With restaurant chains struggling to generate the desired
same-store sales growth, many are experimenting with
non-traditional options such as retailing packaged items and
company products in their stores in the hope of posting higher
sales. A number of restaurants such as
Dunkin' Brands
(
DNKN
),
McDonald's Corporation
(
MCD
) and
Chipotle Mexican Grill Inc
(
CMG
) reported a slowdown in sales in their latest earnings due to a
weak consumer spending which remained precarious prior to the
elections.
Who's Selling What ?
Dunkin' Donuts same-store sales slowed down to 4% in the second
quarter from 7.2% in the quarter prior to that. This result comes
in spite of the fact that sales had been helped by the availability
of its K-cups and packaged coffee in participating stores across
the U.S. Excluding the effect of K-Cups, the comparable sales
figure would have been a lowly 2.5%.
Similarly, Starbucks also sells its K-cups at its restaurants.
It has now introduced its own single cup brewer, called the
Verismo, which are again available at Starbucks stores besides
other retail outlets. The company will also expanding the packaged
juice bottles sold under its Evolution brand to a greater number of
its stores in 2013. Starbucks reported a strong same-store
sales growth of 6% for the U.S. in its latest quarter.
McDonald's will be introducing bagged coffee under its brand to
its Canadian restaurants in November. The world's biggest fast food
chain has seen its sales slow down considerably in 2012 with the
figures turning negative in October, something which hadn't
happened since 2003. Success at its Canadian restaurants might
pursue the management to replicate the strategy to its American
counterparts.
See full analysis for Dunkin' Brands
Selling company labeled products through their own
stores/restaurants has a couple of advantages:
(a) It helps the company report higher same-store sales growth;
a key figure on the basis of which the investors usually gauge the
performance of a restaurant chain.
(b) The nationwide stores provide a significant amount of shelf
space without having to separately set up a distribution
network. Moreover, once the customers enter a
restaurant/store, they might end up spending on other items
too.
The downside, on the other hand, is that the sales of these
packaged products could cannibalize the sales of items served at
the restaurants. Also, an overdose of a particular brand could be
detrimental to the company in the long run as consumers just get
tired of it and move on to something new.
We have a $32 price estimate for Dunkin Brands, which is about
5% higher than the current market price.
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