Dunkin’ Brands Is Looking To Target Millennials With Its “Healthier” Pitch

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

Recently, Dunkin’ Brands (NASDAQ:DNKN) announced that it will remove artificial colors from its products in the U.S. by the end of 2018. As the company looks to offer high quality products and cleaner menu labels to its customers, these synthetic colors will be replaced by naturally sourced colorings. This move comes after fast food giant McDonald’s is introducing subtle changes in its food products (such as replacing margarine with butter) to make them healthier. With millennials now the largest living generation in the U.S., companies are adapting their products to suit the preferences of this generation.  According to a Morgan Stanley survey, millennials define “healthy” food as fresh, less processed, and with fewer artificial ingredients. As this generation prioritizes healthy snacking and prefers to eat out more often, Dunkin’ Brands strategy to move away from artificial colors can help the company attract more customers to its stores and drive revenues in the long term.

See full analysis for Dunkin’ Brands

Meeting Evolving Customer Needs

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In 2014, Dunkin’ Brands conducted a comprehensive menu review that resulted in a new product development process which was focused on reformulating many of its products to enhance menu quality by simplifying ingredient labels, and reducing sodium and sugar levels without compromising on the taste. The current plan to eliminate artificial colors from its products is a part of this initiative, where the company will remove synthetic colors across Dunkin’ Donuts’ menu including donut icings, fillings, and toppings. Its ice cream brand Baskin-Robbins is also part of this initiative, although the company mentioned that it might take longer to find replacements for decorative elements on its ice cream cakes.

According to our estimates, Dunkin’ Donuts –U.S. is the most valuable segment for Dunkin’ Brands, accounting for more than 85% of its valuation. We expect the company to grow its average revenue per outlet from this segment steadily over our forecast period.

If the company is able to entice customers to spend more at its stores through its focus on “healthier” menu items and simplified ingredient labels, higher average revenue per outlet can lead to an upside to our price estimate.

As customer preferences evolve, food and beverage companies are adapting to the needs of the new generation. We believe Dunkin’ Brands’ strategy to eliminate synthetic colors and move away from artificial ingredients should help the company to attract more millennials to its stores. The company believes that the speed of its business is already liked by millennials and its WiFi stores are another added attraction. As Dunkin’ Brands works towards luring more millennials, its move towards healthier menu items can become a long-term revenue driver.

 

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