Dunkin’ Donuts' stock plunged Thursday after the company reported lower-than-expected sales growth along with a traffic decline in the third quarter ended Sept. 30.
The company said it expects third-quarter sales to rise 1.1 percent, and for traffic to fall about 0.7 percent in the period, compared with the same period last year. Prices in the quarter are expected to increase 3 percent, which would result in an average ticket about 1.9 percentage points higher in the period.
Company executives blamed the problem in part on the price hike, which might have driven customers away. They also blamed avian flu, which led to a spike in the price of eggs, as well as various economic concerns. Low gas prices are apparently not driving people to Dunkin’ Donuts.
“We’ve had a little bit of comps gloom,” Dunkin' Brands Group Inc. CEO Nigel Travis said during the company’s Investor Day presentation in New Jersey on Thursday.
The company also said that it expects to close 100 units inside Speedway stations next year. The move follows Speedway’s acquisition of Hess stations last year. Speedway will still be a Dunkin’ Donuts franchisee after the move, the company said.
Investors were disconcerted. Stock in parent company Dunkin’ Brands Group Inc. fell more than 11 percent Thursday, and has declined more than 20 percent since July.
Despite the concerns, company executives were confident that they would reverse the sales problems. They outlined several efforts to lift sales over the long term.
“This is a very healthy business that’s going to get healthier and healthier,” said Travis, who called it a “learning quarter.”
“I’m determined to get (sales) back, on the same time of traffic we had earlier in the year,” he said.
Mobile ordering
Dunkin' Donuts will test mobile ordering in Portland, Maine, in November, executives said, with a planned national rollout next year.
Mobile ordering will only be available to members of Dunkin’s DD Perks loyalty program. In theory, by enabling customers to order and pay by phone, they’ll be able to skip the line. That becomes another “perk” of the program, and in theory could drive more membership.
It also speeds things up at the counter. “If you don’t have to take time to talk to communicate your order, however long that is, it goes away,” said Scott Hudler, vice president of global consumer engagement at Dunkin’ Brands. “You get an improved guest experience, and it helps with order accuracy.”
Delivery
Dunkin’ Donuts will roll out delivery in the Dallas market in the fourth quarter through a pair of companies, Doordash and a local delivery company, Favor.
Delivery is a huge trend in the restaurant industry at the moment, with numerous companies, including McDonald’s, Taco Bell, Burger King and Chipotle Mexican Grill, working on delivery in some form. “And we want to make sure we’re getting our fair share of that,” Hudler said.
The company is exploring delivery possibilities in part because it could help the chain sell coffee, other beverages and food items even on days when the weather is bad.
Western issues
Executives talked positively about Dunkin’ Donuts’ move into western markets like California and Texas. Yet problems in a couple of areas have hurt new market earnings.
Returns on new units in emerging markets exceeded 25 percent in 2011. But by 2014, those returns fell to 20 percent. New unit sales exceeded $17.2 million last year. But earnings before interest, taxes, depreciation and amortization was 8 percent in both 2013 and 2014 — two years ago, earnings were about 11 percent, according to the company.
“There are two markets we’ve got to fix,” said Paul Twohig, president of Dunkin’ Donuts in the U.S. and Canada. He did not reveal which markets, but he suggested that operators in those markets built too quickly and the result had a negative impact on profits.
New business
Dunkin’ Donuts said it could expand business in the afternoons and evenings while also making its brand a little more premium.
The chain has been working on more sandwiches and snacks, while also offering more cold beverages like iced coffee. It’s also using DD Perks to increase afternoon sales, for instance.
About 30 percent of Dunkin’ Donuts’ business comes in the afternoon, and less than 10 percent comes in the evening. Company executives consider the time after noon to be a big opportunity.
That said, Dunkin' Donuts has its limits. “We’re not going to be launching wine or beer,” said Chris Fuqua, vice president of brand marketing for the chain, in a clear shot at Dunkin’s rival, Starbucks. “We’re going to try to own 3 p.m.”
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