Dunkin' Brands (DNKN), the parent company of Dunkin' Donuts and Baskin-Robbins, has been quietly trading to new all-time highs this week. The stock sold off aggressively in December to dip into the low $60's, but has now recovered to around $77. DNKN has been making a lot of changes, so we wanted to provide some color.
Over the past year or so, DNKN has simplified its menu to make room for more impactful product innovation. For example, its Dunkin' Run snacking platform has been quite popular with consumers. DNKN says it has found its collective voice on national value. DNKN also has been modernizing the guest experience with new restaurant designs and menu innovation on both premium products and value offerings.
In 2018, DNKN announced a big investment when it said it would invest $100 mln into Dunkin' US, a substantial amount of which was for new equipment that would support DNKN's multi-year plan to expand its beverage portfolio beyond traditional drip coffee.
Using some of this new equipment, DNKN introduced the new Dunkin' espresso to America in Q4 and it performed well. While this may not sound like a big deal, espresso beverages perform well all day, particularly in the afternoon so this means more sales throughout the day. Consumers for these drinks also skew younger and so focusing on these offerings is a natural next step in pursuit of DNKN's beverage-led strategy.
Looking ahead, DNKN is set to report Q1 results in the coming weeks. A date has not been set yet. It will be important to see how well espresso does and beverages do in general. Q1 will be the first full quarter since the espresso roll-out, so the early results will be important to watch for.
DNKN's revenue is pretty small considering the company has 12,700+ Dunkin' restaurants and 8,000+ Baskin-Robbins restaurants. However, it makes sense because DNKN is a 100% franchise operation, with no company-operated locations. So DNKN's revenue is primarily from royalties/fees and rental income and not from the actual food sales. This model frees DNKN to focus on menu innovation, marketing, franchisee support etc. It also reduces cap-ex spending and results in very high margin sales.