Can Dunkin’ Brands Revive The Baskin-Robbins Brand?

-1.84%
Downside
106
Market
105
Trefis
DNKN: Dunkin' Brands Group logo
DNKN
Dunkin' Brands Group

Dunkin’ Brands (NASDAQ:DNKN) has been a popular stock among investors since it was first listed more than two-and-a-half years back. In addition to the Dunkin’ Donuts brand, the company also owns the Baskin-Robbins brand. Although the company derives most of its value from Dunkin’ Donuts stores, the contribution of Baskin-Robbins cannot be overlooked. As per our estimates, the Baskin-Robbins brand accounts for approximately 14% of the company’s stock price, with most of the value coming from international operations.

Domestically, the Baskin-Robbins brand has struggled in recent years. The total number of stores in the U.S. had declined continually from 2006 to 2012. The arrival of frozen yogurt and gelatos has led to the downfall of ice cream chains. In fact, Baskin-Robbins is not alone in losing favor with the general public. Cold Stone Creamery also closed more than 100 shops between 2009 and 2011. [1]

See full analysis for Dunkin’ Brands

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We have a $49 price estimate for Dunkin Brands, which is inline with the current market price.

International Store Expansion

Internationally, however, the scenario is different altogether. Baskin-Robbins sees a significant opportunity to raise the store count in international markets. In the last three years, the company has added 985 stores outside the U.S. At the end of 2013, there were 4,833 Baskin-Robbins stores internationally. In 2014, Dunkin’ Brands aims to open 300 to 400 stores internationally. This includes the Dunkin’ Donuts stores as well as the Baskin-Robbins stores. However, going by the trend in recent years, about 250-350 stores should be those of Baskin-Robbins.

Specific instances include opening 20-25 new stores in South Africa and another 25-30 stores in Germany over the next several years. [2] Back in 2012, the company had also announced its plan to open 80 new stores in the U.K. over the next three years. During the time of announcement, Baskin-Robbins had close to 100 stores in the country. Similarly in Vietnam, the company is in the middle of adding 50 new stores in the few years beginning from 2012.

In the U.S. too, the situation is improving for Baskin-Robbins. In 2013, the net store count increased for the first time in seven years. The company has shut down its non-performing units and will cautiously add stores going forward. In 2014, Dunkin’ Brands plans to add five to ten Baskin-Robbins stores in the U.S. Furthermore, the company is also adding Greek frozen yogurts to its menu beginning from May. The company also believes ice cream cakes are likely to drive sales in the coming years. In addition, Baskin-Robbins will also start selling packaged ice creams at groceries and supermarkets.

The brand’s growth is likely to be constrained by a limited marketing budget. Baskin-Robbins requires its franchisees to pay for the advertising fund. In 2013, the company had a marketing budget of a modest $25 million for the Baskin-Robbins brand, compared to $350 million for the Dunkin’ Donuts brand. [3] Since the total store count in the U.S. isn’t expected to accelerate anytime soon, the total pool of advertising funds isn’t likely to get a boost. To amend this, Baskin-Robbins now plans to spend a portion of its packaged ice cream sales to the advertising fund. This could very well provide the brand with the much needed thrust.

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Notes:
  1. What Happened to Baskin-Robbins?, January 16, 2014, businessweek.com []
  2. Baskin-Robbins eyes international expansion, June 25, 2013, foodbusinessnews.net []
  3. How Baskin-Robbins Is Trying Not to Disappear, February 24, 2014, entrepreneur.com []