Here’s How Dunkin’ Brands Plans To Drive Growth In the Future

A plan to use innovation, data, and technology to drive sales, take creative approaches to maintaining leading U.S. franchise returns, focus on growth in the international business, and expand its CPG (consumer packaged goods) business, is all part of Dunkin’ Brands’ (DNKN) strategy for growth in the next five years. The company has a target of mid to high single digit revenue growth and a 10%+ adjusted operating income growth for the next five years.  Although the company’s top line is suffering in international markets, we believe the company has potential to gain market share in the single serve K-cups segment. The company hopes to achieve a 6% growth in Dunkin’ Donuts stores in the U.S. and achieve a comparable store growth of 2-4% in the region. Efforts taken in this direction would be crucial for revenue growth in the future.

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Initiatives To Drive Sales In The U.S.

To achieve its two-fold target of a 6% expansion rate and a 2-4% comp sales growth rate in the U.S. over the next five years, Dunkin’ Brands plans to use data, innovation, and technology. The number of Dunkin’ Donuts restaurants increased by 291 in 2012, and by 371 in 2013, and by 405 in 2014, thus maintaining a growth rate of slightly above 5%, and the company expects to continue to achieve this growth rate over the next few years. In addition to existing digital initiatives of social media marketing and an online presence, Dunkin’ Brands  plans to introduce mobile order and pay in the future to drive sales.  Starbucks has successfully deployed mobile order and pay in several stores and we believe Dunkin’s efforts in this direction could have a significant impact on sales. The company also plans to use technology to improve store efficiency, and to use data and analytics to measure product popularity.

Dunkin’ Brands’ high margin business is attractive for existing and new franchises and the company also plans to continue its focus on franchise profitability. This franchise model can drive faster growth in the number of restaurants and we believe ensuring that the franchise opportunity remains attractive would be key for the company’s growth in the future.

 Focus on International Markets

While the company’s international segment has been struggling for the past few quarters (Baskin-Robbins’ international segment registered a 2.4% decline in the comparable store sales for Q3 2015), we believe it has a strong potential and the company’s goal to remain focused on international markets is key for future growth. Dunkin’ Brands plans to improve discipline and profitability in international markets by focusing on standards, food safety, and identifying high profit  potential markets. Both Dunkin’ Donuts and Baskin-Robbins brands are performing well in the Middle East, and the company expects that with time it will be able to establish both brands in China.  The international segment comprises nearly 10% of Dunkin’ Brands valuation, as per our estimates, and a faster growth in this segment could lead to an upside in its valuation.

Expansion Of Consumer Packaged Goods (CPG ) Business

Dunkin’ Brands’ launch of K-cups in the retail segment had a strong start. A Citigroup analyst has noted that Dunkin’ has attained 5% market share in its K-cup launch with Keurig Green Mountain in the first three months since May 1. ^[1]. Dunkin’ Brands aims to expand its consumer packaged goods business by enhancing and growing awareness, and we believe this segment could hold a high potential for growth in the future.

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1. Investors Dump Dunkin’ On Weak Guidance, But Citi Says Keep The Faith, blogs.barrons.com, Oct 1, 2015 [↩]