Amid growth in its beverage portfolio and the introduction of a new snacking platform, Dunkin’ Brands beat its third-quarter earnings estimates. The quick-service restaurant (QSR) company, whose brands include Dunkin’ and Baskin-Robbins, reported revenues of $350 million and earnings of 83 cents compared to estimates of $343 million and 73 cents, respectively.
For Dunkin’, system-wide sales grew by 4.6 percent over the quarter, as comparable store sales increased by 1.3 percent. In an earnings conference call with analysts on Thursday (October 25), Dunkin’ Brands Chief Executive Officer and President David Hoffmann noted “solid growth” across its beverage portfolio, as well as a new snacking platform that resulted in the strongest afternoon performance in two years.
At the same time, Hoffmann noted that the company has more than 60 new and remodeled NextGen stores across the country, which surpasses the company’s initial target of 50 stores that it shared at an investor day this past February. With feedback from franchisees, the company has been iterating on the design as it seeks to launch a scalable model in its system in 2019.
The company’s next-generation restaurants, Hoffmann said, have a more modern look and feel, as well as state-of-the-art equipment. According to past reports, the new 2,200-square-foot concept stores seek to accommodate mobile order-ahead by separating out the drive-thru lanes, making it easier for mobile customers to pick up their orders.
The stores’ interior design mirrors that instinct at separation, with a separate order-ahead queuing area. Those innovations come as mobile ordering and pay on-the-go represents 3 percent of transactions, and 1.4 million new users have joined the DD Perks platform year to date.
Overall, U.S. franchisees opened 52 net new restaurants during the quarter, along with 31 remodels. At the same time, Hoffmann noted that the company remains on track to have 90 percent development come from outside of its core markets. According to a slide presentation prepared for the call, the company plans to have more than 275 net new restaurants in 2018 and 1,000 net new restaurants by the end of 2020.
Focus on Beverages
Hoffmann said cold brew and frozen drinks led growth for beverages, as the company is seeking to grow its beverage business beyond hot coffee and ice drip coffee. He added that a new $2 snacking menu helped drive strong afternoon sales, and that donut fries, which were launched earlier in the quarter, became the best-performing limited-time bakery item in the brand’s recent history.
Going forward, the company plans to invest approximately $100 million in Dunkin’ U.S., with approximately 65 percent of that amount going toward accelerating the company’s beverage-led strategy. Hoffmann said a significant portion of the funds would go toward new espresso equipment and revitalizing a critical high-growth category for the business.
“Espresso beverages perform well all day, particularly in the afternoon,” Hoffmann said during the call. “They skew younger from a consumer standpoint and are a natural next step in pursuit of our beverage-led strategy.”
Beyond its brick-and-mortar locations, the company is focused on the reach of its brand through consumer-packaged goods (CPG). The company introduced a pumpkin spice-flavored, ready-to-drink iced coffee beverage and a "Shot in the Dark" espresso-based coffee beverage that Hoffmann said complements the in-store espresso revitalization. "We believe these new products will build our coffee credentials as we grow our footprint in markets outside the core," he noted.
In addition, the company’s Baskin-Robbins business saw comp growth of 1.8 percent, which was primarily driven by beverages and take-home packaged ice cream. The retailer’s beverage category has been a consistent focus of mid-single digit sales growth, and driven by a mix of established and new products.
Hoffmann said the goal for the company is to make Baskin-Robbins more a part of everyday life through the take-home ice cream sales, as well as delivery. The brand has grown its DoorDash partnership to cover more than 70 percent of its U.S. stores. The company noted that delivery orders are about 50 percent higher tickets than restaurants. And, like Dunkin’, Baskin-Robbins is also developing a next-gen store design as it looks to the future.