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Dunkin' Brands Tells Investors It Is Ready to Scale Up Delivery

By Demitri Kalogeropoulos - Nov 6, 2019 at 11:36AM

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The fast-food specialist posted a sales acceleration in the third quarter.

Dunkin' Brands ( DNKN ) recently treated investors to a positive earnings report that included increased earnings guidance for the current year. The fast-food specialist's trends weren't as strong as rival Starbucks ( SBUX -0.16% ), which posted results on the same day. Yet the growth picture supports management's hopes to establish Dunkin' as a more national brand over the next few years.

In a conference call with investors following the report, CEO David Hoffmann and his team added context to the earnings metrics and explained why they are more bullish heading into the final quarter of 2019.

Let's look at some highlights from that chat.

A box of colorful donuts.

Image source: Getty Images.

Winning with drinks

We are a beverage-led brand, and espresso is a big part of our future. However, we will also fight hard to protect our leadership in drip coffee, both hot and iced, which has experienced increasing competition in recent years.
-- Hoffmann

Sales growth sped up when compared to the prior quarter and management said beverages, especially premium espresso-based drinks, were the key driver behind that acceleration. At the same time, the national rollout of Dunkin's espresso machines hasn't impacted customer service. One year into the new platform, and the chain is still setting the bar when it comes to quick food and drink preparation for customers on the go.

On the downside, Dunkin' still has room to improve, given that customer traffic is trending lower and comparable-store sales growth of 1.5% is far from the 6% that Starbucks is enjoying.

Developing better restaurants

During the quarter we topped 13,000 Dunkin' restaurants globally, including the addition of 55 net new units in the U.S., and on October 14th, our 400th next-gen restaurant opened in Pennsylvania. Our franchisees continue to be pleased with the results from the next-gen image.
-- Hoffmann

Dunkin's remodeling program, which management calls its next-gen store profile, stresses upgrades that seek to support its biggest growth initiatives. The move includes a refreshed modern appearance, which is lifting guest satisfaction scores. It also puts tap systems in place to deliver cold brew drinks and adds space for bakery products right at eye level. These changes are supporting demand for high-margin products.

With plenty of data to support the initiative, Dunkin' is aiming to finish 500 remodels in fiscal 2019 and might even speed that upgrade pace up in 2020. "Our next-gen restaurant is built around showcasing that [coffee] leadership," Hoffmann explained.

Big changes coming from delivery

We are very pleased with the progress we're making on delivery. We now have third-party options available in the majority of our international markets, and some of our most successful markets are seeing a double-digit lift in restaurant sales from delivery.
-- Hoffmann

Like peers from Starbucks to McDonald's, Dunkin' couldn't be more excited about the potential for delivery to ignite sales growth in its home market. It's a small base of sales today, but mobile orders jumped 25% year over year to reach 18 million transactions.

Dunkin's expectations for modest sales growth this year when compared to McDonald's and Starbucks suggests that the delivery strategy will have a limited impact in the short term.

But executives say that the testing they've done in other markets and engagement data on its loyalty program all point to big gains ahead. "This is a major unlock to future growth," Hoffmann said, "and we are ready to capitalize on it and boomerang our learnings back to the U.S. [market]."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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