Must-know: Which of Dunkin’s segments have upside potential?
Dunkin’ Donuts is an industry leader of the quick-service restaurant (or QSR) concept. Its products include coffee, donuts, bagels, muffins, and breakfast sandwiches. In the 1980s, Dunkin’ Donuts saw a transition into multiple beverage platforms, and it’s currently the premier QSR chain serving hot coffee-based beverages. Unit sales exceed 1 billion servings annually. This success is attributable to business characteristics that drive customer flow throughout the day. These include “traditional” restaurants as well as kiosks located at gas stations, convenience stores, transportation centers, hospitals, and offices (commonly known as “alternative points of distribution” or APODs) that boast fast-moving lines and efficiently maintained kitchens.
Of the two main brands, Dunkin’ Donuts franchises generated the majority of the company’s revenue of $6.2 billion (72% of total revenues) in FY2012. As of September 2013, Dunkin’ Donuts has 10,795 global distribution centers in 40 states (including Washington, DC) and 30 foreign countries. Between FY2002 and 2012, Dunkin’ Donuts domestic sales have grown at an 8.2% CAGR. Plus, U.S. distribution points doubled over the same ten-year span. Dunkin’ executives believe the company’s strong brand awareness and various restaurant formats will drive growth into the western United States in the coming years.
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Baskin-Robbins is Dunkin’ Brands Group’s QSR frozen dessert segment. It’s known for serving hard- and soft-serve ice cream in cones and sundaes in addition to a full range of cakes and frozen beverages. The brand is most commonly known for the innovative measures mentioned above in addition to a flavor library of over 1,000 ice cream offerings. Unfortunately, low same-store sales growth figures coupled with a low contribution to domestic revenues (5.8% in FY2012) have prompted store closings.
While sales growth is stagnant and domestic distribution points are on the decline, Baskin-Robbins is a massive hit in the international markets. Baskin-Robbins composed 87% of international revenues for FY 2012. This is likely caused by a tendency for consumers in Middle Eastern countries to seek frozen desserts where average temperatures are higher. Likewise, some cultures’ historical taste preferences play a part in new-age frozen dessert consumption (such as mochi ice cream in Japan). There are 7,145 global Baskin-Robbins distribution centers in 43 states and 45 foreign countries as of September 2013. Dunkin’ Brands Group is using its franchise-focused business model to accelerate growth for coffee and ice cream segments in both domestic and foreign markets.