Dunkin’ Brands Wants to Be More Than Just Coffee and Donuts

Dunkin' Donuts is adding more lunch items and new iced teas to attract customers looking for more than just coffee and donuts.

Jun 6, 2014 at 1:10PM

Dunkin' Brands (NASDAQ:DNKN) is positioning Dunkin' Donuts to be more than just a coffee and donuts chain. Dunkin' Donuts has been slowly adding menu items to boost its sales outside of normal breakfast hours. The chain is taking a page from the playbook of competitor Starbucks (NASDAQ:SBUX) and going after McDonald's (NYSE:MCD) lunch and dinner crowds.

McDonald's, in turn, has been beefing up its coffee line to better compete with Starbucks and Dunkin' Brands. It looks like we have more than just a breakfast and coffee war going on with these three companies.

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Source: Dunkin' Brands

Dunkin' Donuts continues to expand its sandwich offerings
The latest addition to Dunkin' Donuts' menu board is a Grilled Chicken Chicken Flatbread Sandwich. This is the first time that Dunkin' Donuts has put grilled chicken on its menu. The new sandwich consists of grilled chicken with ancho chipotle sauce and reduced-fat cheddar cheese on a multigrain flatbread.

Grilled Chicken Flatbread Dunkin Donuts

Source: grubgrade.com

One thing that I like about this sandwich is that it appeals to today's health-conscious consumer. This is the type of customer McDonald's has had trouble in winning over with its burgers and French fries. The new Grilled Chicken Flatbread Sandwich has only 360 calories, and the multigrain flatbread comes with 16 grams of whole grain.

The new Grilled Chicken Flatbread Sandwich joins Dunkin' Donuts' Barbecue Chicken and Bacon Ranch Chicken sandwiches that were both added to the menu last year. Other sandwich options include Ham & Cheese, Turkey, Chicken Salad, and Tuna Salad. Each one is available on a French roll, croissant, or bagel. There are also Chicken Salad and Tuna Salad wraps. All sandwiches are made to order and can be oven-toasted as well.

Dunkin Chicken Sandwiches

Source: grubgrade.com

Dunkin' is increasing its drink options as well
Dunkin' Brands knows that not everyone is a coffee drinker, and that's why the chain has been offering new beverages. Matter of fact, executives at Dunkin' Brands consider the company to be more of a beverage company than a donut chain. Part of its new beverage push is Dunkin' Donuts' line of iced teas. The new flavors include Iced Green Tea, which is sourced from Rainforest Alliance Certified Farms, Blueberry Iced Tea, Raspberry Iced Tea, and Peach Iced Tea. All of the iced teas are made to order, unsweetened, or sweetened.

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Source: Dunkin' Donuts

Expansion into California is a big opportunity
Dunkin' Brands has had its eye on California for quite some time. The company hopes to one day have 1,000 locations, but that's still half of Starbucks' estimated 2,000 locations in the Golden State. One of the problems Dunkin' will have is the fact that California real estate is extremely expensive. However, executives at Dunkin' Brands and its franchisees have been scouting locations across the state. Dunkin' Brands already has signed agreements for 150 California locations.

Images

Source: Wikimedia Commons

There are currently only three Dunkin' Donuts in California -- Camp Pendleton, Barstow., and San Diego. But Dunkin' Brands has been running its ad campaign in the state since 2010. This is to boost awareness for when the company ramps up its store openings starting in 2015.

Dunkin' Brands will target Northern California and Southern California to start. The company has plans to open stores in the Northern California neighborhoods of San Francisco, Silicon Valley, Monterey, Eureka, Chico, and Redding. In Southern California, Dunkin' Donuts plans on targeting the areas of Palm Springs, Santa Clarita Valley, Ventura County, Glendale, and Burbank.

How have sales been?
Both Dunkin' Brands and McDonald's have not been posting sales numbers that are as strong as Starbucks. McDonald's reported that first-quarter same-store sales declined 1.7% in the U.S. Dunkin' fared slightly better and saw its U.S. same-store sales rise 1.2% in the first quarter. The stellar performer was Starbucks. It saw same-store sales rise 6%.

How do shares compare?

 

Dunkin' Brands

Starbucks

McDonald's

Market Cap

$4.86B

$55.70B

$100.52B

Forward P/E

21.94

23.39

16.28

Operating Margin

39.12%

15.75%

30.23%

1 Year Return

13.25%

18.99%

5.22%

Dividend Yield

2.1%

1.4%

3.2%

Source: Yahoo! Finance

Foolish final thoughts
I like what Dunkin' Brands is doing in expanding beyond coffee and donuts. It remains to be seen the impact its new lunch items will have on same-store sales. The problem Dunkin' Brands will have is getting diners to change their eating habits. Dunkin' Donuts is not known as a place to stop in and grab a sandwich from. However, that doesn't mean it can't happen.

Starbucks was known only for its coffee and has been steadily adding more food items and boosting food sales as a percentage of total sales. This Fool will be looking forward to next quarter's earnings report to see how the new menu items are faring.

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Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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