Dunkin' Brands turned in a solid Q3 report this week that included a 34.4 percent jump in adjusted net income, a 5 percent increase in revenue and a rise in same-store sales across all business segments.
These results came in despite an increasingly challenging environment driven by more competition in the QSR space, as well as continued conservatism from consumers.
During the company's earnings call Thursday, CEO Nigel Travis said these conditions aren't likely to change in the near term. Dunkin' is navigating the challenges by focusing on five core strategies:
- Driving comps, sales and brand differentiation;
- Growing beverage and total coffee business;
- Protecting and growing the company's "critical" morning daypart;
- Growing the afternoon daypart; and
- Maintaining a strong value position.
The company's largest business — Dunkin' Donuts U.S. — delivered a 2.8 percent-increase in comp store sales behind a balanced growth in both the morning and afternoon dayparts that yielded an increase in guest counts and ticket averages.
"Growth was driven by our core strategy of products and marketing innovation with continued momentum in cold beverages, the introduction of new innovative products on the bakery products, our breakfast sandwich momentum, the expansion of our PM bakery sandwich platform and the exciting launch of our mobile app," Travis said.
Promotions included an Oreo Coolatta launch, a breakfast burrito campaign, a $2.99 offer in the afternoon and a limited-time roast beef sandwich launch. Also during the quarter, Dunkin' Donuts rolled out mocha, caramel, mocha almond and pumpkin iced coffee flavors, as well as iced apple cider.
"Product innovation continues to be core to our strategy, and our pipeline of new products is stronger than it's ever been," Travis said.
Coming next is the return of the smoked sausage sandwich, mint hot chocolate and new holiday latte flavors.
During Q3, nearly a year after its initial launch, Dunkin' Donuts' K-Cup platform also continues to exceed expectations. During September, K-Cup comps increased by 4 percent, driven by a limited-time pumpkin-flavor launch.
"I'm more optimistic (about K-Cups) than I've ever been. I think we've found a terrific formula. The limited-time offers are working really well," Travis said.
Dunkin' will launch a new K-Cup LTO in December to continue the line's momentum.
In August, the brand unveiled a new mobile app for iPhone, iPod Touch and Android smartphones that includes payment and m-gifting platforms. To date, there are about 600,000 downloads, and, in November, Dunkin' will launch mobile offers through the app.
"This will enable us to move into the exciting new world of one-to-one marketing," Travis said. "This is a crucial shift that will benefit (Dunkin' Donuts and Baskin-Robbins)."
A loyalty program leveraging the new app is expected to be introduced in 2013.
Also, in September the company launched its first national digital coupon, with a retention rate "way above what you would typically see with traditional coupons," according to Travis.
Other strategies have been fine tuned during town hall meetings between corporate and franchisees, with a specific focus on guest service speed, merchandising, training, suggestive selling and crew management.
As Dunkin' Brands reprioritizes its Baskin-Robbins U.S. business, the chain's comp store sales grew 1.1 percent during Q3. This was its fifth consecutive quarter of positive sales. Drivers included its Flavors of the Month promotions, cake sales and beverages. In California, B-R shops now feature Dunkin' Donuts' K-Cup line.
Internationally, the brand turned in a systemwide sales increase of 5 percent, driven by the Japan, Korea and Middle East businesses.
Finally, executives discussed their perspectives on tight consumer spending and the New York City 16 oz.-plus beverage ban, which could potentially affect the business.
John Costello, chief global marketing and innovation officer, said brands across the QSR space are echoing sentiments about consumer-driven challenges, and are stepping up their competitive activity in response.
"We think the best defense is to stay on the offense," he said. "We're reading the same reports about competitive activity, but we feel very good about our product marketing and operational strategies and our ability to grow within that environment."
Travis added his insight on what he thinks consumers are most worried about right now.
"The amount of household income has gone down," he said. "Unemployment is overwhelmingly the issue, and that results in a reduction of household income."
Travis also briefly touched upon the New York City ban on beverages 16 oz. and larger and how, if at all, it would affect Dunkin's business. The Massachusetts-based company has a strong presence in that market.
Travis said the impact is very low; however, franchisees in the market are enraged by it and "engaged to overcome it."
"I think we will also possibly even pick up consumers who are going to feel that we've been targeted in an unfair way," he said. "We see this as a problem and we're going to find a way of making it beneficial to Dunkin' Donuts."
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