Dunkin’ Brands Group Inc. CEO Nigel Travis criticized New York State lawmakers Thursday for “choosing to skirt the legislative process” by appointing a wage board to decide on increases to the minimum wage.
On Wednesday, the New York Fast Food Wage Board voted to recommend a phased-in increase of the minimum wage to $15 per hour at limited-service restaurants with more than 30 units by 2018 in New York City, and by 2021 for the rest of the state. The three-member wage panel will make its recommendation to the state labor commissioner after a 15-day comment period.
The wage board’s resolutions defined “fast food" restaurants as those where customers order and pay before dining, that offer limited service and are part of chain or franchise with 30 or more outlets nationally.
In a call with Wall Street analysts following Dunkin’ Brands’ report of earnings for the second quarter ended June 27, Travis said franchise operators were “denied the chance to fairly express their concerns so the state could make an informed decision on this topic.”
The wage board, appointed in May by New York Gov. Andrew M. Cuomo, “didn’t even include a representative from our industry,” Travis said.
“Most concerning to us was that the fast-food industry was singled out for this increase,” Travis said. “The regulation also targeted franchise businesses and it does not acknowledge that, just because our franchisees share a common brand, they themselves are small business people to whom every increase in business expenses can have an impact.”
To be clear, Travis continued, “We and our franchisees support conversations about reasonable ways to increase the minimum wage at the state and local level. However, we do not support dramatic and sudden increases to minimum wage. Nor do we support increases that target franchises, such as in Seattle, or the fast-food industry, as in New York.
“We would have been happy to have been part of working with the governor and the legislature on finding a solution to address this concern of low-wage earners, while simultaneously protecting small business, but we were not given that chance,” he said.
Franchisees will likely raise menu prices as a result, Travis said, but the company will work with its operators to help them improve profitability and efficiency.
Still, Travis noted, rising minimum wage rates could ultimately benefit Dunkin’ Donuts and Baskin-Robbins from a market share standpoint because both brands enjoy “some of the best margins in the industry,” he said. Many competitors “won’t be able to survive.”
Coffee beverages, breakfast sandwiches and specialty doughnuts propelled a same-store sales increase of 2.9 percent for the company’s fully franchised Dunkin’ Donuts chain in the U.S. during the second quarter, Dunkin’ Brands said.
At sister brand Baskin-Robbins, growth in online sales of ice cream cakes contributed to a same-store sales increase of 3.4 percent among U.S. locations.
Internationally, however, same-store sales decreased for both brands, largely as a result of the MERS outbreak in South Korea, as well as a shift in timing for Ramadan, Travis said.
Same-store sales for Dunkin’ Donuts International declined 0.1 percent, and Baskin-Robbins International same-store sales fell 2.5 percent.
“It will be a long-term turnaround for international,” Travis said. “But I am encouraged by improved operational standards and the enthusiasm of our international franchisees.”
For Dunkin’ Donuts in the U.S., higher traffic contributed about 60 basis points to the same-store sales increase, and officials said the chain saw the strongest growth in sales of hot and iced coffees and espresso drinks during the quarter since 2011.
The sale of Dunkin’ Donuts K-Cups in restaurants had a negative impact on sales, though licensing fees from K-Cup sales at retail stores were better than expected, resulting in a $3 million incremental benefit.
Travis said the DDPerks loyalty program at Dunkin’ Donuts has more than 3.2 million members, after launching 18 months ago. The loyalty program will serve as the backbone for a mobile app scheduled to roll out next year.
Getting mobile right
The Canton, Mass.-based company is developing the mobile app very slowly and deliberately to ensure it will be simple to operate at the restaurant level, while serving customers faster and more efficiently, Travis said.
“Everyone is shocked that I keep saying slow it down,” he said “This is a critical part of our future strategy. Mobile ordering opens up other avenues for growth, but we have to get it right.”
Franchisees and licensees opened a net of 154 new units around the world across both brands, including 80 net new Dunkin’ Donuts locations in the U.S. and six new Baskin-Robbins units. Internationally, 13 net new Dunkin’ Donuts locations opened and 55 Baskin-Robbins units.
Revenue increased nearly 11 percent, to $211.4 million, compared with $190.9 million a year ago.
Net income fell 8.4 percent, to $42.3 million, or 44 cents per share, compared with $46.2 million, or 43 cents per share, largely as a result of a refinancing completed in January.
Dunkin’ Brands reiterated its guidance, saying same-store sales for the year are expected to increase 1 percent to 3 percent for each brand, respectively, in the U.S.
Between 410 and 440 new restaurants will be added for the year for Dunkin’ Donuts in the U.S., and between five to 10 new restaurants for Baskin-Robbins domestically. Internationally, 200 to 300 new units will open across both brands.
Dunkin’ Brands ended the quarter with more than 11,400 Dunkin’ Donuts locations worldwide, and more than 7,600 Baskin-Robbins units.
This article has been updated to include the New York Fast Food Wage Board’s definition of “fast food restaurant.”