Mar 24, 2022 | Report Announcements

Dunkin’s famous coffee (#1 in drip coffee), donuts & munchkins are legendary in core Northeast markets and a strong coffee value equation includes: bean to grind fresh; brew fresh every time; short hold times; and free flavor shots. The chain’s coffee authority supports its expansion into new geographic markets as well as new demos attracted to its new trendy/upscale menu options including espresso, cold brew, foam & non-dairy. The Dunkin’ way (get in, get out & get on your way) is consistent with its famous “America runs on Dunkin'” tagline and the chain’s high-frequency, low-touch, affordable-ticket business model is well suited to a modern lifestyle. The brand has deep roots with blue collar customers “who help make America run” with a mid-level positioning above c-store and QSR but below Starbucks. Along these lines, Dunkin’ seeks to “democratize” higher-end drinks for a younger demo with its push into espresso/premium options served quickly in drive-thrus (70% of system) at an affordable price. A 22% digital mix (inclusive of Perks, on-the-go, delivery & curbside) further helps Dunkin’ appeal to younger, hipper consumers. Long-term growth drivers include: appeal of DT model; drip coffee leadership; democratization of upscale/trendy espresso, cold brew, foam & non-dairy products; digital & loyalty; Next Gen store design; dining room re-openings; and ops & tech innovation to improve service speed. Although 2/3 of locations are in the NE, growth in the South & West is key for future development. In any case, the chain must still address historic sales pressure in the form of: increasing c-store/QSR coffee competition; PM sales softness which may reflect impact of coffee discounting on a less ritualistic daypart; QSR breakfast all-day initiatives; and cannibalization driven by past development in mature markets. Also, a broad menu, an abundance of promotions and endless customization options continue to pressure operational complexity. Taken together, fundamental challenges translate into a stagnant AUV, which taken together with elevated COGs & labor costs, translates into a system worst EBITDAR margin. In conclusion, Dunkin’s work is to finish executing its move upscale in pursuit of adding the purchasing power from a new, younger clientele to layer onto a stream of loyal sales from the brand’s core base of middle America.


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