NEW YORK — Can Dunkin’ Donuts, with 7,800 restaurants mainly east of the Mississippi river and 200 restaurants west of the river, become a national brand? If the company’s chief financial officer is to be believed, the answer is “yes.”
“A couple of things give us the belief that this brand can go national,” Paul Carbone, chief financial officer of Canton, Mass.-based Dunkin’ Brands Group, Inc., told analysts at the Morgan Stanley Global Consumer and Retail Conference held Nov. 19 in New York. “The first is that there is demand and consumer awareness across the country for Dunkin’ Donuts. We’re selling packaged coffee across the United States. We’ve had national media for the last four to five years focused on beverages. And then, as we open up restaurants in those markets, the cash-on-cash returns are 25ish plus percentage for the past few years. Back in 2008, those cash-on-cash returns were 5%. So we’ve seen a dramatic increase in the cash-on-cash returns that’s driving demand for the brand and really franchisees wanting to open up. It’s a great story with a brand with 60 years of brand heritage and significant white space in the U.S. for many years to come.”
Mr. Carbone said the company has the opportunity to grow from around 8,000 restaurants currently to about 17,000 over the long term.
He said the restaurants opening in the western and emerging markets have a similar return profile to the company’s restaurants in the eastern core markets, with about $1 million in top-line growth and about 13% to 15% EBITDA. It is the product mix that differs between the east and west.
“Nationally, we’re about 60% beverages,” he said. “In the western and emerging markets, we’re closer to 40%, and then obviously in the core and the established markets we’re much higher, and that’s at the same million dollar level. That’s where you get that flow through somewhere between 13% and 15% of EBITDA based on your product mix.”
In addition to expanding west of the Mississippi, Dunkin’ has changed its product innovation process. During the company’s presentation at the conference, Chris Fuqua, vice-president of brand marketing, said Dunkin’ has adopted a limited-time offering strategy that has worked well, especially in helping drive beverage growth for both core markets and new markets.
The company also has focused on growing breakfast sandwiches through differentiated L.T.O.s, and is continuing to look for ways to bring news to donuts.
“Donuts have been around forever,” Mr. Fuqua said. “We continue to innovate against all of our core products and then we look for new platforms that we can bring incremental growth to. So things like bringing out a steak that can be applicable both in the morning day part and in the afternoon day part. Something like a Croissant Donut that helps attract somebody maybe a little bit more in the afternoon than some of our other donuts.”
Finally, Dunkin’ is expanding its coffee portfolio beyond its original blend, putting dark roast coffee in place to attract a new customer who is looking for a different type of coffee.“Expanding our specialty coffee (to reach) millennials looking at drinking cold and sweet beverages and more specialty coffee beverages,” he said. “So we’ve made a lot of headway there, and then things like ice tea. We’re constantly looking at the market where we think we can grow and where the brand has permission to play, and all of that is part of the innovation strategy put in place.”