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Corporate Comebacks: Dunkin' Donuts

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Coffee for people with a life, not a lifestyle.

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If you have a life, not a lifestyle and if you guzzle coffee to get cranked up in the morning, Dunkin' Donuts is the joint for you. The company slugs it out with Starbucks (SBUX) in the booming coffee market, now estimated at about $50 billion a year.

The company eschews earth tones and aggressively drops its g's to pay homage to its lunch-bucket heritage. But Dunkin built its success on more than just dumb luck. It recently pulled off a marketing coup by recasting itself to attract new, upscale customers while holding on to its loyal, blue-collar base.

Once little more than a regional favorite, Dunkin' was strong in the Northeast but just about invisible elsewhere. Starbucks had long established itself as the coast-to-coast emperor of yuppiedom with $5 lattes, wall art and smart, aggressive expansion.

Before its Big Bang, it looked like Dunkin' would be nothing more than a perpetual also-ran, suspended somewhere between dingy bus stations and crummy strip malls. Things popped in 2006 when venture capitalists Thomas H. Lee Partners, Bain Capital Partners and the Carlyle Group bought the company for $2.4 billion. Now known as Dunkin' Brands, it has about 8835 stores worldwide, including 6395 in 34 states and 2440 in 31 foreign countries. It also owns Baskin-Robbins, an ice-cream franchise with approximately 6000 locations. In fiscal year 2008, worldwide sales totaled about $5.5 billion.

A new advertising campaign followed the buyout: "America runs on Dunkin.'" The ads showed workers grabbing the company's coffee before heading to work, sharply contrasting its offering with Starbucks' painfully hip, coffeehouse ambience.

Dunkin' says it's the top retailer of hot regular coffee-by-the-cup in the United States, and sells about 1 billion cups of coffee a year.

It was founded in 1950 by Bill Rosenberg in Quincy, Massachusetts. Rosenberg grew up in Boston's working class Dorchester section, dropped out of school in the 8th grade and went to work during the Depression. Rosenberg launched Industrial Luncheon Services Company and sold snacks to factory workers during World War II. In 1948, he launched a donut shop called Open Kettle that served as the prototype for what became Dunkin' Donuts 2 years later.

The makeover of the company Rosenberg built began with his retirement in 1988. Fred the Baker, an advertising character who chirped, "Time to make donuts!" and turned Dunkin' into an icon, got a pink slip in 1997.

Dunkin' now offers flavored coffee, including French vanilla, hazelnut and cinnamon. That sounds like a violation of the 8th Amendment prohibition of cruel and unusual punishment, but the company holds tightly to its blue-collar heritage. A quick check of the calorie count suggests the menu was developed for people who swing an ax all day rather than those whose most strenuous activity is turning on a computer.

Starbucks seeks to be a place where people linger, thinking profound thoughts as they peck away at laptops and sip Frappuccino, pinkie aloft. Dunkin' is far more direct: Get in, get out, get back to work.

If you thirst for a frou-frou Frappuccino, you're out of luck at Dunkin' Donuts, but you can get a nifty knockoff - the Coolatta.

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