Dunkin' Brands: K-Cups key to 2Q sales success

Packages of Dunkin’ Donuts K-Cups will be sold in California locations of sister concept Baskin-Robbins starting later this year, Dunkin’ Brands Group Inc. chief executive Nigel Travis told investors during a conference call reporting second-quarter earnings for the company, which franchises both brands.

In the quarter ended June 30, sales of K-Cups — single-serving coffee pods designed for home use with Keurig brewers — accounted for 40 percent of same-store sales increases at domestic Dunkin’ Donuts locations, which account for more than 70 percent of Dunkin’ Brands’ total revenue, Travis said.

Dunkin’ Donuts’ U.S. same-store sales rose 4 percent during the quarter, the company reported.

Travis said the move to sell K-Cups in Baskin-Robbins would both improve unit economics at Baskin-Robbins’ California locations and also raise brand awareness of Dunkin’ Donuts in anticipation of that concept’s return to that state.

In response to a question from an investor, Travis said Dunkin’ Brands had no plans to introduce K-Cups at Baskin-Robbins in other states and instead would focus on its successful rollout in California. “If it has even a quarter of the impact [that it has had] on Dunkin’ Donuts in new markets, we’ll be delighted,” he said.

Commenting on Starbucks’ recent introduction of K-Cups, Dunkin’ Brands global strategy officer Neil Moses said he anticipated that the increased advertising would raise awareness of the category and improve sales.

Dunkin’ Donuts introduced its first limited-time K-Cup, a mocha-flavored coffee, during the second quarter. Without elaborating, Travis said new merchandising and LTO plans were underway for the cups during the rest of the year. “We have some very exciting plans for the third and fourth quarter,” he noted.

Other than K-Cup sales, Dunkin’ Donuts’ U.S. locations benefited from increased sales of sandwiches, both at breakfast and lunch.

Travis said the introduction of a roast beef version of the chain’s bakery sandwich line in the Northeast helped benefit the lunch daypart. The chain also introduced a breakfast burrito in steak and vegetable varieties during the quarter.

“Our breakfast sandwiches are a powerful complement to our beverage lineup,” Travis said, adding that they were almost as profitable as beverages.

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Second-quarter beverage rollouts included drink LTOs in April and May tied to the Men in Black 3 movie, as well as several new flavors of “frozen coffee,” a new name for the former “Coolatta” line.

New menu rollouts also contributed to same-store sales for U.S. locations of Baskin-Robbins, which rose 4.6 percent. Travis noted that 2.5 percent of that increase was due to the positive impact of mild weather, while other contributors were the Lunar Cheesecake promotional tie-in with the Men in Black 3 movie and the introduction of the new strawberry lemonade, triple chocolate café blast and a tropical banana smoothie.

Same-store sales increased across all four of Canton, Mass.-based Dunkin' Brands' segments — domestic and international divisions of broth brands — in what Travis called “an increasingly challenging economic environment across the world.” He said both average checks and customer counts also rose in each segment compared with the same period last year.

Dunkin’ Donuts International same-store sales rose 3.5 percent. Baskin-Robbins International, the company’s, second largest source of revenue, saw a 1.5-percent boost in same-store store sales and systemwide sales growth of 6.3 percent, compared with 15.6 percent a year earlier, on what Travis called “very strong segment profit.”

Although Japan struggled during the quarter, according to Travis, sales were strong in the other core international markets of Korea, the Middle East and China.

Travis noted that the company would continue its strategy of expanding Dunkin’ Donuts domestically in contiguous territories and had opened new areas for development in Kansas, Nevada, Utah and Texas. The first Dunkin’ Donuts in Arkansas opened during the quarter, he added.

A net 19 Dunkin’ Donuts locations opened during the quarter, down from 39 net openings last year, owing to the termination of a contract with a gas station/convenience store company in Kentucky, which Travis said paved the way for the opening of freestanding Dunkin’ locations in that territory.

Net income for the company rose 7.8 percent to $18.5 million or 15 cents per share, compared with $17.2 million, a year earlier, on revenue of $172.4 million.

Earnings per share during the second quarter last year was a 4-cent loss owing to conversion of Class L common stock after the company’s initial public offering in July 2011.

Contact Bret Thorn at bret.thorn@penton.com.
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