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Dunkin’ Brands on the year ahead

Company reports increased sales, but lower profit in 2010

Dunkin’ Brands Inc. said it would focus on new products, unit refurbishments and expansion for both its brands this year after recording increased sales but a dip in profit for 2010.

For the Dec. 25-ended fiscal year, Dunkin’ Brands’ net income totaled $26.9 million, a 23-percent decrease from profit of $35 million in 2009. The company attributed the profit decline to a $62 million charge from the extinguishment of debt. Revenue rose 6.7 percent to $7.7 billion in 2010, reflecting a same-store sales increase of 2.3 percent at domestic Dunkin’ Donuts stores and a 5.2-percent decrease at domestic Baskin-Robbins locations.

Nigel Travis, president and chief executive of Dunkin’ Brands, noted that same-store sales improved at both brands during the fourth quarter, rising 4.7 percent at Dunkin’ Donuts and falling 0.7 percent at Baskin-Robbins.

Franchisees opened 574 Dunkin’ Donuts units and 226 Baskin-Robbins units worldwide in 2010. Canton, Mass.-based Dunkin’ Brands ended the year with 9,760 Dunkin’ Donuts units and 6,433 Baskin-Robbins outlets in 52 countries.

“As a result of a disciplined, operations-focused approach, Dunkin’ Brands had systemwide sales and revenue growth as well as industry-leading new-store development in 2010,” Travis said. “Our brand-differentiating marketing and product innovations, continued growth in U.S. beverage sales, and strong international sales were all key contributors to our success.”

Travis said the company’s strategy for 2011 included contiguous expansion domestically for Dunkin’ Donuts, a rejuvenation effort for Baskin-Robbins in the United States and international expansion for both brands.

He pointed to limited-time offers like the Maple Cheddar Breakfast Sandwich and Sausage Pancake Bits for positive same-store sales at Dunkin’ Donuts in 2010. A new agreement with Green Mountain Coffee to sell single-serve “K-cups” in the stores is expected add incremental sales, Travis said.

Dunkin’ Donuts and Baskin-Robbins also both saw increases in guest satisfaction as measured by a third party, Travis said.

“We believe we’ll see further progress here as we roll out our standardized point-of-sale system in 2011,” he said.

Dunkin’ Brands started giving incentives to franchisees for both brands last year to begin transitioning to the new POS system, though the majority of the implementation costs will be borne by franchisees, Travis said.

Remodeling also will be a major focus for the company this year after about 450 domestic units were refurbished last year, officials said.

“We brought down significantly the cost to remodel,” Travis said. “It’s now about $250,000, and my aim’s to get that even lower. What’s also important is the fact that we’ve managed to bring down significantly the number of days that we have the store closed, from 27 down to an average of 13.”

Dunkin’ officials said the company does not plan to raise prices on coffee and is looking to its product diversification and operational efficiencies to mitigate increased commodity costs.

“We’re focused on franchisee unit economics, and commodity costs are only a portion of that,” said John Costello, chief global customer and marketing officer. “We’re focused on driving average weekly sales with very little discounting, offering a wide range of products to sell.”

The coffee is among the smallest costs in a cup of Dunkin’ Donuts coffee, chief financial officer Neil Moses said, adding that labor is by far the most expensive input.

Travis said Dunkin’s national purchasing cooperative had hedged against coffee inflation in 2010 and would allow the company to hold the line on its core product as costs slow their rise.

“We believe coffee may have reached a new plateau,” Travis said. “We’ve managed to mitigate it, and we haven’t changed our specs at all. Coffee is the core element of Dunkin’ Donuts, and we’re not going to compromise on that.”

Contact Mark Brandau at [email protected].

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