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Dunn Bros: The Non-Chain Chain

Jim Tincher, Principal Consultant

May 2012

Overview
Coffee houses are about neighborhoods, Dunn Bros Coffee co-CEO Chris Eilers
tells me while we drink light roasts and blues music plays overhead. Rather than conducting the interview at his office, Chris recommended we walk the block to his closest coffee shop. It is one of three corporate locations, housed in a building that once served trains distributing Minneapolis flour to the world. Its a location that perfectly matches Dunn Bros an interesting location with funky dcor. This interview discusses the Dunn Bros Coffee history, how they use their franchisees to develop their unique customer experience, and how the company uses market research and social networking to learn more about their customers. It concludes with an analysis on how they do in creating a customer-inspired experience, as measured through the Heart of the Customer model.

As we drank our coffee, Chris told me I visit this store almost every day. Indeed, as we came in he compared notes with the barista on several items obviously part of a continuing conversation. Dunn Bros offers a unique experience. You could never confuse one of their shops with another national coffee chain. You might even think it was an independent but a Dunn Bros fan would definitely recognize it by the in-house roaster and overall atmosphere. As Chris tells me, We like to think of ourselves as the non-chain chain. Coffee by is very nature is community-based, so we dont cookie cutter our stores. VP of Marketing Mark Christenson elaborated on this theme. When we met, Mark (a fellow Linchpin) immediately began talking about how the brand leverages that local connection. His passion for the customer experience was clear as he discussed how he works very closely with the franchisees. If you look at the three elements of our brand: distinctive, connected and real, he explains, they are very important elements of the customer experience. We emphasize that local connectivity. Our franchisee/owners focus on connecting with their neighborhoods and this is something a larger corporately owned chain will have difficulty doing.

About Dunn Bros

Dunn Brothers is a popular Midwestern coffee chain with most of its locations in the Twin Cities. The company was started by Ed Dunn and now boasts 83 locations. Whereas Starbucks and Caribou (another Minnesota-grown coffee shop) have primarily corporate-owned locations, Dunn Bros focuses on attracting franchisees, who typically run and work at only one location. Chris and partner Skip Fay were the first Dunn Bros franchisees, opening four locations before buying the rights to franchise the brand. His history as a local owner shows in his approach towards the company. No corporate campus here! Instead, the 18 corporate employees share a small space in the historic Mill Place building.

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Dunn Bros: The Non-Chain Chain

To promote this customized consistency, Chris told me that Dunn Bros gives franchisees wide latitude as they build their stores. We want the franchise to pick out the store dcor. The store picks out the furniture and environmental characteristics. We think theyre better at understanding what their neighborhood appreciates. But we do veto bad taste. As Mark says, We have tried to be very thoughtful. We offer a template, but provide flexibility around that to allow the franchisee to tie into their local community. So people walk in and they know its a Dunn Bros, but it doesnt feel as cookie cutter as a competitor. And customers tell us It feels like a kind of place I want to stay for a while. Its my coffee shop. And so that emotional piece is what we like to foster.

We used to think people came just for the coffee. But while we promote ourselves as the Bold Standard in the category, with the freshest and best tasting coffee, we recognize that we are about much more than a product. We feel we can own this space of being very different almost like an independent store, without being independent. You can see Chriss history as a store owner here he clearly starts with that connection to a coffeehouses unique community. Before I interviewed Chris I stopped in at the 26th and Nicollet store, speaking to the owner Josh as he served me coffee. Like most franchisees, he works in his store every day. But unlike most others, along with his wife he owns multiple locations three to be exact. Different stores serve different coffee to their different customers, he says as he serves me. Here in the city we serve more African coffees, like that Ethiopian Sun Dried Cherry youre drinking. In the suburbs, they typically prefer more Central and South American beans. The empowerment of the franchisees and the limited corporate staff play heavily in how they make customer experience changes. The local franchisees choose which coffees to sell and brew each day. Some franchisees offer all of the 18-20 coffees available, but most choose the 1014 that best fit their customers. Many of the ideas for customer experience and product changes come from franchisees, and even those that originate from corporate still involve close coordination with a set of owners. As Mark explains, Ideas can come from anywhere. Baristas, owners, company staff we all have ideas. We plan everything in a collaborative fashion. Depending on the size and scope of the idea, we test it out in multiple different locations and then fine-tune it based on local feedback.

Developing the Dunn Bros Customer Experience

Co-CEO Chris Eilers explained how the experience starts with a customer relationship. Coffee is as much about the product as it is about the relationship you have with the customer who comes in every day. Some customers get up, get dressed, brush their teeth, then hop in the car to go to Dunn Brothers. They do this same routine every day. And if they have a new barista, it sets them off like they have to start developing their routine all over again. He spoke frequently about this addiction, arguing that it is more an addiction to the routine and the connection with the barista than it is to the caffeine.

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Dunn Bros: The Non-Chain Chain

He gave more detail behind Dunn Bros hybrid franchising model. Were not traditional franchise command and control. Owners can create the environment that connects with their community, and hire the right people to do that. I saw an example of this when I spoke with a barista at their Edina store. I live in Wisconsin, she told me (30 miles away), and thought Id work here for just a few weeks through the holidays. But I love it so much I keep coming back! One example Mark gave of how this hybrid system develops ideas was the Fruit Crema Freeze. This half smoothie/half frappe came from a franchisee. As is typical of the Dunn Bros process, the franchisee shared the idea with the Franchise Product Committee, who tested it before expanding it to the chain. Dunn Bros encourages franchisees to talk, creating a realtime ability to ask questions and give feedback. They also bring all franchisees in to an annual conference to showcase new ideas and hear from them. Two vivid examples of how Dunn Bros updates their customer experience are the Barista Throwdown and Dunn Bros new Provisions Bakery Cafe.

Provisions Bakery

The Provisions Bakery Cafe is the newest concept at Dunn Bros, rolling out at this months franchisee meeting. Mark called Provisions a grand scale test, involving a new operating model and changing the nature of the store. As Chris explains, The Achilles Heel of coffee has always been food. Coffee is primarily a morning business, and we wanted an opportunity to extend the experience but only if we could provide food at the same level as our coffee. Provisions is a micro-bakery that utilizes a newtechnology oven, unlike the microwave used in other coffeehouses. Also unique is that Provisions locations make the sandwiches in the store, often while you wait. Josh made a sandwich for me, and it was quite good crispy bacon with melted cheese. While the idea was developed at corporate, the test franchises played a major role in its development and refinement. By starting with five very different test locations, Dunn Bros was able to learn as they went. Whereas the core menu stayed fairly consistent, how the food was prepared and even the specific ingredients changed as the test went on.

Barista Throwdown
As Mark explains, Two years ago we had what we called a Barista Throwdown, a system-wide contest that allowed baristas to compete to develop our line of holiday beverages. The baristas developed their drinks, then presented them to a panel of customer judges who selected the winning recipe from each store. Those winners went on to a regional judging and then ultimately to a final judging and selection by our Franchisee Product Committee. While the throwdown idea was developed at corporate, its refinement and execution relied on the franchisees and creativity of the baristas.

Promoter as the Lifeblood

VP of Marketing Mark Christenson explained Dunn Bros market research approach and its comprehensive nature. He listed their focus groups, online surveys, etc. He focused extensively on their online community, where they learn the most about their customers.

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Dunn Bros: The Non-Chain Chain

Research speaks to the type of consumer they attract independent and free-thinking. They are often professionals who like the adventure of a new coffee variety each day. He also discussed Dunn Bros use of the Net Promoter score. They live and die by the referral, which is why they chose NPS. They use an annual brand measurement, and are heading into their second year. Our Net Promoter Score was so high, and we were unsure. What do we do with this? That did not surprise me. The entire Dunn Bros brand favors emotional connection over efficiency, so I expect them to have a high percentage of promoters. They do not restrict themselves to the single NPS question. The meat of their survey is in additional questions about products, experience, store environment, and even competitors. The surprising part of their approach is that they do not measure the NPS by store. Instead, they do a brand-level study, and report an overall number. While their larger competitors can be in stadiums and on TV, Dunn Bros puts their marketing dollars in the local owners hands to reach out to their communities. Mark shared stories of how coffeehouses partnered with their communities, including schools, non-profits and the business community. It is not as easy as using large media, but it certainly reinforces that neighborhood connection central to the brand.

Advice on the Dunn Bros Way

Mark offered his advice for people wanting to create the strong local customer experience of a Dunn Bros. First, understand what your customers want. Not just on the surface level, but peel it back and go 2-3 levels deep. The easy things are the rational connections like great coffee. The ones you want to uncover are the emotional ones, because those are going to drive people to come back and keep you top of mind. So once you understand that, then you figure out how you meet the need both rationally and emotionally, and do that day in and day out. Its weird for somebody like me in this brand to talk about consistency, and it doesnt have to be the same from store to store. But the experience in the store that the customer visits every day has to be consistently good. You have to re-earn the right to serve your customer every day.

My Take
Dunn Bros uses a very different approach than I am used to. Much of my work has been targeted towards corporate staff members. At most companies, employees fall into the trap of staying at the office too much, failing to stay fresh with the current state of the customer. Dunn Bros avoids this problem by severely limiting the size of their corporate office. Rather than requiring a large staff to go out and stay fresh with customers, Dunn Bros uses a team that interacts with their customers every single day their franchisees. While every franchisor values their owners customer knowledge, Dunn Bros goes well beyond others by making them the linchpin of their development strategy.

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Dunn Bros: The Non-Chain Chain

It was no surprise that their promoter scores are off the charts, as NPS is a better metric for companies in the middle of the emotional engagement spectrum. I generally diagram the proper choice of metrics as follows:

Heart of the Customer Model

Emotional Engagement questions better fit the Dunn Bros philosophy. Mark has a keen understanding of the differences between rational and emotional connections with their customers. In order to keep improving their customer relationships, Dunn Bros should consider moving from an NPS to an Emotional Engagement evaluation. But a greater opportunity lies in their method of collecting NPS measurements. By using an allbrand measurement, Dunn Bros misses an opportunity to assess individual stores performance. Multi-location companies always experience variation between their branches. By measuring the performance of each coffee shop, Dunn Bros can do a better job improving performance and emotional connections by understanding the current state of customer engagement at each of their 80+ locations. Social Media Listening Here the company performs at a high level. Dunn Bros uses their online communities to learn more about their customers on an individual basis. While preparing for this interview, I ran across multiple bloggers referencing how somebody from their local Dunn Bros read a post or a tweet about enjoying a certain type of coffee, and how they were rewarded with a surprise visit by a local employee offering them a drink.

Based on this strategy, applying the Heart of the Customer model sees them as receiving a good in Market Research, Great in Social Media Listening, Developing in Analytics, and Outstanding in both Customer Immersion and Experimentation. Market Research Dunn Bros does a very effective job of using Market Research to learn about their Customers, but could use some improvement when it comes to evaluating individual locations. Mark articulated significant learnings from focus groups and other market research, and also shared internal documents showing how Dunn Bros uses this information to change their approach to customers. This is a laudable use of their research. Where they need work is in their NPS measurement. NPS is all about simplicity, whereas the Dunn Bros brand is focused on emotional connection.

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Dunn Bros: The Non-Chain Chain

Certainly, not every blogger gets free coffee (although any deliveries to Heart of the Customer would certainly be welcomed!), but by leveraging their local franchisees, Dunn Bros gets serious impact in social media, and further improves their word of mouth success. Analytics The company is improving in this area. They discontinued their card based loyalty program a year ago, as it did not appear to change behavior. At the time they did not have the transaction data to fully utilize their loyalty information. They have since moved to a new real-time POS that is increasing their visibility to key revenue data. Were they to re-institute their loyalty program, the combination of loyalty data with real-time POS may enable them to learn more about customers behaviors. But given the companys decentralized nature, this may not warrant investment at this time. Customer Immersion From a strict evaluation, there is a temptation to rate them low in this category. While they regularly visit their local location, management does not spend a great amount of time visiting various locations. Mark admits he does not invest as much time in coffeehouses as he might like, and said he has never served as a barista. No undercover customer or boss here. But this evaluation only holds if applied to the 18 members of the corporate team. The genius of their organizational structure is its decentralized nature. The corporate team does not have to spend as much time in the field because they rely on their local owners so heavily. The person more qualified to make decisions than a fieldsavvy corporate employee is a field employee already immersed in the customer.

I remember my experience at a training franchisor, where most programs were developed at corporate and then pushed to the field. There might be a pilot to fix some of the kinks, but all of the thinking was complete before the field was involved. At Dunn Bros, this would never fly. The field is a strong partner in development. Whenever Mark considers a new idea, he walks over to Jan Pithey, the VP of Operations, to get operational feedback and then run it by franchisees. Their close connection means they get feedback within a few hours, and can be testing ideas within weeks. Dunn Bros has overcome the traditional inward focus of many franchisors by creating a lean corporate staff. As a result, customer immersion is more than satisfied by using engaged franchisees who deliver coffee to their unique customers every day. Experimentation As outlined earlier, Dunn Bros excels in this area. All New ideas are run through their corporateowned locations and/or franchisees before scaling. At one point they experimented with a lab store, before deciding that their existing locations served as a better testing ground. While they do not have a rigorous process for experimentation, their size does not require it. Overall Analysis Dunn Bros does an excellent job of building a customer-inspired experience. By utilizing strong market research and social media listening, they supplement their continual franchise feedback loops. And by building their culture around continual experimentation, they keep their customer experience fresh, building great loyalty among their many fans.

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About the Author

Jim Tincher PRINCIPAL CONSULTANT
612-747-4021 jim@heartofthecustomer.com Twitter: @JimTincher

Jim has more than 20 years of experience in driving customer engagement from small business to Fortune 500 companies. Jims expertise has led to engagements as far-reaching as developing consumer tests at Best Buy, creating a Customer Insights capability at UnitedHealth Group, and consulting with clients ranging from global fast food giants to utilities to international manufacturing and service companies. Jim is a dynamic speaker, passionate about building a world-class experience that results in customers who come back time and again. Learn more at Heart of the Customer.

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