A Closer Look At Dunkin’ Brands’ Growth Strategy

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DNKN: Dunkin' Brands Group logo
DNKN
Dunkin' Brands Group

As it navigates through a challenging industry environment with increasing competition, Dunkin’ Brands (NASDAQ:DNKN) has chalked out a six-part plan to grow revenues. The company reported flat comparable sales for Q1 2017, however believes that it has a strategic plan in place for a future which will enable Dunkin’ Brands to meet its guidance for comparable sales. We expect a steady increase in the average revenue per Dunkin’ Donut U.S. outlet (which is the biggest division for the company) over our forecast period.

This metric is a key value driver for the company and a faster pace of increase in this number can impact our price estimate significantly. For instance, if the average revenue per outlet increases to $1.2 million by the end of our forecast period there can be a nearly 20% upside to our price estimate. Dunkin’ Brands is working on several measures to drive this growth and the key measures along with their likely impact are summarized below:

Streamlined Menu: In February of this year, Dunkin’ Brands began a test for streamlining its menu in 300 stores. The company is confident that this measure will simplify the restaurant operations and allow it to reduce employee turnover in the long term. Lower employee turnover can lead to better customer service through trained and experienced employees. An elevated guest experience can give Dunkin’ Brands a competitive edge. Through a streamlined menu which can simplify restaurant operations the company is more likely to achieve its goal of better customer service.

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Digital Initiatives: Mobile ordering and payment systems are redefining the restaurant industry as companies look to make customer service faster and more personalized by the use of technology. Dunkin’ Brands already has an On-the-Go mobile ordering platform and in March this year the company partnered with Waze, a real time traffic and navigation app. Waze users can order ahead at a Dunkin’ store in their route and skip the line. The company also has an established DD Perks program which now has 6.5 million members who account for nearly 10% of its U.S. sales. Dunkin’ Brands is testing delivery and catering via DoorDash and entering into strategic partnerships to promote its Perks program. Creating a loyal member base along with technology initiatives to stay ahead of competitors is likely to drive growth for the company in the long term.

Product Innovation And Brand Differentiation: Dunkin’ Brands is working on product innovation to differentiate itself from competition. Dunkin’ Punch and frozen coffee are its key product differentiators aimed to attract millennials. The company is also working on removing artificial ingredients from its donuts to meet the “healthier food” preferences of customers. As competition in the fast food industry intensifies, the ability to offer new innovative products which meet customer requirements is likely to be a key growth driver in the long term.

Strong Relationships With Franchisees: One key element of Dunkin’ Brands’ growth strategy is its focus on franchisee profitability. The company’s initiative to streamline its menu has gained a positive response from franchisees. As the company looks at expanding into new regions and growing its number of stores, franchisee profitability will play a significant role in this expansion. Dunkin’ Brands’ management is spending a significant amount of time to establish strong relationships with its franchisees and this strategy is likely to fuel growth for the company.

Dunkin’ Brands is facing headwinds in a challenging industry environment with increasing competition. However, the company’s growth strategy is strong and this is likely to drive steady growth in the long term.

See full analysis for Dunkin’ Brands

 

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