Dunkin' Brands
(
DNKN
) operates the Dunkin' Donuts and Baskin-Robbins brands globally.
Since Dunkin' Donuts stores in the U.S. account for more than 70%
of total revenues, it is the company's most important
division. Revenues from Dunkin' Donuts stood at $438 million
in 2011 and company-wide revenues were $628 million.
Dunkin Donuts is a fast food chain most famous for its
doughnuts, coffee and breakfast sandwiches. Its menu is
competitively priced and the brand positions itself as an
affordable option for anyone looking to have a quality meal without
splurging too much cash.
See full analysis for Dunkin' Brands
How It Makes Money
Almost all of Dunkin Donuts' outlets in the U.S. are franchised.
The company collects royalties from the franchisees which is a
percentage of the restaurant sales. It also collects rental income
from the properties it gives out on rent or lease to its
franchisees. Due to the franchising nature of the business,
the company has pretty high margins.
Presence And Scope For Expansion
Dunkin Donuts is present at more than 7,000 locations in the
U.S. and plans to double the store count in the next 20
years. The company still has no presence in California, where
it is working on building infrastructural requirements needed to
support its operations. The western part of the U.S., in general,
represents a significant growth opportunity for Dunkin' since its
penetration is only 1 store for one million people (as of 2011
end). There are other states too, like Texas, where the restaurant
chain has a limited presence, so there is plenty of opportunity to
expand. Around 280-300 new Dunkin Donuts stores will be added
in the U.S. before the end of 2012.
The franchising model ensures the expansion process does not put
a strain on the company's financials as only part of the costs are
incurred by the company. For example, in 2011, it only incurred
$18.6 million in capital expenditure even though it added 600
stores globally, out of which close to 250 stores were Dunkin
Donuts additions in the U.S. The rest were Baskin-Robbins and
Dunkin' Donuts international additions.
Boosting Sales
The company is looking to increase its same-store sales through
a combination of menu innovation and attracting more footfalls,
especially during the daytime and afternoon segment. At the
end of 2011, it added Hillshire sausage sandwiches to its menu.
Similarly, in 2012, the company has added Angus Steak, Egg and
Cheese Breakfast Sandwich and Turkey, Bacon and Cheddar, and Ham
and Cheese Bakery Sandwiches.
In the beverages section, the new additions include Undercover
Black Cocoa Donut, Chocolate Lunarmax Donut and Black Cocoa Crème
Iced Coffee. The company is also looking to boost top-line through
the sale of its K-cups. K-cups are sold in its participating
restaurants and contribute to the same-store sales growth as
well.
Dunkin Donuts' comparable sales are up 4.5% in the first three
quarters of the year and are on track to meet the company's
guidance of 4% projected at the start of the year. Sales have
decelerated in the second half of the year for a number of
restaurant chains including
McDonald's Corporation
(
MCD
) and Chipotle Mexican Grill (
CMG
) due to weak consumer spending. Going forward, we expect
comparable sales to rise by 3.5-4% in the long run.
We have a $32 price estimate for Dunkin Brands, which is about
5% higher than the current market price.
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