On one hand, it is re-modelling its stores to provide a relaxed eating out experience and draw the afternoon crowd. On the other hand, it is strengthening its core breakfast options. It is also balancing its food and beverage items to optimize mix.
A complete makeover
Dunkin Brands Group Inc (NASDAQ:DNKN) is undergoing a major makeover phase. It is adapting the more Starbucks kind of ambience which encourages guests to spend more time inside the stores as opposed to grabbing a bite and hurrying off.
The franchisees can opt for various options for either re-modelling or opening new stores. Investments range between $175,000 and $700,000. The new Dunkin’ Donuts will have softer color schemes, fancy lighting, jazz music, Wi-Fi, faux-leather chairs, and many more novelties. The chain already re-modeled 90 stores and the number will grow to 600 by the year end.
This strategy will help attract more footfall even after the rush hours which continue till 11’o clock in the morning. Already, some franchisees who have renovated are seeing lunch traffic triple.
This will also help the chain compete better with Starbucks and Krispy Kreme, both of which scored higher than Dunkin’ Donuts on account of restaurant environment as per a survey by Nation’s Restaurant News and WD Partners in 2012.
Glazed Donut Breakfast Sandwich
Dunkin’ Donuts has just rolled out its new Glazed Donut Breakfast Sandwich nationally with a lot of fanfare. This sandwich has bacon and eggs inside a glazed doughnut. The sweet and salty offering is unusual and has created a lot of buzz.
While opinions vary regarding taste, the launch has sparked renewed interest in the chain. Everybody wants to try this novelty at least once. Going forward, even if the item does not feature permanently on the menu, Dunkin’ can do what McDonald’s Corporation (NYSE:MCD)’s does with its McRibs. That is, keep pulling it in and out so that the excitement remains.
Balancing snacks and coffee
Dunkin Brands Group Inc (NASDAQ:DNKN) is the closest towards achieving the optimum 50:50 sales mix which most snack and beverage eateries long for. Coffee and beverages made up 58% of its U.S. sales in 2012 while food comprised 42%.
The chain is balancing its new offerings between snacks and drinks to ensure that the equilibrium continues. It has recently added chicken sandwiches as solid lunch options and the promotion mentions that they go best with the iced teas. It is also exploring new avenues in coffee, like selling k-cups or introducing gingerbread latte.
Starbucks is still chasing this optimum mix. It has a 2:1 proportion tilted towards beverages. The coffee shop giant is trying to add more food options and recently acquired the bakery, La Boulange. Meanwhile, Krispy Kreme derives 88% of its retail sales from doughnuts alone. It has recently woken up to the possibility of pushing its coffee sales and will start its promotions.
So, Dunkin’ Donuts definitely has a competitive advantage in terms of mix.
Parting thoughts
Dunkin Brands Group Inc (NASDAQ:DNKN) is good value for money. And this is true not just for its donuts and coffee, but for its stock as well. The recent strategies of expansion, together with store modernization and menu additions, position it nicely for good growth and better financial performance. These would provide good catalysts to the stock.
Eshna De has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks.
The article The Economics of Doughnuts and Coffee originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
