Dunkin' bogged down by competition

by Monica Watrous
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CANTON, MASS. — More customers visited Dunkin’ Donuts during the company’s third quarter, but executives at parent Dunkin’ Brands Group, Inc. were not satisfied. A sluggish economy and “the sheer weight of competition” in breakfast stifled growth at the donut and coffee chain, which reported a below-expectations increase of 2% in comparable store sales in the United States during the period.

“We’re disappointed with our performance relative to where we thought we would be, coming into the year,” said Nigel Travis, chairman and chief executive officer, during an Oct. 23 call with financial analysts to discuss third-quarter earnings. “And as we look into 2015, we’re targeting 2% to 4% growth for Dunkin’ Donuts U.S. comps, indicating that while we don’t expect things to get worse, there’s still significant uncertainty on the macroeconomic front, and the breakfast and beverage space will continue to be highly competitive.”

Net income for the third quarter ended Sept. 27 increased 36% to $54.7 million, equal to 52c per share on the common stock, which compared with $40.2 million, or 38c per share, in the prior-year period. Revenues climbed 3.4% to $192.6 million from $186.3 million the year before.

“We’re now building share in a much softer Q.S.R. market and particularly one where the central core of Q.S.R. is more competitive,” said John Costello, president, global marketing and innovation for Dunkin’ Brands. “It’s more just everybody jumping into that sector with increased price discounting.”

Beverages and breakfast sandwiches drove sales at Dunkin’ Donuts, which during the quarter reintroduced a breakfast burrito and spicy smoked sausage breakfast sandwich and launched a chicken biscuit in several markets. Set to debut in the coming months is a new Angus steak sandwich platform and holiday seasonal items, plus “one or two other extra surprising things that we’re also excited about,” Mr. Travis said. Innovation, he added, is one of several competitive advantages for the company.

Noted Mr. Costello: “If we were losing share, I think we’d be more concerned, but I think we understand what’s going on with the consumer. We understand what kind of products they want. We understand what they’re looking for. While Q3 comps were disappointing, we remain encouraged about the fundamental positioning and the appeal of our products and our general customer proposition.”

Dunkin’ Brands also remains focused on domestic and international expansion. During the quarter, the company added 197 net new restaurants worldwide, including 120 new Dunkin’ Donuts units in the United States.

At Baskin-Robbins U.S., comparable store sales grew 5.8% during the quarter. A free waffle cone promotion and a new on-line cake ordering platform boosted results at the ice cream chain.
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