Dunkin’ Donuts to Egypt
Country Market Report
Grace Fox
Andreas Lückert
Fern Marusuwan
Dolly Noymany
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Executive Summary
Founded in 1950, Dunkin’ Donuts is an American multinational company that sells
donuts, beverages, and other breakfast foods. Dunkin’ Donuts has been very successful, with
over 10,000 stores in nearly 60 countries worldwide at the end of 2011 (Dunkin’ Donuts, 2012).
At the end of the second quarter of this year, Dunkin’ Donuts remained strong, with revenue
rising nearly ten percent from the previous quarter to USD $172.4 million (Reidy, 2012). Being a
leading franchisor, Dunkin’ Donuts is very experienced in international business.
Since Dunkin’ Donuts has been successful in countries outside of the United States, we
are looking to establish Dunkin’ Donuts stores in Egypt. After evaluating the economic, political,
and cultural environments of Egypt, while there is some political risk and government corruption,
Egypt is still an attractive target market because there are many tourists and international
employees who visit and work in Egypt. Therefore, we have determined our target market to be
two segments: tourists/businessmen and the Egyptian upper middle class. In order to best target
these segments, we will establish our first store in Maadi, a suburb of Cairo, Egypt where there
are many expatriates and upper middle class Egyptians.
We will use the successful Dunkin’ Donuts franchise model to find a local franchisee. To
maintain a global image, we will keep our products relatively the same, which will be donuts,
beverages, and breakfast sandwiches. However, in order to be successful, we will adapt to local
customs by ensuring our food products meet religious rules. We will also adapt our marketing
mix to best target our market and be competitive. Our prices will be comparable to those in other
American fast food restaurants, and we will buy local ingredients in order to minimize import
costs. To best target our market, we will use a low cost promotional strategy, which includes
word-of-mouth promotions, newspaper advertisements, and social media tools.
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Economic Environment
Egypt has a mixed economic system in which the economy includes private freedom
combined with centralized economic planning and government regulation. According to Global
Edge, Egypt is a member of the African Union (AU), African Economic Community (AEC),
Council of Arab Economic Unity (CAEU), and Common Market for Eastern and Southern
Africa (COMESA) (Global Edge, 2012). Since June 30, 1995, Egypt is also a member of the
World Trade Organization (WTO, 2012). The integration of the Egyptian economy with the
Arab region and Egypt’s close business connections with the European Union make this country
very attractive for Dunkin’ Donuts.
However, there are several restrictions for foreign companies entering the Egyptian
market in the service sector. Dunkin’ Donuts has to meet the regulation for employment of nonnationals, which can be only up to 10% of the labor force (Doing Business, 2012). Because our
business model is franchising, Dunkin’ Donuts will send only one representative to support the
set-up of the location and to train local employees. The representative will be the only nonnational employee.
The Egyptian economy is based on agriculture, energy, and tourism. The total imports in
2011 were $58.9bn, and total exports in 2011 were $30.6bn (Egyptian International, 2012).
Imports have exceeded exports, leading to a negative balance sheet. The largest importers are the
European Union, Asian and Arab countries, and the countries part of NAFTA (Egyptian
International, 2012). The Egyptian government drastically increased social spending in order to
address public dissatisfaction after political unrest erupted in January 2011. Political uncertainty
at the same time led to slower economic growth which reduced government revenue. Tourism,
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manufacturing, and construction are the sectors of the economy most impacted by political
unrest, so economic growth is likely to remain on the slow side at least through 2012 (CIA,
2012).
According to Business Monitor International, the retail market in Egypt has long-term
potential due to the increased demand for hypermarkets, home products and furniture, clothing
and fashion, and leather products (Doing Business, 2012). The median Egyptian age is between
18-25 years old, which is a positive factor in the growth potential of the fast food and retail
sectors. Another industry with long-term potential is the franchising industry. The African
Development Bank lent Egypt $40 million to develop this industry. The money will be used to
finance a program which supports the development of franchise businesses in Egypt (Doing
Business, 2012). Therefore, Dunkin’ Donuts’ potential franchisee would be able to receive some
funds for faster integration. However, a short-term concern that we need to take into
consideration is that the country's budget deficit is hitting record lows, which may impact our
entry into the market (BMI, 2012).
As mentioned on Export.com, Egypt is the fourth largest export market for U.S. products
and services in the Middle East. Globally, Egypt is the 33rd largest export market for the United
States. The United States continues to be Egypt’s largest trading partner and second largest
investor. Roughly two-thirds of total investment in the United States is in the oil and gas sector,
but there is also investment in areas such as consumer goods, pharmaceuticals, automobile
production, and financial services (Export.gov, 2012). Egypt’s GDP per capita is around $6,000
and since 1994, it has been steadily growing at about 4% per year (IMF, 2012).
Remittance plays an important role in the Egyptian economy and increases income of
many households. A study on remittances and investment opportunities for Egyptian migrants
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done by the International Organization for Migration (IOM) states that Egypt ranked as the
seventh biggest remittance-receiving country in the world in 2009, with an estimated remittance
inflow of $7.8 billion (IOM, 2010). Almost one fourth of the remittances come from the United
States. This can help us with brand awareness as Egyptian citizens working in the United States
talk to their families back home in Egypt about our company.
The Egyptian pound (EGP) is the official currency of Egypt. One Egyptian pound can be
divided into 100 piasters. Historically, the EGP was pegged to the United States dollar (USD),
but since 1989 the EGP is free floating. However, the float is tightly managed by the Central
Bank of Egypt. The World Factbook points out that the government is utilizing foreign exchange
reserves to support the Egyptian pound and that Egypt may seek a loan from the International
Monetary Fund soon (The World Factbook, 2012). The current exchange rate is about 1 USD to
6 EGP. In the past ten years, the U.S. dollar has appreciated from 4.60 on July 11, 2002, to its
current position at 6.05 (Oanda.com, 2012).
The overall trend currently is mild depreciation of the EGP. Despite the political situation
in Egypt, the Egyptian pound may appreciate due to the strong influence by the Central Bank of
Egypt if they want to make imports cheaper. On the other hand, it can depreciate if they want to
encourage local exporters, especially for ones in the oil industry. For Dunkin’ Donuts, the
depreciation of the Egyptian pound would mean lower profits from franchising fees, licensing
fees, and other fees if we have to convert from EGP to USD. Vice versa, an appreciation of the
EGP would lead to higher profits from the Egyptian market. We will not be affected by the
exchange rate when importing directly because we will purchase all the ingredients from local
distributors. However, since Egypt is not a major producer of food and ingredients as mentioned
below, we will be affected indirectly through higher prices charged by our local suppliers.
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According to the International Monetary Fund, on August 22, 2012, Egypt asked for a
$4.8 billion loan from the IMF to help with political and economic transitions to restart growth
and reduce the deficit (IMF, 2012). The loan will be attached with some restrictions from the
IMF, including monetary policies, such as devaluation of the Egyptian pound. For our business
model, we will use the exchange rate of 6 EGP to 1 USD, but we will continue to closely watch
negotiations between the International Monetary Fund and the Egyptian government and adjust
accordingly.
A significant portion of imports to Egypt is wheat and food in general. Therefore, it is
important that we monitor the exchange rate carefully. With an appreciated currency, it will be
more expensive to import food, which would result in higher costs for the ingredients we need.
Additionally, Egypt indicates an average inflation rate of 10%, which in the past few months
lowered to 6% (Business Insider, 2011). An increase in prices without an increase of wages is a
risk for our business because citizens may purchase fewer food items in general.
One of the most recent challenges mentioned in the latest Business Monitor International
report is that the Egyptian government is having a difficult time paying its oil import bill amid
surging domestic import premiums and rising unrest over fuel shortages. Egypt's state-owned
Egyptian General Petroleum Corporation (EGPC) owes at least USD $3bn to foreign energy
companies as global banks resist issuing the necessary letters of credit to execute oil purchases.
The high cost of fuel subsidies at a time when import demand is rising compounds the problem
for the government and is further weighing down the balance sheet. Egypt's downstream sector
will remain under pressure until effective reforms are implemented, adjustments are made to the
fuel pricing regime, and EGPC's creditworthiness improves (Business Monitor International,
2012). Deregulation of oil prices and increase of influence from foreign oil companies in Egypt
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could result in higher oil prices and therefore also higher prices for our company such as higher
prices for flour, sugar, and electricity.
One of the most recent benefits for Egypt’s economy is a plan to build a bridge
connecting Saudi Arabia and Egypt across the Gulf of Aqaba. The benefits of the bridge are
expected to be felt on both sides. The link is anticipated to significantly boost trade between the
two countries, from the current figure of USD $4bn a year to over USD $13bn a year once
completed (Business Monitor International, 2011).
Political Environment
When entering the Egyptian market, Dunkin’ Donuts must keep in mind the current
political environment, and focus on the political risk as well as government regulations that may
pose problems in the future.
One of the main political risks is that the country is still trying to recover from the
revolution that occurred in 2011, though it is slightly more politically stable now. January 25,
2011, marked the large uprising of the demonstrations against former President Hosni Mubarak
and his party, the National Democratic Party. Protesters were highly dissatisfied with corruption,
lack of freedom of speech, and economic issues such as food prices, high unemployment, low
wages, and the widening gap between the rich and poor. He was ousted after 18 days of protests
by the Egyptian Army when the protests continued to grow and threatened to destabilize the
country. The National Democratic Party was officially dissolved on April 30, 2011 (Egyptian
British Business Council, 2012).
Egypt continued to plunge into more political instability as Mubarak turned power over
to the Supreme Council of Armed Forces (SCAF), who assumed administrative and legislative
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control until a new president would be elected. However, as the SCAF assumed power, worries
rose as the military suspended the constitution and dissolved the People’s Assembly and the
Shura Council. Around the time of elections, concerns grew as the SCAF decided to seek further
control in government by giving itself the power to veto any article it disapproves of in the
writing of the constitution (Egypt Forum, 2012).
This rapid change in the political environment in Egypt has heightened some of the
country’s major social and economic problems (Egypt in Transition, 2011). The political
instability has had an effect on Egypt’s stocks and foreign direct investments, especially as the
country operated without a firm government as Egypt waited for the elections. However, when
current President Mohamed Mursi from the Muslim Brotherhood was elected as the country’s
first civilian president, it was considered as some semblance of political stability (ETF Trends,
2012). President Mohamed Mursi assumed office in June 30, 2012, and has since then made a
series of moves that strengthen the powers of the president that were taken away by the SCAF
when they were in power. (World Bank, 2012)
A major political risk we must be cautious about is how the current president will
respond to fixing the foreign reserves and the economic crisis. One of the concerns is that the
inflation caused by the acceptance of the $4.8 billion IMF loan will increase the food costs for
our company. Also, we must be alert to any conflicts between the president and the SCAF which
may affect the company indirectly. The SCAF continues to hold a strong influence in the
government and has its own business interests, ranging from gaining control over weapon arms
to bottling water. If there were to be a confrontation between the two, it may cause some
problems for the company indirectly due to possible corruption on both sides.
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Another political risk we noted is the strong Islamic influence in Egypt at this time. With
an Islamic president and a strong Islamic presence in parliament, there may be country of origin
issues with Dunkin’ Donuts, an American company. While Dunkin’ Donuts has opened in other
Arab countries with Muslim and Islamic backgrounds, it is important to note that it may be a
future concern should the Islamic influence in Egypt turn against the United States (Chicago
Tribune, 2012).
However, Dunkin’ Donuts has to also focus on the business regulations the government
has in place, not only the political risks. In 2011, Egypt was ranked 112 out of 183 countries on
Transparency International’s Global Corruption Perception Index. According to the World Bank,
Egypt was ranked 110 out of 183 on ease of doing business (Doing Business in Egypt, 2012).
Therefore, it is important to note that other political factors will act as business impediments in
Egypt. Regulatory agencies, delays in clearing goods through customs, arbitrary decision-making,
high market entry transaction costs, an unresponsive commercial court system, as well as
corruption play huge roles in market challenges, making it hard for foreign businesses like us to
work efficiently (Doing Business in Egypt, 2012).
Dunkin’ Donuts will likely encounter corruption in meetings with public officials since
officials within various government departments are historically known for bribery,
embezzlements, and tampering with official documents. We should also note that although
facilitation payments are often required, Egypt has made steps towards improving their
performance in relation to issuing licenses, permits, and utility connections. They have also
drastically improved their performance within some regulatory areas, such as starting a company
and trading across borders (Snapshot of Egypt, 2012).
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However it is important to note that Iran, another Islamic country, is ranked similarly to
Egypt on the Global Corruption Perception Index, at 120 out of 183 countries. While Egypt has
made reforms towards improving business by making starting a business less time-consuming
and less costly, many of these reforms are largely cosmetic in nature. This is continued to be
seen by the low rankings Egypt has in the main factors of doing business that is most important
to Dunkin’ Donuts, such as getting electricity, registering property, getting credit, paying taxes,
trading across borders, and enforcing contracts (2012 Index of Economic Freedom).
Dunkin’ Donuts should recognize these business regulations and strive to find a local
partner within Egypt in order to have successful penetration within the market because foreign
companies cannot directly bid on government tenders but must act through local agents. Dunkin’
Donuts also will need to anticipate that facilitation payments will likely be required in order to
avoid any impediments from government officials in regards to doing business. Corruption
should mostly only affect the company in monetary ways through impediments from getting
imports on machinery, enforcing business contracts, and having extremely high taxes (Doing
Business in Egypt, 2012).
Cultural Environment
Egypt’s cultural environment is characterized by its ancient culture, the Islamic culture,
and an influence of Western culture. Because Dunkin’ Donuts is originally from the United
States, a challenge the company will face is a country of origin issue. In a recent study done by
the Pew Research Center, 79% of Egyptians still have unfavorable attitudes towards the United
States, and this negative attitude has remained consistent for the past six years (Pew Research
Center, 2012). Dunkin’ Donuts will have to combat this challenge by adopting local Egyptian
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religious and social customs to assure the public that despite being an American company, our
company respects and upholds Egyptian culture.
A main factor of Egypt’s culture is the importance of religion. The two leading religions
in Egypt are Islam and Christianity (CountryWatch, 2012). With Islam as the predominant
religion, it is critical for Dunkin’ Donuts to adhere to what is considered permissible for Muslims,
also known as halal. This means that the food and production standards should have no pork or
alcoholic ingredients. Therefore, Dunkin’ Donuts must ensure that their donuts do not contain
pork ingredients. Additionally, since Dunkin’ Donuts also sells breakfast foods and sandwiches,
we can adapt to the Egyptian market by eliminating pork in these food products and clearly label
on menus that the food is halal. While changing the menu and production process may seem
challenging initially, a benefit for entering Egypt’s market is that a majority of Egyptians enjoy
sweets. Food at Dunkin’ Donuts could make a good gift because when visiting someone’s home,
people are expected to give a gift such as baked goods or chocolate (CountryWatch, 2012).
Another aspect to take into consideration is the education level in Egypt. The three main
languages taught and spoken are Arabic, English, and French (CountryWatch, 2012). Regarding
literacy rates, according to the World Bank in 2007, 96% of children successfully completed
primary education (World dataBank, 2007). However, according to the United Nations Statistics
Division in 2007, only 83% of adult men and 59% of adult women are literate (Gillespie &
Hennessey, 2011). These education levels affect Dunkin’ Donuts marketing and promotional
strategies because this may mean using simpler words for advertising or utilizing advertisements
that can be heard rather than ones that need to be read. Nonetheless, literacy rate is something we
do not have to be too concerned about since our store is opening in a relatively wealthy area,
where people most likely have had an education.
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As part of the Arab world, Egypt’s Hofstede scores are taken from the ones calculated for
Arab countries. Egypt has a very high power distance score of 80, which means that people
accept the hierarchical order in society. For example, they use titles to address each other
because status is very important (Today Translations, 2011). Additionally, in Egypt and other
Arab nations, having proximity from another coworker is a sign of confidence (Gillespie &
Hennessey, 2011).
Along with high power distance, Egypt has a low score of 38 for individualism, meaning
Egypt is a collectivist society and member groups are valued highly. The collectivist and
polychronic cultures are shown by the fact that business appointments are rarely private, and that
office visits and phone interruptions from friends and family are expected and accepted
(Kwintessential, 2012). Therefore, our store will be group-oriented by having open space with
many tables and chairs. In their spare time, Egyptians like to go out in groups to drink coffee and
tea, smoke water pipes, play games, and talk (Hoffman, 2012). The store should have large tables
since dating is not common in Egypt. An Egyptian man in his late 20s summarized the social
custom by saying, “We don’t date... You go out in groups. To the mosque on Fridays. The
parents and families are involved in the process all along the way” (Hoffman, 2012). Being a
group-friendly store is important in order to compete with the numerous popular coffee shops
already existing in Egypt.
The score for masculinity is 53, implying that Egypt leans more towards a more feminine
society. People strive for consensus and conflicts are resolved by negotiation (Kwintessential,
2012). We must take negotiation into consideration as we find local distributors to purchase our
ingredients.
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Lastly, the uncertainty avoidance score is 68. A relatively high score for uncertainty
avoidance means that Egyptians generally do not like ambiguity and they follow rules, as shown
in the Islam commitment to the teachings of the Koran and halal standards. Additionally,
business is really slow in Egypt because of the great amount of paperwork and the long time it
takes for contracts to be approved (CountryWatch, 2010). This may also explain why facilitating
payments are needed to speed up business processes. While adherence to the rules is important,
punctuality is not the norm in Egypt and sometimes people will not show up to scheduled
meetings at all (Today Translations, 2011). By knowing the Hofstede scores, we can be more
aware of business customs and Egyptian culture if we choose to enter into Egypt’s market.
Lastly, while Egypt has been consistently one of the more liberal countries in the Arab
world, Dunkin’ Donuts should consider the increased conservatism in the country due to Saudi
influence, also known as “Saudization” (Norland & Ismail, 2008). An increase in conservatism
may mean that Dunkin’ Donuts marketing strategies must have stronger adherence to Islamic
teaching and assure the public that the food and beverage items are all permissible to eat and
drink.
Competition
Customers come mostly in the morning to get coffee and donuts, but the menu and store
hours at Dunkin’ Donuts make it a fast food restaurant with food items for breakfast, lunch, and
a light dinner (Dunkin’ Donuts, 2012). Since Dunkin’ Donuts is usually open from early in the
morning until late at night, by offering not only donuts but also sandwiches, we are competing
not only with coffee shops such as Starbucks, but also with more traditional fast food restaurants
like Subway and McDonald’s. We must bear in mind all the competition possibilities not only
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from local companies, but also from international ones. As described in our mode of entry
section, because we will be located in the Maadi neighborhood, most of our direct competitors
will be international chains originating from the United States and local small coffee shops.
According to a Doing Business in Egypt report in 1993, there were only seven
operational chains in Egypt more than a decade ago. Today, there are more than fifty American
franchises that are currently operating or have imminent plans to open. Some of the popular
chains include Chili’s, TGIF, Hard Rock Café, KFC, McDonald’s, Pizza Hut, Burger King,
Hardees, Dominos Pizza, Papa John’s, and much more. The capital city, Cairo, is a large market
which attracts not only foreign visitors but also foreign enterprises. This explains why most of
international companies will set up their first branch in Cairo.
Any company that sells coffee or sweet pastries could be considered as a competitive
threat to us. Our biggest competitor will be Starbucks because they already have 16 locations in
Cairo and serve a wide variety of coffee and dessert items (Starbucks, 2012). Even though
Starbucks does not use much advertisement, its word-of-mouth strategy is very powerful and
makes it a unique brand. Moreover, another competitor is Costa Coffee, which has six locations
in Egypt. We also must consider Cinnabon, which serves cinnamon rolls and coffee and has five
locations. Most of all, in Egypt our company will become one of the symbols of the United
States. For this reason, we should also consider other popular United States chains as our indirect
competitors. Burger King, McDonald’s, and Subway can be seen also as American symbols and
therefore our competitors.
While there are many large American companies that are our competitors, local
companies can compete effectively as well (Gillespie, 2011, pg. 158). Therefore, we also have to
take into consideration local competitors. Because we do not speak Arabic and most local
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Egyptian donut shops do not have websites, we had to find local competitor information on
discussion forums and review sites such as Yahoo! Answers. Most of the posts on these
discussion boards come from our target groups, which are foreign employees and tourists. One of
the local competitors we found is House of Donuts. House of Donuts has three locations and a
blogger has already compared it to his experience at Dunkin’ Donuts in the United States
(answers.yahoo.com, 2009). Since other small competitors are hard to find online, the best
method for us to research local competitors is to visit Cairo and conduct a survey for favorite
places to eat and drink among American employees working in Cairo. These stores can be
customer favorites due to their local owner and friendly atmospheres with local specialties that
would be hard for Dunkin’ Donuts to implement in its globally consistent menu.
Grocery stores are also part of the competition. Prices for Dunkin’ Donuts as a premium
good might turn away some of our potential customers and push them to buy donuts in grocery
stores. Customers could buy donuts in grocery stores because it may be more convenient as well.
Carrefour, a supermarket from France, sells donuts in their own bakery. Another big supermarket
chain from Egypt, Spinney’s, offers a wide selection of pastries and baked goods. An
opportunity for Dunkin’ Donuts is to consider the possibility of selling donuts in Carrefour or
Spinney’s, which would help rise turnover and brand awareness. Strategy on cooperation with
our competitors is described in the pricing strategy section.
Mode of Entry
Egypt is an attractive market to enter due to its strategic location and its ability to
innovate and compete in global markets. As the United States Department of Commerce points
out, Egypt is located at the gateway of trade and commerce for Southern Europe as well as
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Africa and the Middle East, is as a prime location for the transit of goods, and a key destination
for American companies seeking business in Egypt (2012). However, in the process of
expanding our market to Egypt, we have found that with the uprising of new presidential control,
we must be prepared for any political or currency risk. According to El-Din, the currency
situation has reached a level that could become critical or slip into a sudden currency crisis (ElDin, 2012). It would be dangerous to enter a market whose currency is fluctuating, and may
result in a loss of profits for the home country. With signs of political risk or currency fluctuation
occurring in Egypt, it is in our best interest to franchise the company.
In order to understand the rules and regulations required to enter the market, it is best to
understand certain laws within our country. Labor laws in Egypt are quite similar to that of the
United States. There is a maximum of 48 hours a week that an individual can work, not including
compensated overtime. According to Riad, employees are also granted six months of sick leave
per year with pay (Riad, 2007). For foreigners, a work permit is required if they intend to work
in Egypt. An employer can contract the personnel for a limited or an unlimited period of time.
The employer can also hire the employees on a probationary period for up to three months.
Intellectual property laws are vital in the process of entering a foreign market, especially
when franchising a company. These laws are important because we will be signing over rights to
particular trademarks and copyrights. This law assures the owner trademark protection even if
the trademark is not registered in Egypt. This law is a private right that the U.S government
cannot enforce for private individuals in Egypt (Globaltrade.net, 2010). It is the responsibility of
us to register and take the necessary steps in securing our intellectual property in Egypt, as we
will explain further in the product and service adaptations section.
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Research has assured us that the best method for our company will be to franchise. This
will make it easier to adapt to our culture surroundings as needed and target the necessary market.
This process will involve Dunkin’ Donuts making available its total marketing program, logo,
brand, products, and methods of operation. The franchisee will be a company that is financially
stable and has been for at least five years with previous experience in food-beverage services. An
important factor is to have a startup budget that will be sufficient enough to begin the company
properly; we predict this should be approximately USD $300,000.
One potential buyer we have considered is the Olayan Group, a global investor in public
and private equities, real estate, and other specialized asset classes. They have the financial
capabilities to participate in major transactions and to capitalize on new opportunities in the
market sector. They have also had previous experience in the fast food industry, particularly in
Saudi Arabia and the Arab Middle East since the early 1990’s. The Olayan Group acquired the
Burger King Franchise and became the master franchisee for the wider region. Another
corporation we had in mind as a potential franchisee is the owner of the Dancing Bean Espresso
located in Cairo, the same city where we want to open our first store. Rob Mergard started up
this franchise store as the first coffee business in Egypt. To limit competition, Mergard may find
investing in Dunkin’ Donuts will help the coffee industry in Egypt and prevent any potential
threats of losing current customers.
The franchisee will be pleased to know that Dunkin’ Donuts is a good company to invest
in. In 2011, Forbes listed Dunkin’ Donuts as one of its top 20 franchisees to start. Dunkin’
Donuts is globalized with 10,000 locations in 32 countries and is continuing to grow. In the
highly competitive U.S. coffee market, Dunkin’ Donuts is distinguished for having superior
customer experience. Dunkin’ Donuts has been recognized for six years by the Brand Keys
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Customer Loyalty Engagement Index as number one in customer loyalty in the coffee category
(Dunkin’ Donuts Press kit, 2012). The essence of this corporation is that it offers high quality
food and beverages served all day in a friendly, fast-paced environment at a good price. Our
company’s success is shown by the fact that in 2011, franchisee-reported sales were
approximately USD $8.3bn.
Target Market
We have decided that our target market would be international tourists, however, we also
want to market a certain segment of Egyptians so when the company decides to expand further,
we will already have brand recognition. We decided that the best target market within the
Egyptian market would be the upper middle class of Cairo.
The expected tourists we plan to target will be mainly from Europe, the United States,
and Arab countries. From previous years, traditional tourism markets in Egypt have been from
these regions. Expected tourists from countries such as Spain, United States, and Saudi Arabia
would be marketed towards more since many of them already have Dunkin’ Donuts locations in
their countries and therefore, it is a familiar brand to these tourists (Dunkin’ Donuts, 2011). The
tourists we are mainly focusing on are international businessmen and tourists who already
consume coffee and breakfast foods such as donuts.
We believe this is a good target market because tourism has always been a major part of
Egypt’s economy. Previously, international tourism arrivals stood at 12.8 million in 2008 from
2.6 million in 1990. Travel and tourism generated $14 billion in export revenue and accounted
for 13% of Egypt’s GDP, making tourism the largest contributor of foreign exchange earnings
(Eurojournals, 2011).
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While there was a huge slump in tourism during the 18 months of political instability
after the 2011 revolution, we believe it is still promising to have international tourists as our
target market. Currently the country fell from the list of top 20 tourism countries from 18 th to
26th, according to a report by the International Tourism Organization.
However, Egypt’s
Tourism Minister, Muneer Fakhry Abdul Nour, expects an increase in tourism within the second
half of 2012 (Al Arabiya News, 2012). The World Tourism Organization has also mentioned
that tourism recovery in Egypt is very promising with arrivals up by 29% from January to May
of this year (World Tourism Organization UNWTO, 2012).
It is also important for Dunkin’ Donuts to focus on the Egyptian middle class because it
is a fast growing segment. More than 60% of Egypt’s population is younger than 30 years old
and are more likely to seek out new foreign brands. However, while Egypt has one of the largest
consumer markets in the Middle East and North Africa region, the gap between the rich and poor
is huge, which is why we will be targeting the upper middle class. The highest 10% earn about
30% of the country’s income while the lowest 20% live below the poverty line making less than
$2 USD a day (Nielson Wire, 2010).
Our target market is known as the “Rising Stars,” whose median ages are around 18-25
years old. They make up around 30% of the population in Egypt with an income of 80 to
150,000 Egyptian pounds. They are considered to be well-educated individuals who strive for
growth. The reason why we believe they will be an excellent target market is because they have
a capitalist mentality and would be considered upper middle class, and therefore able to afford
our products at premium prices (Egyptian Market Segmentation, 2008).
The Rising Stars are brand conscious due to the recent and growing trend of improved
living standards and the increased exposure to western culture and media. We believe that the
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upper middle class consumers will be drawn to the increasingly popular brands and convenient
service. While there is expected inflation of prices of food costs, we believe that we can cushion
this by offering our product in smaller sizes and at more affordable prices (Doing Business in
Egypt, 2012).
We decided that we would target both the tourist segment and Egyptian upper middle
class segments in Cairo, Egypt. Cairo is considered one of the most densely populated capital
cities in the world with 17 million people and around 36% of the city’s population is under the
age of 15. It is also home to the busiest airport in Egypt, the Cairo International Airport, alluding
to the working population possibly being able to have an increase in disposable income when the
tourism industry recovers (Cairo, 2011). The neighborhood we would like to start a franchise in
is Maadi. Maadi is an upper middle class cosmopolitan suburb located in Cairo and considered
to be very westernized. It would be the perfect location for both our target markets because of
the large number of foreigners and upper middle class that live in the area and because it is home
to the international college, Cairo American College (Cairo Neighborhoods, 2008).
Product/Service Adaptations
In order to maintain a consistent global image, Dunkin’ Donuts will need to keep its
menu relatively consistent to the one in the United States. Like the American menu, Dunkin’
Donuts product line in Egypt will consist of beverages and food. There will be hot, iced, and
frozen beverages, and donuts, breakfast sandwiches, and bakery sandwiches. First, in order to
open a store in Egypt, Dunkin’ Donuts needs to meet Egypt’s product standards. Egypt is a full
member of the International Organization for Standardization, and the official authority for
standardization and quality control is the Egyptian Organization for Standardization and Quality
Control (ISO, 2012). The General Authority of Export and Import Control is responsible to
20
guarantee products pass quality control (U.S. Commercial Service, 2012). Dunkin’ Donuts must
ensure that every ingredient used in its products meets these national standards.
After ensuring products meet standards for quality control, while keeping a global image,
Dunkin’ Donuts should make product adaptations in order to meet local food customs and tastes.
One adaptation is that the donuts and beverages will be sweeter because the Arab world enjoys
sweets. Other flavors that should be considered are the basic flavors for Egyptian food: onions,
garlic, coriander, cumin, and ill (Doctor, 2012). These ingredients can be used in special donuts
only available in Egypt and also in their sandwiches. For their beverages, Dunkin’ Donuts should
make the coffee fine and served thick, while also offering tea with a lot of sugar (Rose, 1995). In
order to become a popular breakfast place, we will also consider adding common local
ingredients, such as hard-boiled eggs, fruit, and honey as a side to its breakfast foods (Rose,
1995).
Other product adaptations should be made due to social and religious reasons. As
mentioned in the cultural environment section, an important change is to remove any pork
ingredients used in the food in order to cater to the predominantly Muslim population. In order to
assure the public that Dunkin’ Donuts food is appropriate to eat, the menu items in the store and
online should be labeled as halal. There could also be special menu items during Muslim
holidays, such as Ramadan, Eid al-Fitr, and Eid al-Adha. For these holidays, Dunkin’ Donuts can
offer special large orders of a variety of donuts in order to attract customers to purchase boxes of
donuts so that groups can celebrate breaking fast together.
In addition to product adaptations, there are services that Dunkin’ Donuts in Egypt should
adopt in order to uphold the company’s rankings of having a great customer experience. When
the customer first enters the store, the cashier will greet them in order to create a welcoming
21
atmosphere. The cashier will also serve all of the food and drinks, so the customer never has to
self-serve. A service that is not available in the United States but should be in Egypt is delivery
service. Customers can call a number and have fresh donuts delivered to their door. Dunkin’
Donuts has already started doing delivery in India, so the branch in Egypt can learn strategies
from other countries (Facebook, 2012). Delivery service will be a source of competitive
advantage for Dunkin’ Donuts, as exhibited by the success of McDonald’s in Egypt with their
“McDelivery” service. While we will not implement delivery service for our store initially, it is
something we would like to add if we expand in Egypt in the future.
Overall, the atmosphere should be conducive for individuals to eat while surfing the
internet or for groups to sit down and relax while eating. Since televisions are very popular in
Egyptian coffeehouses, we could also have some in the store as well (Rose, 1995). Having free
Wi-Fi in addition to televisions broadcasting the news will create an atmosphere conducive to
relaxing.
In addition to product and service adaptations, Dunkin’ Donuts needs to protect its brand
and intellectual property. For branding, Dunkin’ Donuts should keep its logo that it uses
worldwide in order to maintain a consistent global image. However, the name for Dunkin’
Donuts should always be displayed in both English and the Arabic translation to accommodate
both foreigners and local customers. Over the last decade, Egypt has strengthened its intellectual
property protection. For example, Egypt is now a signatory to the WTO Trade-Related Aspects
of Intellectual Property Rights (TRIPS) Agreement and recently added a new intellectual
property law in 2002 (U.S. Commercial Service, 2012). There is also trademark protection for
ten years; however, U.S. trademark and patent registrations do not apply in Egypt (U.S.
22
Commercial Service, 2012). In order to protect its brand and recipes for its menu items, Dunkin’
Donuts needs to apply for trademark and patent protection as soon as possible.
Pricing Strategy
According to the latest Egypt Country Commercial Guide, Egypt traditionally is a pricesensitive market, where quality often takes second place to cost (Commercial Guide, 2012). For
this reason, Dunkin’ Donuts must set competitive prices that will cover costs while generating
profit. In the beginning, initial costs are going to be higher due to the imported machinery which
will be charged with a 10% sales tax, 3% service tax, and 1% industrial and commercial tax, and
an additional 15% tariff (Export.gov, 2012). Dunkin’ Donuts will also have to pay an income tax.
If income is under 10 million EGP, then the income tax is 20%; if more, then 25% (FITA, 2012).
Variable costs depend on the amount of products sold and include cost of ingredients such as
flour, sugar, oil, coffee, electricity, and wages. The minimum wage in Egypt is EGP 700 per
month which is about USD 115 (Wageindicator, 2012). Our supplier of ingredients will be a
local company because shipping products from the United States, besides the machinery, will not
be efficient. Buying ingredients from a local company also means we will not have to pay tariffs.
By using a local supplier, we also support the local economy, lower the risk of facing customs
delays and paying facilitation payments, and lower our costs in general.
Because of our location in Maadi, we will be able to charge a premium price. Our target
market may be willing to pay more compared to other neighborhoods since they earn a higher
income. Rather than using a uniform pricing strategy, which is just converting our prices in the
United States directly to Egyptian pounds, we will use a modified uniform pricing. We can use
our competitors’ prices in the area, such as the prices at Starbucks and Cinnabon, as a benchmark
23
in the beginning. However, we could not find any prices for these stores, except for McDonald’s,
whose prices in Egypt were slightly cheaper compared to those in the United States. While
McDonald’s prices are less expensive than ours, we will have the advantage of a better location.
Our future goal is also to distribute donuts to grocery stores and develop more stores. For
example, we would eventually like to distribute our donuts in grocery stores such as Carrefour. If
the price for a donut in the Maadi neighborhood is 10 EGP, it may cost 6 EGP at the grocery
store but it will be sold at larger portions, such as only by dozens. A cup of coffee would also
cost around 20 EGP. Dunkin’ Donuts in Lebanon for example offers combinations of a
donut/sandwich with coffee for a better price. This strategy may also be an option for us to have
competitive prices (Dunkin Donuts, n.d.).
With a depreciated Egyptian pound, foreign visitors and employees will receive more
local currency for their home currency (in this case USD) and will be willing to spend more.
Inflation, as mentioned in the economic section, accounts for about 6-10% annually so there may
be some price changes over time.
Distribution Strategy
The Dunkin’ Donuts business model is mainly franchise-based with nearly 100% of their
locations as franchises, which allows them to focus on brand differentiation and menu innovation.
In order to drive growth of distribution internationally, Dunkin’ Donuts key strategies are to
further develop their franchise support infrastructure by providing operational tools to be more
effective in the market, which would definitely make it a more attractive option to the current
struggling Egyptian economy. Another key strategy is to capitalize on other markets where they
do not have a significant store presence, but still have consumer demand as well as strong
24
franchisee partners. What Dunkin’ Donuts plans to do in these markets is to team up with local
operators to adapt to the local business practices and consumer preferences (Dunkin’ Brands
Group, 2012). We plan on having our franchise in the neighborhood of Maadi, which is an upper
middle class suburb that houses many foreigners, expatriates, and Westernized locals.
Our distribution strategy for Dunkin’ Donuts in Cairo will follow the stated business
model of the company, which is that the franchisee will be solely responsible for supplying its
own supplies, provided it meets Dunkin’ Donuts compliance standards. This is typically the case
for all international franchisees. The master franchisor in Egypt will have the option of virtually
sourcing everything locally or sourcing everything through the National DCP, whose closest
location is in New Jersey.
We decided that the costs of importing the ingredients for donuts, such as flour and sugar,
through NDCP would be equivalent to that of buying through local suppliers. We believe that the
cost of purchasing the ingredients, albeit at a lower price in the United States, would end up
being the same as buying local due to non-tariff barriers as well as slow regulation time.
Therefore, we decided that despite the mark-up we would experience due to the inflation of food
prices, we would save time going through our local suppliers (Dunkin’ Brands Group, 2012).
Some of the local suppliers we are looking into are North Cairo Flour Mills Company, Carrefour,
and Nile Sugar. These suppliers are all located in Cairo so we would be able to avoid high
transportation costs.
However, there is concern that the machinery and coffee in Egypt would not be up to the
Dunkin’ Donuts standard, so we have decided that we would pay the initial high cost of
importing machinery from the United States to ensure we have the best machinery to make our
25
food. We will work with Dunkin’ Donuts headquarters to order the machinery from their same
suppliers and import them into Cairo.
Also, we decided to import coffee beans from the United States through NDCP, who
already purchases over 90 million pounds of coffee per year and exports to over 23 countries.
We believe that because Dunkin’ Donuts is known for their special branded fair trade coffee,
Egypt would not have the proper type of coffee beans that would be up to par with our
company’s standards.
Our neighborhood, Maadi, is only six miles away from Downtown Cairo, so we believe
that transportation for distributors to get to our store will not be difficult, especially since it is a
very Westernized suburb. Maadi also has three different metro stations that go to central Cairo,
so we believe that our franchisee will be able to easily get supplies since Maadi is very close to
the hub of Cairo (Cairo Neighborhoods, 2008).
Promotional Strategy
Promotional strategies will help our company communicate amongst different cultures to
build awareness about our product and services. This awareness will then allow us to reach our
target market to promote brand recognition. Our approach to entering this market will start out
using a low cost marketing strategy. To save money and time, we will rely mostly on word of
mouth promotions along with advertising strategies that are low in cost but effective. We will
prepare to do a single-country sales force to gain acceptance in the local market and to help us
understand the local customers.
We will rely mostly on the interaction of our customers and positive buzz marketing in
order to build the trust of the upper middle class of Cairo. Due to Egypt being a collectivist
26
country, our main priority will be to gain the loyalty we need in order to promote positive
transactions about our store. This can also be accomplished by the use of viral marketing and
online resources.
We will be prepared to provide product samples to attract consumers to our restaurant to
provide awareness of our location and fast quality service. In doing so, Dunkin’ Donuts will have
to spend money to supply free sample items but will see profit increase by creating customer
loyalty. This approach will not only promote positive sales incentives to lure the customers into
our store, but it will also allow for direct feedback from our customers. Another form of
incentives that we can use is online coupons. These coupons can be advertised on social media
pages such as Facebook and Twitter. Social media outlets will allow us to reach a mass audience
for almost no cost.
Additionally, the newspaper is a highly persuasive form of media in Egypt. In order to
become a welcomed business in the country of Egypt, it is important to gain the trust of the
locals. In order to reach the locals in Cairo we will be distributing advertisements through
newspapers such as Al Ahram Daily. This newspaper is circulated widely and will give our
company good exposure. The Al Ahram alone circulates roughly 900,000 newspapers in a week,
being one of the top five of the country’s largest publishing houses (Doing Business, 2012).
Another promotion that may be applicable in the near future is to hire a Public Relations
representative. This representative will communicate information about Dunkin’ Donuts by
enhancing brand equity. However, this will depend on the availability of qualified personnel,
which may be limited especially since Egypt is a developing country.
In the future, we may begin to devote more time and money into advertising and
marketing. Depending on the progress of the business, we may want to take a more aggressive
27
approach to advertising if the franchisee feels it is necessary. This would include more media
promotions through television, radio, and print ads. Like Americans, most Egyptians watch
television fairly regularly. Television advertising in Egypt has been continuing to increase which
may drive us to compete in this market. However, we are convinced that low cost marketing
tools and the location of our franchise will be enough to attract our target markets. If a stronger
marketing strategy is necessary, we will adapt as needed.
Unanswered Questions
A main important question that we were not able to research thoroughly is the local
competition in Egypt. We tried to look for Egypt’s popular local donut and dessert stores by
using internet sources and reading online discussion boards and forums; however, we could only
find a few local competitors which may be only a small representation of all the competitors we
would have to face entering Egypt. We also found it difficult to find prices for multinational
companies that have a branch in Egypt. For example, because Starbucks does not have an
Egyptian official webpage, we were limited in determining the most effective pricing strategy to
be competitive.
Another key item we had difficulty determining is finding potential franchisees. It was
difficult to understand the full potential a company has as a prospective franchisee just by
looking at their websites online. We also were unable to interview someone from Egypt to get
personal feedback about our understanding of Egyptian culture and how effective our strategies
would be in relation to the culture.
If we had a research budget, we would gather more primary sources of data. For example,
we would hire a local agency to do market research in order to gather an extensive list of
28
competitors in the Maadi area and other areas in Cairo with their respective pricing strategies.
We would also ask the local personnel for primary research about our competitors’ effectiveness
in advertising and their distribution system.
Additionally, one of the most uncertain aspects we had to consider is how to deal with
Egypt’s government since its current one is relatively new. It is difficult to determine how the
new president and his government officials will act in regards to foreign relations and
international business since the president was previously a member of the Muslim Brotherhood.
Since we cannot control Egypt’s political or economic stability, this is a question that will remain
unanswered. However, with the local information we get from our research, we may be able to
make better strategies that will mitigate political risk.
29
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