Ongoing growth of the Dunkin’ Donuts brand in the western U.S., strong beverage sales and an innovative platform of both breakfast and afternoon sandwiches drove domestic traffic and ticket growth for Dunkin’ Brands Group Inc. during the third quarter, the company said Thursday.
While same-store sales dipped 1.4 percent among Dunkin’ Donuts stores internationally, stores in the U.S. recorded a robust comparable-sales increase of 4.2 percent. The increases were driven by healthy gains in traffic and ticket despite a choppy economic environment and increasing competition, said Nigel Travis, Dunkin’ Brands’ chair and chief executive officer, during a call with analysts following the third-quarter report.
Competition has heated up within the quick-service segment to capture consumers under pressure from macroeconomic headwinds, forcing franchisees to become more strategic as they go up against breakfast newcomers like Taco Bell and convenience stores that are building better coffee and food programs, said Travis.
Arguing that the best defense is a strong offense, the company has focused on product innovation and “fantastic operations,” said Travis. “I actually think our operations have improved dramatically in the last few years, and that will be why we will continue to win against the increasing competitive set.”
Dunkin’ Donuts, which recorded its 14th consecutive quarter of same-store sales growth in the U.S., benefitted from strong sales of iced coffee and both hot and cold espresso drinks, such as those featuring flavors of Baskin-Robbins ice cream. During the quarter, the company introduced caramel coffee and brought back the pumpkin flavor.
On the breakfast sandwich platform, which Travis referred to as one of the company’s “shining stars,” the limited-time Hot & Spicy Breakfast Sandwich sold well, and the company saw incremental gains with the Turkey Sausage Breakfast Sandwich. In the afternoon, Travis said wraps and the Pretzel Roll Roast Beef Sandwich were top performers.
Donut sales were led by the introduction of Lemonade, Key Lime and Pumpkin Pie flavors, as well as bulks sales.
Executive expect Dunkin’ Donuts’ momentum in the U.S. is to continue into the fourth quarter.
On Nov. 4, the company will begin a phased rollout of its upgraded DD Perks loyalty program in four markets: Dallas; Portland, Maine; Orlando and Wilkes-Barre/Scranton, Pa.
The mobile program will offer guests the opportunity to earn rewards toward a free drink, and they will receive personalized offers based on their spend history. During the third quarter, the company surpassed 4 million downloads of the DD mobile app.
Dunkin’ Donuts will roll out the new loyalty program nationally in the first quarter of 2014, said John Costello, the company’s president of global marketing and innovation.
Focusing on expansion goals
During the quarter, the company saw the opening of 81 net new Dunkin’ Donuts locations in the U.S., including the first two in Denver.
Travis said the company now has development agreements for 70 units in Southern California, where stores will begin opening in 2015. Now markets in Central California are open for development, including Fresno, Bakersfield, Sacramento and Santa Barbara.
Texas is another state with significant growth potential, said Travis, adding that Dunkin’ Donuts could reach 1,000 in that state alone. The company has a joint-venture agreement with Dallas Cowboys owner Jerry Jones and celebrated quarterback Troy Aikman to grow the donut chain there.
Travis reiterated his goal of reaching 15,000 locations in the U.S., including at least 5,000 in the west and 3,000 east of the Mississippi River.
The Baskin-Robbins brand also had strong results in the U.S., with a 3.2-percent same-store sales increase. The ice cream chain is shifting into slow growth mode with one net new store opening during the quarter after years of store count declines, Travis said.
Internationally, however, the company swung to a loss for the segment because of $3.7 million in write-downs related to investments in the Dunkin’ Donuts Spain joint venture.
The company closed about 40 Dunkin’ Donuts units in China this year, including 19 in Taiwan, where the company is consolidating its store base and repositioning the brand to restart business there.
“We are absolutely focused on getting China right in the short term and continue to strongly believe that there is long-term opportunity for the Dunkin’ Donuts brand in China,” said Paul Carbone, Dunkin’ Brands’ chief financial officer.
Baskin-Robbins’ sales in Japan also suffered because of “strange weather” with multiple monsoons.
Worldwide, the company opened 222 net new units between the two brands during the quarter and expects to reach its goal of adding 330 to 360 locations before the end of the year.
Canton, Mass.-based Dunkin’ Brands is franchisor to nearly 10,800 Dunkin’ Donuts restaurants and more than 7,100 Baskin-Robbins locations worldwide.