Can Dunkin’ Brands Develop A Competitive Edge With Its “Next Generation Stores”

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

Recently, Dunkin’ Brands (NASDAQ:DNKN) unveiled its first “concept store” which has an exclusive drive thru for mobile orders, a more open layout, and kiosks for in-store ordering. These new generation Dunkin’ Donuts stores come after McDonald’s is launching its “Experience Of The Future” stores and Starbucks is redesigning its stores to make its operations efficient after the overwhelming success of its mobile order and pay system.

Mobile ordering and payments is likely to be a key growth driver for restaurants in the future and this platform will also help companies build a loyal base of customers and increase their brand value. Surveys have revealed that the average size of an order from a customer is bigger when he “adopts” a mobile ordering app and these customers also place more frequent orders. However, one of the challenges restaurant companies face is the execution of these orders, since existing restaurant stores are not designed to meet a large number of order-ahead takeaway orders. Through its concept stores, Dunkin’ Brands is looking to resolve this challenge and we believe this redesigning is the need of the hour.

An efficient execution of mobile orders can enable a restaurant company to build a competitive edge. Starbucks, which pioneered the mobile ordering platform, faced a decline in its comparable sales due to congestion at the hand-off plane – since its stores could not handle the large number of mobile orders.  Dunkin’ Brands is proactively managing this challenge by redesigning its stores to adapt to the changing nature of customer orders.

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A faster growth in average revenues per Dunkin’ Donuts outlet can lead to a nearly 5-10% upside in our price estimate for Dunkin’ Brands.

The below charts show the impact of a faster growth in revenues on the company’s valuation:

 

 

 

 

You can modify these charts here to create your own scenario of revenue growth.

Restaurant companies are adapting themselves towards the changing landscape and the increasing role of technology in the industry. While technology initiatives are likely to be the key growth drivers for restaurant stocks in the future, physical changes to the stores are crucial for the success of these initiatives. With its new concept stores, Dunkin’ Brands is making these physical changes which are essential for its long term growth.

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