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    Dunkin' Bets Big on Beverage Selection, NextGen Stores

  • How innovation and modernization are transforming the 70-year-old brand.

    Dunkin' Donuts
    "The success of Cold Brew and Frozen beverages is a meaningful achievement as we strive to grow our beverage business outside of what we're most known for hot and ice drip coffee,” CEO David Hoffmann said.

    After undergoing a rebranding earlier this fall and focusing on the beverage side of the company, Dunkin’s latest initiatives seem to be paying off. Over the past quarter, Dunkin’ continued the simplification of its menu, which puts an emphasis on core and high-traffic items.

    “What we've learned is that when we deliver on our brand promise of great coffee fast we have an unstoppable consumer proposition,” said David Hoffmann, chief executive officer and president of Dunkin’ during an October 25 conference call. 

    Hoffmann noted that transformation for the 70-year-old brand won’t come overnight, but it’s evident the company is quickly moving in a progressive direction with the modernization of its restaurants and the new name—sans Donuts—displayed on some units. 

    Over the course of the third quarter, Dunkin’ reported higher earnings than Wall Street expected. Total third-quarter earnings came in at $66.1 million. The company posted a revenue of $350 million for the period, which beat analyst predictions. Dunkin’s chief financial officer, Kate Jaspon, said third-quarter revenues increased 6 percent, or $20 million, compared to this time last year.

    The doughnut company is betting big on the refreshed NextGen store prototype it rolled out earlier this year. The NextGen model features a drive-thru line exclusively dedicated to mobile orders, a brighter interior design characterized by an open layout and natural light, espresso machines, a digital order status board, an expanded grab-and-go unit, and a tap system serving eight signature cold beverages, including coffee, iced tea, cold brew, and nitro-infused cold brew.

    Since the first NextGen store opened in Quincy, Massachusetts, last January, the company has opened up more than 60 new and remodeled NextGen restaurants, it said.

    “There was tremendous enthusiasm for our new store from its more modern look and feel to its state-of-the-art equipment and focus on technology,” Hoffmann said. “And that's ahead of our initial target of 50 new and remodeled next-gen restaurants that we shared back at our Investor Day this past February.”

    “Together with feedback from our franchisees, we've been iterating on the design as we go and are on track to release a scalable model to the system in early 2019,” he added.  

    As the brand looks to expand over the next few years there are few concepts Dunkin’ will focus on through pilots in these new NextGen stores. Dunkin’s chief operating officer, Scott Murphy, explained the company is interested in using the NextGen store to expand growth, and they’ve seen it in a few different areas within this model.

    Using a new tap system, Dunkin can dive deeper into iced beverages and expand the menu to offer more beverages in the category like Cold Brew and Nitro Coffee. Continuing on the beverage front, Dunkin’ announced October 24 it was introducing a line of espresso to the menu. As a popular beverage for millennials and Gen Z, espresso allows Dunkin’ to further compete for market share with other coffee chains, notably Starbucks.

    “We know that Lattes for example are the gateway into the caffeine profile for a lot of teens and young adults,” said Tony Weisman, Dunkin’s chief marketing officer. “It was the No. 1 beverage among millennials, and so we do see a lot of them coming to us going forward as we put this fabulous product at a great value at the speed of Dunkin' in front of them.”

    While the growth possibility of beverages is attractive to the company, Dunkin’ hasn’t forgotten about the food side of the menu. The new simplified lineup has allowed Dunkin’ to focus on the essentials of the brand and getting rid of items that just didn’t work. As for its doughnuts, Dunkin’ transformed the bakery to make it easier for customers to order.

    “We've actually moved that bakery case upfront,” Murphy said. “So, when folks come in, they can really see all of our bakery items right there and we're seeing some nice growth in that category.”

    The NextGen store model will also speed up the ordering process. Customers who prefer mobile and on-the-go orders will find picking up a coffee and doughnut more convenient than before.

    “Everything about that store, with the technology and the layout, is set up to drive growth in on-the-go orders and we're seeing that in a big way,” Murphy said.

    By introducing more beverages into the mix, Dunkin’ hopes to capitalize on traffic in the morning and afternoon.

    Hoffmann said, over the last quarter, customers were attracted to the frozen offerings and Dunkin’ hopes to release of a line of espresso drinks that will generate a similar lift.

    “When we focus as a system on our afternoon daypart on expanding our beverage leadership we can win, it's the recipe for success that made our snacking platform so effective this past quarter and what will enable future execution of categories such as Espresso and Frozen as well,” Hoffmann said.

    Across Dunkin’s U.S. stores, systemwide sales grew 4.6 percent and comparable store sales grew 1.3 percent during the third quarter. Hoffmann attributed this growth to the expansion of its beverage portfolio combined with its new snacking platform. “The success of Cold Brew and Frozen beverages is a meaningful achievement as we strive to grow our beverage business outside of what we're most known for hot and ice drip coffee,” Hoffmann said.

    Over the past quarter, Dunkin’ franchisees opened 52 new restaurants and remodeled 31 restaurants. “As we focus on expansion, we remain on track for 90 percent of our net development that come from outside our core markets,” Hoffmann said. “We know Dunkin' can thrive in emerging markets in our refresh brand in a new line of Espresso beverages will contribute to the success as well.