Dunkin’ CEO Dave Hoffmann began Thursday Q3’s recap by addressing the $8.8 billion elephant in the room. A Sunday story from The New York Times reported Dunkin’ was close to being acquired by Inspire Brands for $106.50 per share, or a 20 percent premium over last Friday’s closing price of $88.79—Dunkin’s highest since going public in 2011. But as of mid-Thursday, Dunkin’ was up to $100.93, riding a weeklong trail of buzz.

Hoffmann’s message was quick and clear. Dunkin’ would not comment further on discussions with Inspire Brands—owner of Arby’s, Buffalo Wild Wing’s, Sonic Drive-In, Rusty Taco, and Jimmy John’s—unless and until a transaction was agreed to or talks terminated.

The NYT story mentioned the deal could arrive as soon as Monday, which didn’t happen. Yet discussions are ongoing, Hoffmann said. In response, the company didn’t take action with respect to a cash dividend. It also elected to skip questions from investors Thursday, a rare change of pace.

In all, the situation remains a wait-and-see potential blockbuster. If it happens at that price, it would mark the largest industry deal since 3G Capital LP, Burger King Worldwide Inc., acquired Tim Hortons for $12.64 billion in August 2014. Panera would be a tier down at $7.5 billion, a price paid by JAB Holdings in 2017.


Inspire Brands, Dunkin’ Discuss Potential $8.8 Billion Deal

Digital Becomes the Cornerstone of a New Dunkin’

Dunkin’ is Giving its Portfolio a ‘Good Scrubbing’ (Q2 Recap)

Dunkin’ to Require Customers Wear a Face Mask Starting August 5

Dunkin’ Takes COVID-19 Safety Measures to Next Level

Dunkin’s Sales Increase, Shift from Breakfast Daypart

COVID-19 Will Inspire a Dunkin’ 2.0

Dunkin’ has Franchisees, Employees Retake Food Safety Courses

Looming deal aside, Dunkin’ reported a promising quarter. U.S. same-store sales returned to the black at 0.9 percent, improving sequentially each month. July was down low-single digits, stateside president Scott Murphy said. They climbed into positive territory in August and accelerated through September. In the week ended October 24, comps were gaining low-single digits, year-over-year.

Dunkin’ has also closed 687 domestic locations year-to-date, including 447 Speedway self-service kiosks. In Q3, it broke out as a net closure of 466 U.S. venues, with 425 Speedways. This was not a surprising reveal. Dunkin’ guided earlier in the year it expected to shutter about 800 U.S. locations permanently on a gross basis as part of a “real-estate portfolio rationalization,” with the goal of “setting the U.S. system up for continued strong, profitable future growth.” If it ends up at 800, it would account for roughly 8 percent of Dunkin’s U.S. total restaurant footprint, but just 2 percent of the brand’s 2019 domestic systemwide sales. A scrubbing of the asset base, as Murphy put it Thursday. As the above mix shows, these are low-volume, low-profit restaurants stressed even further by pandemic conditions. Namely, not having a drive thru.

For many franchisees, Murphy said, closing the crop will enable them to redeploy capital into Dunkin’, whether through NexGen remodels, building new restaurants, or relocating others to higher traffic areas where they can add a drive thru.

Dunkin’ franchisees opened 80 gross units in Q3 for a total of net negative 41, excluding the Speedway closures.

This past period, franchisees completed 60 remodels to bring Dunkin’s total of NextGen restaurants (new and remodeled) to more than 800.

And COVID-19 learnings have inspired changes from the original design. The new “low-contact” build includes options such as removable seating, no-touch faucets, a walk-up window, and a reconfigured frontline to further encourage social distancing for guests in the queue.

“Scrubbing” these stores off the map is a numbers game for Dunkin’. Drive-thru locations—70 percent of Dunkin’s traditional portfolio and more than 90 percent of restaurants in newer markets—reported double-digit same-store sales growth in Q3.

Aligned with quick-service peers, these trends inspired investments in the channel. Dunkin’ accelerated various drive-thru tests, Murphy said, including more outdoor digital menuboards, handheld tablets to bust the line (like Chick-fil-A and In-N-Out), and a new high-definition speaker system.

Murpshy added Dunkin’ is working with franchisees to text “exterior-first” remodels and to incorporate select safety features, such as the low-contact options mentioned previously, in existing restaurants.

There were other factors at play in the quarter as well. And some of them stretch well before COVID-19. For instance, Dunkin’ took a short-term hit from menu simplification all the way back in spring 2018. The 10 percent cutback, which tested in five markets in 2017 across 5,000 restaurants, trimmed transactions by about 15 per week out of the gates. It eventually dragged same-store sales 0.5 percent when it reached 9,000 restaurants.

Dunkin’ quickly turned the corner, but it’s really reaping the benefits now. Hoffmann said menu simplification created room for all-day product innovation. What’s happened in recent months? Dunkin’s time-tested early morning business fell through the floor once customers stopped commuting. And that hasn’t changed all that much in more recent months. As a result, guests began visiting Dunkin’ later. The brand responded with food and beverage optionssuited for morning as well as afternoon dayparts.

Because of the earlier simplification, Hoffmann said, “we were able to quickly expand our menu with easy to execute, handheld snacking items, such as Bagel Minis that complement premium beverages like our Signature Lattes.”

Espresso arrived in fall 2018. This, akin to menu simplification, has played a lead part in Dunkin’s COVID-19 agility. The rollout included all new espresso equipment. The goal then was to create a product that couldn’t easily be replicated at home. Also, to attract younger consumers who often see espresso as a gateway coffee choice. It’s the transitional role drip coffee once played for soda-drinking customers as they matured.

Of course, there’s the notion of competing with Starbucks to consider as well.

But that target of “not easy to replicate at home” has taken on even greater meaning of late. One reason the morning daypart absorbed such a blow, along with the obvious routine-busting realities, is breakfast is one of the easiest meals to replace at home. Coffee in particular. But an Oatmilk Latte? Not as much.

Without that 2018 launch, Hoffmann said, none of the current innovations, from Pink Velvet Macchiatos to Matcha to Oatmilk Lattes, would have been possible. “…we are building equity with premium-priced beverages and expanding our menu sweet spot, beyond hot drip coffee. And importantly, we’re talking to a new consumer who visits us, later in the day,” Murphy added.

Not as far back—Q1 of this year—Dunkin’ completed an initiative to bring its app in-house, the intellectual property to run the platform. This gave the brand the ability to make two-and-half times the number of updates than it previously could have, Hoffmann said. “These enhancements have clearly resonated with guests as we surpassed 21 percent of sales through our digital assets in the third quarter,” he said.

In Q3, Dunkin’ eclipsed 5.4 million 90-day active Perks loyalty members. It’s a robust 30 percent increase over Q2 and more than 55 percent above prior-year levels.

Murphy’s credited the jump to offers like Free Coffee Monday, which required a food purchase, and Free Donut Friday, which required a beverage. Both drove incremental sales, net margin, and an increase in transactions, he said.

Dunkin’ had the strongest active Perks enrollment on record during the three weeks the offers were available. Additionally, on launch day of Dunkin’s TikTok partnership with platform star Charli D’Amelio, who got her own inspired drink, the chain hit a new record for daily active app users.

The COVID-19 bottom line: More than one in five Dunkin’ transactions are now through a digital channel. On-the-go mobile ordering currently represents 8 percent of all transactions, “and we continue to push this consumer convenience by pulsing in bonus point offers as well as launching new features in the app like quick ordering,” Murphy said.

NexGen restaurants have also made on-the-go pickup areas larger and more prominent. In existing stores, Dunkin’ is adding expanded shelving and more permanent visuals.

Delivery average weekly sales grew nearly two-and-half times over Q2 this quarter, fueled by Dunkin’ expanding U.S. coverage to 6,500 restaurants through Grubhub, DoorDash, and Uber Eats.

Curbside is live in about 1,500 restaurants. Murphy said non-drive-thru locations with the feature are “significantly” outperforming the rest of Dunkin’ non-drive-thru sites.

He added value will take on heightened importance moving forward. One example: Dunkin’ planned to roll out Refreshers prior to COVID-19. But it didn’t expect to start it at $2. “But by working with our franchisees, we quickly implemented it across the country, resulting in the most successful beverage LTO launch in our brand history,” he said.

Hot drip coffee isn’t going anywhere, either. Murphy said Dunkin’ is in the process of introducing high-volume smart brewers that enabled the brand to expand its variety of drop coffee blends, reduce waste, and enhance quality and consistency. Dunkin’ expects to finish the rollout by Q1 2021.

The company reported quarterly earnings of 93 cents per share, beating the Zacks Consensus Estimate of 81 cents. Revenue was $361.54 versus $355.88 million in Q3 2019.

Baskin-Robbins’ U.S. same0store sales grew 6.5 percent in the period.

Fast Food, Finance, Story, Dunkin' Donuts