Dunkin' Brands' solid sales driven by cold beverages, sandwiches

July 27, 2012 | by Alicia Kelso

Dunkin' Brands continues to turn in strong performances since going public one year ago this week. The company reported its second quarter results Thursday, which included systemwide sales growth of 6.9 percent and an 8 percent jump in profits.

Broken down by segment:

  • Dunkin' Donuts comparable store sales growth was up 4 percent;
  • Baskin-Robbins U.S. comp store sales growth was up 4.6 percent;
  • Dunkin' Donuts international comp store sales growth was up 3.5 percent; and
  • Baskin-Robbins international comp store sales growth was up 1.5 percent.

"We believe our strong performance to date clearly demonstrates the platform for growth that we laid out at the time of our IPO," said Nigel Travis, CEO, Dunkin' Brands and president of Dunkin' Donuts U.S. "... Our focus on store-level economics, best-in-class product and marketing innovation and operational execution drove comparable store sales increases across all business segments."

The company's ambitious expansion plans for both brands continues domestically and internationally and, by the end of the quarter, there were more than 17,000 restaurants worldwide under the Dunkin' Brands umbrella. The company is on track to open 260 to 280 net new Dunkin' Donuts U.S. stores this year.

International development is estimated to be between 400 and 450 net new units between the two brands, weighted toward Baskin-Robbins.

Second quarter drivers

There were plenty of factors at play contributing to Dunkin' Brands' current momentum. In particular, Dunkin Donuts' cold beverage and sandwich platforms have been expanded with a favorable response.

"We've had a very successful streak of breakfast sandwich rollouts. Breakfast sandwiches are a powerful complement to our beverage lineup and are nearly as profitable for our franchisees," Travis said. "Our new bakery sandwich line also continues to drive traffic and sales in the afternoon daypart."

The brand's K-Cup offering also continues to generate positive sales. The second quarter was boosted with Dunkin' Donuts' first limited-time K-Cup offering – mocha. Travis said the K-Cups have contributed approximately 40 percent of Dunkin' U.S.'s total comp increase.

For Baskin-Robbins International, the company's comp growth was lifted by strong business in Korea, the Middle East and China. The company anticipates doubling the brand's UK presence within the next three years.

Dunkin' Donuts International's comp store sales growth was also aided by a strong Korean market. During the quarter, the brand made its debut in Guatemala and India. Dunkin' Donuts also just announced plans for expansion throughout Latin American markets and in Germany.

"Our European exposure is pretty low and we believe that is a sign of long term opportunity for us to build on our base in countries such as the UK, Germany, Spain and Russia," Travis said. "We are positioning ourselves to take advantage of the many, many worldwide opportunities."

Baskin-Robbins U.S. continues to experience a turnaround, with 4.6 percent same-store sales comp growth. The brand benefited from strong Mother's and Father's Day promotions, as well as new beverages.

"We're excited about the turnaround of Baskin-Robbins in the U.S. Our franchisees are engaged, we have a standardized POS system, and we firmly believe in the long term that Baskin-Robbins U.S. will be a slow growth business for us," Travis said.

Plans for continued momentum

The company has outlined a few strategies to maintain its momentum throughout the remainder of the year. Dunkin' Brands recently announced it will close the Baskin-Robbins Ontario, Canada manufacturing plant, which supplies ice cream to some of the brand's international markets. Ice cream that had been produced in that plant will now be produced by Dean Foods. This move, according to Neil Moses, chief global strategy officer, will enable Baskin-Robbins to provide ice cream to a growing number of international franchisees and their customers, and should save the company about $4-5 million annually beginning next year.

"Moving our international ice cream production to a trusted long-term dairy manufacturing partner, Dean Foods, is aligned with our asset-light model and will generate significant annual savings for the company," Moses said. "Most importantly, this transition will enable us to better support our growing international Baskin-Robbins business, including the flexibility of using production of the many Dean plants here in the United States."

Travis said the third and fourth quarters of 2012 will also include strong marketing and product plans, including a "diverse range" across the breakfast sandwich, bakery and bakery sandwich lines.

"We have strong media plans to drive sales and our advertising spend is weighted more heavily toward the second half of the year," he added.

Additionally, Dunkin' Brands plans to launch a new mobile app in the third quarter, but wouldn't release any further details.

Finally, the company will leverage its K-Cup positioning by rolling out the offering at Baskin-Robbins units throughout California later this year. This strategy will complement Dunkin' Donuts continued expansion in that market.

"Packaged coffee and grocery outlets do extremely well in that state and this is instrumental in our westward expansion plans as it gets consumers hooked on our coffee taste profile," Travis said.

Merchandising and limited-time offering plans for the K-Cup are also in place for the second half of the year.

Read more about operations management.

Topics: Business Strategy and Profitability , Coffee/Bakery/Donut , Food & Beverage , Franchising & Growth , International , Marketing / Branding / Promotion , Online / Mobile / Social , Operations Management

Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with FastCasual.com, QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.
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