Dunkin’ Donuts fourth-quarter earnings Tuesday showed robust growth in its morning business. Early traffic was the best it’s been in two years and breakfast sandwiches were being sold at the fastest clip in company history. This news was a welcome sight for investors and executives, especially as Dunkin’ accelerates toward its goal of 18,000 U.S. units by the end of 2020.
But perhaps the most intriguing topic came when executives continuously hinted at initiatives designed to bolster its afternoon business. The company didn’t provide many details ahead of Thursday’s investor day. Instead, opting to save the outline for the event, held at Boston’s Fenway Park.
That information was released as promised, and Dunkin’ isn’t being shy about its goals.
The chain said it wants to add about 1,000 new stores in the next two years—more than 90 percent of which will be built outside of its Northeast base.
Currently, Dunkin’s morning business accounts for about 60 percent of systemwide sales. That segment has reported positive for Dunkin year-over-year and increased sequentially each quarter in 2017.
Dunkin’ announced several goals to continue this momentum and others to ignite its afternoon business.
Here’s what’s in store.
Dunkin’ Deals: These are a series of value offers expected to go live at participating restaurants throughout the year. The first (active until February 25) includes two Egg and Cheese Wake-up Wrap Sandwiches for $2, and, to drive afternoon traffic specifically, a medium hot or iced latte for $2 from 2 to 6 p.m.
Beverage changes: Dunkin’ is extending its premium tea and frozen beverage lines, as well as introducing more espresso products. Dunkin’ said it will focus on Cold Brew, Iced Coffee, and Frozen Dunkin’ Coffee. The brand posted its highest quarter beverage comparable sales of the year in the fourth quarter.
Some other initiatives stretch across dayparts, but Dunkin’ is banking on an improved product overall reeling in customers throughout the day. Such as:
New breakfast sandwiches: As mentioned earlier, breakfast sandwiches boomed for Dunkin’ in 2017. Now, Dunkin’ will bring back old favorites, like the Sweet Black Pepper Bacon Breakfast Sandwich, and offer additional flavored bacon on sandwiches throughout the year.
Continue the clean up: Dunkin' announced in early January that it removed artificial dyes from its donuts in the U.S. The company now wants to eliminate synthetic dyes from its entire food and beverage menu in the U.S. by the end of the year.
Dunkin’ shared some financial guidance for 2018 and for the next three years. It said it expects about 1 percent same-store U.S. sales growth this year and more than 275 net new openings in the U.S., including about 50 next generational restaurants, which covers new and remodeled stores.
By 2020, Dunkin’ said it wants to accelerates its same-store sales growth to 3 percent.
In those 1,000 restaurants Dunkin’ wants to build in that span, 75 percent of traditional restaurants are expected to be drive-thru locations. More than 500 will be DD Green Achievement Certified units and about 1,000 models will become, either through new openings or remodeled ones, next generation stores.
Dunkin’ provided details on many of these points. To start:
DD Perks Loyalty: Dunkin’ added more than 2 million members to its loyalty program in 2017, bringing the total membership to about 8 million. On-the-go mobile ordering, a perk available only to rewards members, returned a retrial rate of 80 percent.
Tender agnostic test: In the second half of 2018, Dunkin’ said it will test “tender agnostic” participation in its loyalty program. This means members can earn points using all forms of tender, including their DD card, credit, debit or cash.
Delivery and catering: Dunkin’ is testing a newly built digital catering platform in several key markets this year. The brand said it also expects to continue testing and expanding third-party delivery options with the goal of creating a combined platform in 2019.
Drive-thru improvements: Dunkin, noted earlier, sees more than 75 percent of new restaurants moving forward to feature a drive-thru lane. The NextGen design, which debuted January in Quincy, Massachusetts, features a drive-thru lane dedicated exclusively to mobile ordering and allows Perks members who order ahead to bypass the ordering lane and merge straight into the line for the pickup window. Dunkin’ said, on average, drive-thru locations boast 40 percent higher sales volume throughout the system.
Speaking of the NextGen Store: Dunkin’ new design, also 25 percent more energy efficient, also includes a beverage bar tap system that can pour cold beverages such as nitro coffee. There are grab-and-go snacks, new uniforms, and yes, the innovative double drive thru. Expect about 50 of these to hit the landscape by the end of the year.
Packaged growth: Dunkin’ has expanded its consumer packaged goods business from about $400 million in retail sales to $900 million in the past three years. Ready-to-drink bottled iced coffee business exceeded $150 million within the first year of launching.
More (or less) on the menu: Dunkin’ announced earlier in the year that it was simplifying its menu, and tested the pared-down offering in nearly 1,000 restaurants across multiple markets “to make room for new menu items and to improve franchisee profitability as well as the guest experience with faster, more accurate service,” the company said. This extended to additional units in January and Dunkin’ said the entire system should feature the new menu by the end of the first quarter.
Dunkin’ offered some other key changes, such as continued optimizing of its mobile ordering, an upgraded point-of-sale and back-office software packaging, and new employee training tools.
These extensive upgrades have executives optimistic about the future.
“Very importantly, collaboration with our franchisees has never been stronger,” David Hoffman, president of Dunkin’ Donuts U.S. said in a statement. “Together with them, we are laser-focused on bringing about transformative change at Dunkin' that both builds on our heritage yet also updates our offerings and in-store experience to keep our brand modern, relevant, and positioned for long-term growth."
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