Baskin-Robbins’s strong international presence in strategically key locations can bolster Dunkin’ Brands (NASDAQ:DNKN) stock to $29. In addition to BRIC economies, the company is also expanding in the Middle East as its operations in this region has made significant gains of late. A disappointing domestic performance by Baskin-Robbins is also prompting the company to look eastward for growth. There are about 4,000 Baskin-Robbins outlets internationally and revenues from this segment grew more than 10% y-o-y last quarter. Dunkin Brands competes with McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX), Krispy Kreme, Dairy Queen and Cold Stone Creamery to name a few.
The Rising Middle East
Like most major food & beverage (F&B) companies, Dunkin’ Brands has vast presence in the emerging economies of Brazil, Russia, India and China (BRIC) as rising disposable income and adoption of western lifestyle offer tremendous opportunity to grow. Moreover, as these markets are under-penetrated, they offer huge potential for expansion. The growth prospects of BRIC nations, however, often overshadow the importance of one major market for Baskin-Robbin, which is The Middle East.
The Middle East’s perennial hot climate ensures round the year demand for ice-cream and dessert. The company has presence in Saudi Arabia, Bahrain, Qatar, U.A.E and Kuwait. All of these countries are high-income economies, some of which are growing at rates faster than those for BRIC countries. Qatar grew at a jaw-dropping 20% last year while Bahrain grew at 7%. Dunkin’ Donuts opened its first Cafe-styled restaurant in Middle East back in 2009, and the premium offerings served at the cafe fetches higher margins for the company.
Given the strong growth prospects, Dunkin’ Donuts plans to open 25 new outlets in the Middle East by next year. 
We believe Baskin-Robbins’ international segment contributes 27% to the Trefis price estimate for DNKN stock. We estimate the number of outlets will increase from the current 4,000 to ~5,000 by 2014. The company also opened its first store in Singapore earlier this year. Apart from the U.S., Baskin-Robbins also has wide presence in Japan, South Korea, Thailand, the U.K. and Canada.
We estimate a $29 price for Dunkin’ Brands, which is more than 16% above the market price.Notes:
- Baskin Robbins to launch new stores in Middle East, Franchiseuae.com, September 21, 2011 [↩]