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Jon Luther, Dunkin' Donuts' CEO, doesn't look like a man who has a cozy relationship with doughnuts. At 60 years old, he's a slim, exuberant guy with cropped gray hair and an infectious grin, who professes never to have had a weight problem. Sitting in his office in suburban Boston, surrounded by sports memorabilia and plaques from his sojourn at Popeye's Chicken and Biscuits, he cradles an old-fashioned Dunkin' Donuts mug, and confesses a special fondness for the chain's signature product: ye olde Boston crème doughnut, a confection so beloved in Massachusetts that it's been named the official state pastry. But these days Luther has more than baked goods on the brain. He's a man on a mission: to transform the 54-year-old company into a low-cost competitor to Starbucks. We talked to him about the hurdles ahead -- and whether, given the toxic aura around high-carb foods like doughnuts, he shouldn't begin by changing the company's name.

Fast Company: In the five years you were at Popeye's, you doubled the size of the company. What made you now want to take on Dunkin' Donuts?

Jon Luther: I thought: I've got one more [turnaround] in me. So I went to Phil Bowen (the CEO of parent company Allied Domecq) and made a pact coming in that there were some things that we needed to do to position us for the future. I've learned over time that you have to ask first (laughing). You can't be a great leader without having someone there with the courage to support you, because they've got to fend off all the noise and politics to get you through the rough times. So here we had this beloved brand, Dunkin' Donuts, that was doing well, but was not well-positioned for tomorrow.

FC: What was the problem?

Luther: We weren't relevant to our competitive set. You've got wellness issues, you've got mobility issues, you've got portability issues. Besides, nobody's eating three meals a day anymore -- they're snacking five times a day. We weren't positioned to meet that demand.

FC: So, what kind of 'rough times' did you encounter?

Luther: I started off by selecting my leadership team based on seven values of character -- among them trust, integrity, and respect for the team -- and seven values of competency. And everybody had to go through that filter. They then picked the officer corps, and they, in turn, picked the director corps based on the same values. Ultimately, every single person in the company was evaluated based on these values. We spent three days at the Embassy Suites in Boston going through this. Ultimately, 211 people left the organization, including 32 directors. They called it "the episode" around here. It was an awful time. But I'm starting to get emails now and people are saying, man, what a difference! Now we have values, and we live the values.

FC: So now that you're beyond the reorganization, what are you doing to move ahead?

Luther: We're reconcepting, which is the fun thing to do. The menu concept is the driver of all this. We're not in the widget business, we're in the food business, and we better be the best at food. Period. I'm convinced this segment of the industry can deliver quality equal to Wolfgang Puck. I'll tell you right now: Ron Shaich (CEO of Panera) is going to have to wake up, because our quality is going to beat Panera's.

FC: Doesn't it worry you that your food is all in the high-carb zone in a low-carb environment?

Luther: We're going to create a healthy halo over our product line, so if you want coffee with soy milk, you can get it; or a low trans fat muffin, you can get it. Fruit cups, or a breakfast sandwich made with Egg-Beaters. Across all our menu lines, across all our products, there's going to be some better-for-you option. It's going to take a long time. It can't be done overnight. But every product will go through that filter as we reinvent.

FC: Still, you've said that your main effort will be beverages. How do you plan to compete with Starbucks, which has a big head start?

Luther: Starbucks has created its own club. It's a little bit about theater. We're just: get in, get out. We're about speed. That's our differentiator. Plus, pricing is a huge issue. We get calls from people saying, "Thank you, I'm saving $8 a week [by not going to Starbucks.]"

FC: If you're really now in the beverage business and not the doughnut business, shouldn't you rethink the company's name?

Luther: We'll never change the name as long as I'm sitting here