Dunkin’ Brands (DNKN) doesn’t own many company-operated stores, nor does it have a supply chain revenue stream like Domino’s (DPZ) or Papa John’s (PZZA). We’ve seen how same-store sales growth and unit growth impact Dunkin’ Brands’ revenue and are the major focus of restaurant companies. In the chart below, you can see Dunkin’ Brands’ strategic focus for short-, mid-, and long-term growth.
The company licenses its product manufacturing and distribution to third parties. Let’s take a look at two of those major licensees.
Besides selling coffee at Dunkin’ Donuts stores, Dunkin’ Brands (DNKN) also sells packaged coffee in grocery stores. Dunkin’ Brands licenses the sale and distribution of that packaged coffee to the J.M. Smucker Company. In turn, Dunkin’ Brands collects licensing revenue from J.M. Smucker.
Mitigating risk through channel distribution
A strategic focus and balanced strategy for a restaurant company include a presence in grocery chains. This helps diversify risks associated with a bad economic cycle or recession. During a recession, consumers tend to spend less on restaurants and more on groceries to cook at home.
With a presence on grocery shelves (WMT) (COST), a restaurant company can still capture audiences during recessionary times, thus mitigating its risks. This strategy is positive for restaurants included in the consumer discretionary sector (XLY)(RXI). To learn more about how macro indicators affect restaurants, read Analyzing Key Restaurant Indicators. Starbucks (SBUX) and Tim Hortons under the umbrella of Burger King (QSR) have a similar channel distribution.
Dunkin’ Brands has also licensed the production and distribution of its ice cream products to Dean Foods (DF) in the United States. Dunkin’ Brands collects licensing fees from Dean Foods, which manufactures and distributes ice cream products to Baskin-Robbins in the United States.