Dunkin Donuts made big news last December with their announcement that they were partnering with the Philippines fast food giant, Jollibee, to develop the Dunkin Donuts brand in parts of Mainland China. The development plan calls for an investment of US$300 Million for 1400 units over the next 20 years. This is basically a Master Franchise deal with Jollibee partnering with a private equity firm, RRJ, for expansion capital.

On paper the deal looks like a blockbuster but many such deals are announced routinely and never reach their stated potential. Subway partnered with Suntory in the 1980’s in Japan and announced a goal of building 1000 stores there but ended up with less than 200 units and the sandwich category never really took off except for the low price items sold by the convenience chains.

Has anyone asked if the Chinese even like doughnuts? Four key doughnut brands have entered the China market over the past 10 years with limited success – Dunkin, Mister Donut, Donut King and Krispy Kreme. It is not an easy market to crack and will surely be a losing proposition for many years until Chinese learn to adapt to a new food.

My take on the deal is that Jollibee can make it work over the long run but it will take lots of financial losses and patience before doughnuts become an accepted dessert food in China. Not many companies are willing to suffer such pain! Unfortunately the brand owner itself does not seem to have much of an appetite to put some skin in the game.

In any event it will be an interesting experiment to watch!

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