year, Duskin and Taiwan’s Uni-President Enterprises through its joint venture, Mister Donut Taiwan, opened the first doughnut store in Taipei, Taiwan. The joint venture has announced plans for another 100 within the next three years. Shanghai, China has Mister Donut as well.
Mister Donut’s arrival in Taiwan is worth noting. According to the Taipei Times, customers waited for hours, despite rain and cold weather, to get a taste of the “fried confection.” Many left carrying large paper shopping bags filled with doughnuts. After opening its second shop in Taipei, demand was still so overwhelming that Mister Donut had to limit the number of doughnuts that each customer could purchase and needed to employ additional staff to help regulate lines and maintain order.
So why did Mister Donut succeed in Japan and why did Dunkin Donuts not? Why did the doughnut company that prides itself on being the world’s largest doughnut fast food company, miss out in Japan?
Localization of Product Key to Mister Donuts Success
Any American who has gone into a Mister Donut in Japan notices immediately that something is different from the doughnut outlets back home. While it is true that Mister Donut has a wide variety of doughnuts and fresh coffee, it has also designed its offerings to meet the unique tastes of the population it is attempting to serve. Noodle dishes, green tea, and other Asian favorites appear on the menu along side the doughnuts and coffee. In addition, the doughnuts are smaller and not as sweet as those back in the states, another response to Japanese preferences and diets.
Localization is not new to global business firms. It simply means adjusting the product to the local culture. Adjustments may be as simple as color or wording, or as complex as varying product offerings.
A spokesperson for Mister Donut Taiwan, explained that Mister Donut had conducted surveys to ascertain what kind of doughnuts would be most popular with consumers in Taiwan. The spokesperson explained that in addition to the wide variety of flavors, toppings, and fillings that can be found at Mister Donut, its doughnuts also come in three different textures. Confectionery offerings such as seaweed-flavored doughnuts would undoubtedly be written off in the United States as appealing only to the gastronomically daring, but for Mister Donut Taiwan, it is perhaps the secret of its success. Other flavors you wouldn't find at a typical doughnut shop back home include red bean and peanut.
In addition to the more traditional cake and bread-like doughnuts, Mister Donut also offers mochi-textured doughnuts. Mochi is a Japanese dessert made of glutinous rice.
The lesson from Mister Donut Japan for many foreign companies is that global success comes through a good understanding of the host market itself. Local partners can certainly help, but in any event, to succeed you must have both an understanding of and sensitivity to the local culture you wish to do business in.
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