Dunkin’ Brands’ Next Move Towards Menu Simplification: No Artificial Dyes
One of the key goals of Dunkin’ Brands (NASDAQ:DNKN) in 2018 is to simplify its menu in order to improve its operational efficiency and provide consumers with clean menu labels. This strategy is also likely to reduce employee turnover and make training easier. (Read Here’s Why “Simplification” Is Key For Dunkin’ Brands Growth). As a part of this initiative, the company recently announced that it is removing artificial dyes from all its donuts sold in the U.S. Dunkin’ Brands is also planning to remove artificial dyes from all its menu items (including icings and beverages) by the end of 2018. We believe this move will not only make it simpler for consumers to choose products at a Dunkin’ Brands outlet but also appeal to the high spending, health conscious millennial population which is wary of artificial ingredients. With several restaurant companies moving towards more natural ingredients, this initiative is likely to give Dunkin’ Brands a competitive edge.
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Efficient Operations Can Improve Profitability, Expansion
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Dunkin’ Brands has an ambitious target of 18,000 Dunkin’ Donuts restaurants in the U.S, in the long term. This is double the number of existing restaurants (around 9,200 at the end of 2017) and needs aggressive expansion. According to our estimates, the company will be able to grow steadily in the next few years and reach around 12,000 restaurants by 2024. A faster pace of expansion can impact the company’s valuation significantly. For instance, in a scenario where the number of restaurants reaches 14,000 by 2024, there can be a nearly 15% upside to our price estimate.
Click here to analyze the impact of growth in the number of Dunkin’ Donuts U.S. outlets on the valuation of the company.
This expansion can come by more efficient operations and a simpler menu, which can improve customer service significantly and shorten the time taken to serve an order. These efficiencies can improve margins for franchises, aiding expansion. In order to strengthen its operations, Dunkin’ Brands recently promoted Scott Murphy as its Chief Operating Officer for Dunkin’ Donuts U.S. and appointed Rick Colon — a veteran from McDonald’s — to a newly created position of Senior Vice President- Operations and Development for Dunkin’ Donuts U.S.
Augmenting its operations leadership team, along with simplification of its menu, will ensure that Dunkin’ Donuts can expand at an accelerated pace. We believe these measures can drive growth for the company in the next few years.
Our current price estimate for Dunkin’ Brands is $55 which is lower than its current market price.
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