Jon Luther: The Journey and the Destination
A storied career prepares industry veteran Jon Luther to reinvigorate Dunkin’ Donuts.
By David Farkas, Senior Editor -- Chain Leader, 11/1/2006
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If you hop on the bus that shuttles you from the train station to Boston’s Logan International Airport, you might notice on the way the large banner hanging from a terminal overpass that reads, “Your final final destination—Dunkin’ Donuts.” The sign is just one of many clever marketing ploys the recharged chain uses to entice travelers to grab something on their way to someplace else.
One might ask whether that message now applies to Dunkin’ Brands CEO and Chairman Jon L. Luther, who joined the chain’s parent in 2003 (the company also owns Baskin-Robbins and Togo’s). The 35-year veteran of the industry turned 63 this year, and his “evergreen” contract with the new owners is up. Bets are he will renew it. After all, he has just begun reinvigorating Dunkin’ Donuts, launching a new expansion plan, ad campaign, beverage menu and prototype since arriving.
Sharon Luther, who’s been married to Jon (or Jack, as family and old friends call him) for 40 years, believes he won’t retire soon. She says he’s more likely to relinquish his chief executive title and hold onto the chairmanship then join boards of other companies. “Jack enjoys his work so much,” she says.
Luther, winner of Chain Leader’s 2006 Chain Leadership award, remains coy about his long-term plans. “Who knows what the future will hold?” he says.
Certainly Luther had no idea of the hugely successful career that lay ahead when he began flipping burgers as a teen-ager at Henry’s Hamburger in blue-collar Tonawanda, N.Y., the river town near Buffalo where he was reared. Nor did he have much of a plan when he married Sharon Dickman in 1966 while at Paul Smith’s College in upstate New York, where he earned an associate’s degree in restaurant and hotel management.
“I was wild and crazy. Let’s put it that way. I don’t want to get too personal,” an emotional Luther explains during an interview at Dunkin’ Brand’s headquarters, dubbed Brand Central, in Canton, Mass. “In many cases, you could have said, ‘This guy isn’t worth the trip.’ [Sharon] saw somebody.”
Others, apparently, saw his potential, too. “I remember Jon was a shining light in a very competitive environment, and he held his own,” recalls retired professor Harry Purchase.
Taking on the Competition
Luther has thrived in competitive situations ever since, earning himself one promotion after another along the way. He is in a doozy of a situation now, with 5,097-unit Dunkin’ Donuts facing an uphill battle for market share as it expands to Cleveland; Pittsburgh; Nashville, Tenn.; Atlanta; Charlotte, N.C.; and Tampa, Fla., in an attempt to build a national brand while establishing itself as a beverage purveyor. Starbucks has posted its biggest same-store-sales gains east of the Mississippi, analysts say.
The payoff could be enormous for management and the three private-equity firms that acquired Dunkin’ Brands for $2.4 billion late last year. Sales at chains in the bakery-cafe and beverage categories climbed 23 percent and 19 percent in 2005, respectively, to $9.9 billion, according to Technomic Inc. At doughnut chains alone, a $5.3 billion segment, sales climbed 12 percent. The market-research firm expects category sales to climb 13.5 percent for bakery-cafes and beverages and 7 percent for doughnut chains in 2006.
Expansion, however, has proved challenging. In Tampa, for example, new franchisee and Boston native Marty Bloom discovered customers bought more doughnuts than coffee, which is more profitable. Luther has trimmed royalty payments in new markets. “They are listening,” Bloom says of Dunkin’s top brass.
To help franchisees keep competitors like McDonald’s and Starbucks at bay, Luther has introduced lattes, iced coffee and smoothies, backing them with a $100 million ad campaign tagged “America runs on Dunkin’.” Like Starbucks, he’s also rolled out a breakfast sandwich. Smart. Takeout breakfast has grown 50 percent since 2000, from 14 to 21 occasions per year, says Port Washington, N.Y.- based NPD Group. To boost afternoon sales, the chain is testing grilled flatbread sandwiches and bottled soft drinks in two prototype units, in Euclid, Ohio, and Pawtucket, R.I. Luther is mum on the financial performance of any initiatives.
Joe Scafaido, Dunkin’ Brands’ chief creative and innovation officer, recalls that the first thing Luther did on arriving was to stress there’s no room for the “thinly disguised contempt” for franchisees prevalent in fast-food companies. “Jon brought clarity that we don’t exist without them,” notes Scafaido, a Luther acolyte since they worked together at Popeyes Chicken & Biscuits.
“I learned a long time ago that no job is unessential, especially in our industry,” says Luther. At the moment, he is referring to a cafeteria worker who showed him how to wash pots and pans shortly after graduating from college and going to work for Service Systems, a contract feeder in Buffalo.
More than once during the interview Luther says that had he not met his wife, gone to college at his dad’s insistence or been naturally curious he might have ended up as a working-class stiff. “If it wasn’t for Sharon, God knows, I might be working in a Chevy plant or just a bar owner hanging out with the old gang in Tonawanda,” he says. Later, he offers, “If it wasn’t for a couple of breaks, I’d still be working in Buffalo.”
The Power of Persuasion
Luther got his first taste of success after joining Philadelphia-based Aramark, then known as ARA Services. He started there as a salesman in his late 20s peddling vending services and doing well. “I was selling to folks who couldn’t afford cafeterias. It’s a down-and-dirty, grind-it-out kind of business,” he recalls. “It was then I realized I had persuasive skills and empathy. I realized that I have the ability to persuade people to do things the way I like them. I am always sort of humbled by my success. So I don’t realize some of the tools I have at my disposal.”
The “tools” helped establish Luther’s reputation as a mover and shaker in 1978. As vice president of marketing for ARA Services, he convinced R.J. Reynolds Tobacco Co. to ditch Marriott Corp., an all-but-signed management contract worth about $10 million, and hand it to ARA instead. “No one believed we could do it,” Luther recalls. “It was a pivotal moment because it catapulted us out of the vending business and into business-and-industry feeding.” Says retired ARA Services President John Farquharson, a colleague of Luther’s in those days: “Aramark would not be the company it is today if it wasn’t for Jon.”
Dunkin’ Brands Vice President of New Concept Development Randy Brashier, who has known Luther since 1992, also has first-hand knowledge of Luther’s persuasive powers. When Brashier worked for CA One Services, an airport concessionaire now called Travel and Hospitality Services, where Luther was president, he learned his boss intended to put a Wolfgang Puck restaurant into LAX. It was an audacious suggestion; no one expected anything but national brands to attract travelers. Luther cooked up “Gateway,” a plan to seed airports with local restaurants as a way to introduce visitors to a particular city.
Convincing a famous chef was difficult enough, but persuading airports to bring the brands in the first place and at a lower rent compounded the problem. “We had to convince them to give up rent because of the increased sales that unique brands would generate,” says Luther, noting rent at Denver’s old Stapleton airport was 56 percent of sales.
He had two aces in the hole. “We knew airport directors always talked to each other. We knew word would spread,” he says. And Luther and Puck had friends in common. Before joining CA One, Luther ran Davre’s, ARA’s fine-dining division. Davre’s brought Puck, then an unknown Austrian chef, to the United States, to work in Indianapolis, though by then Luther was gone. Still, Puck had fond memories of his brief tenure and met with Luther.
“ He did not want to do it. He had a [small] restaurant in the Promenade and couldn’t make money,” Luther says. Puck eventually relented and opened two airport restaurants. Luther remembers running into him. “His restaurants at LAX were doing $4.5 million a year. He told me, ‘Jon, I’ve gotten more compliments on my United Express [restaurant] than I ever did at Spago,’” says Luther, adopting an Austrian accent.
“No one knows brands better than Jon,” raves Brashier, who along with Rich Melman, founder and chairman of Chicago-based Lettuce Entertain You Enterprises, helped develop fast-casual Cajun Kitchen and mall-based Popeyes Cajun Cafe, two of three concepts Luther championed while president of Popeyes from 1997 to 2002. AFC Enterprises, Popeyes’ parent, never opened the third, a grill concept.
Moving Up
Popeyes’ financial performance improved significantly under Luther, who also redesigned the original restaurants and launched new product lines. Filings show Popeyes’ systemwide sales, unit counts and comparable sales climbed each year during Luther’s tenure. “He was such a star,” says former AFC Vice President of Communication Ellen Hartman, now president of public-relations firm Weber Shandwick Atlanta. Luther resigned from Popeyes in January 2003 to join Allied Domecq QSR, then parent company of Dunkin’ Donuts, Baskin-Robbins and Togo’s.
Luther won’t say how well Dunkin’ Donuts is performing, citing private-company privileges. Industry observers speculate the chain is posting comparable sales in the range of 3 percent to 6 percent, or slightly better than the QSR segment. Average unit volumes have increased to $900,000, largely on the strength of beverage sales.
Stiff Competition
Still, gaining market share will be a fight. Giant Starbucks has announced plans to infiltrate second- and third-tier cities. It also released research that shows the average annual income of first-time customers is $80,000, down from $92,000 five years ago. That figure may not yet define Dunkin’ Donuts’ core customer, but it’s moving in the right direction.
Dunkin’ Donuts’ new prototype, the model for all new markets, will help shape defenses. A departure from the loud pink-and-orange interiors of old, the restaurant is less garish and more upscale, to which gourmet cookies, flatbread sandwiches and yogurt parfaits in an open-air display case attest. Yet the point of the concept—and what separates it from its competitors—remains: speed.
Farquharson doesn’t doubt for a minute that his former colleague can get the job done: “When Jon says something is going to happen, it happens. He doesn’t bullshit. He knows what employees are up against.”
Declares Luther: “This isn’t the old Dunkin’ Donuts.”
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