Dunkin' Brands: U.S. Units Will Double In 20 Years

NRN.com|Feb. 10, 2012 12:03 pm EST

New menu items and innovative marketing brought Dunkin' Brands Group Inc. back to profitability in the fourth quarter of 2011, the parent of the Dunkin' Donuts and Baskin-Robbins chains said Thursday.

The Canton, Mass.-based franchisor said it expected strong performance through 2012.

The company reported $11.6 million in profit for the three months ended December 31, compared with a loss of $15.3 million in the fourth quarter of 2010.

"We had an incredibly strong finish to the year," chief executive Nigel Travis said.

The "key ingredients," he said, of its performance — innovative products and marketing — are in place to help the company achieve its goal of more than doubling the number of U.S. Dunkin' Donuts units to 15,000 within the next 20 years.

Dunkin' Donuts' domestic operations, totaling 7,015 locations, account for more than 70 percent of the company's total revenue. The remainder comes from 2,457 domestic and 4,254 international Baskin-Robbins units and 3,068 international Dunkin' Donuts restaurants.

New products, marketing lift Dunkin'

New products helped bring new customers to Dunkin' Donuts, Travis said, noting that the smoked sausage breakfast sandwich introduced as a limited-time offer in the fourth quarter was one of the most successful such offers in the company's history.

A Texas Toast grilled cheese sandwich introduced in December also helped drive traffic after 11 a.m., Travis said. Four other sandwiches have since been added, helping bring customers in after breakfast, he said.

Both the number of customers and average check amounts increased in the fourth quarter, but Travis declined to provide further details.

In the third quarter, Dunkin' Donuts introduced single-serving K Cups, which it marketed during the holiday season. Travis said they accounted for a little less than 30 percent of the 7.4 percent same-store sales increase Dunkin' Donuts' U.S. division reported for the fourth quarter. Sales of the cups were not cannibalizing sales of packaged or brewed coffee in restaurants, he said.

Marketing also drove sales, Travis said, adding that Dunkin' Donuts' "What are you drinking?" campaign was effective and flexible enough to be adapted to different markets. The chain's continued sponsorship of ESPN's Field Pass on Monday Night Countdown contributed to its national visibility, he also noted.

Watch the latest "What are you drinking?" ad; story continues below

Such visibility is important to the chain's expansion plans, which entail moving into new markets, particularly west of the Mississippi and away from its Northeast stronghold.

Dunkin' Donuts opened a net 243 new restaurants domestically in 2011, of which 120 were opened in the fourth quarter. More than 80 percent of the new locations were outside core markets, but more than 90 percent were opened with existing franchisees, indicating that the parent company held a good relationship with its franchise partners, Travis said.

'Bullish about 2012'

Looking forward, chief financial officer Neil Moses said he expected same-store sales for domestic Dunkin' Donuts units to increase between 3.5 percent and 4.5 percent in 2012.

Moses said he expected a net 260 to 280 U.S. Dunkin' Donuts units to open this year, and that the process of closing underperforming Baskin-Robbins units would continue with the net closing of between 60 and 80 locations.

Internationally, he said he expected between 350 and 450 units to open, weighted toward Baskin-Robbins.

"We're bullish about 2012," Travis said. "We think we have some terrific plans."

Nearly 80 percent of domestic Dunkin' Donuts units have installed a new standardized retail technology platform, which should help franchisees manage labor and inventory, better understand food costs, improve service and help facilitate future initiatives, such as mobile payments and enhanced loyalty programs, Travis said.

Nearly 100 percent of domestic Baskin-Robbins units are expected to be on the new POS system by the end of 2012, he said.

In terms of food costs, the company signed an agreement early this year with its franchisee-owned procurement and distribution cooperative that would allow for uniform product cost throughout the system. The pricing system would be phased in over the next three years and would benefit all franchisees, but particularly those in new markets, which traditionally pay more for supplies. Travis estimated franchisees in new markets would see a food cost reduction of between two and three percentage points.

Dunkin' Brands' revenue for the fourth quarter totaled $168.5 million, up 12.5 percent from $149.8 million in the same quarter a year earlier.

Revenue for the full year totaled $628.2 million, up 8.8 percent from $577.1 million in 2010.

— Bret Thorn, NRN.com