A Closer Look At Dunkin’ Brands Growth Strategy For The Next Three Years

At its “Investor and Analyst Day” held on February 8^th 2018, Dunkin’ Brands (NASDAQ:DNKN) announced its three-year growth plan, focused on growing revenue and operating income. Some of the key initiatives announced by the company included adding around 1,000 new Dunkin’ Donuts locations in the U.S. by 2020 and ensuring that there are 1,000 NextGen restaurants per year by focusing on remodeling efforts.

We have created an interactive model which can analyze the impact of the strategic growth plan on the company’s valuation.

Dunkin’s growth strategy is focused around four key areas which are:

Menu Innovation: This includes introduction of new beverages and new sandwiches, a focus on seasonal donut offerings around the year based on key holidays, removal of artificial dyes, and value offerings. Promotions such as sandwiches for $2 are likely to be introduced throughout the year – which should give the company a competitive edge over other players such as McDonald’s which are offering similar value deals.

Convenience To Customers : Dunkin’ Brands is looking to increase the conveniences its offers to its guests with several initiatives such as a focus on its loyalty program, testing a digital catering platform, and tying up with third party delivery options with a goal of creating a strong delivery and catering platform by the end of next year. The company is also working on building a dedicated mobile order drive thru lane to ensure speed of service to its digital customers.

Menu Innovation can drive ticket-size for the company increasing the average revenue per outlet. You can create your own scenario to analyze the impact of a change in average revenue per outlet on the company’s valuation by modifying these charts:

Expanding Its Footprint: Dunkin’ Brands is looking to expand the footprint of Dunkin’ Donuts U.S. at a 3% annual rate, adding around 1,000 new restaurants by 2020. It is also looking to convert its existing restaurants into NextGen stores to offer better customer service. New restaurants add to revenue growth and the below charts analyze the impact of faster/slower expansion on the company’s valuation:

Dunkin’ Brands is also focused on its consumer packaged business to grow its other revenues. However, these revenues do not form a significant part of the company’s total business and hence will not have a material impact on its valuation:

Restaurant Excellence: Dunkin’ Brands is taking several initiatives such as new employee training tools, upgrading its back office systems, and evolving its mobile ordering platform to improve its restaurant service and increase customer satisfaction which can drive revenues.

Dunkin’ Brands does not expect a significant improvement in its revenues and comparable sales growth in the next three years, however expects that these initiatives will lead to higher revenues and operating income post 2020. We believe the company is currently working on a strong transformation program and should reap its benefits in the longer term.

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