Dunkin’s momentum continues to pick up after another positive quarter.
Espresso is resonating with guests and capturing more of the sales mix, the company announced during its Q2 review on Thursday morning. This after a strong start to the year for the reinvigorated beverage platform. In Q1, Dunkin’s new latte lineup helped push the category up 30 percent, year-over-year. Espresso sales for Q2 surpassed more than 40 percent, which translated to 10 percent of total sales mix. In the six months since launch, Dunkin’ is navigating how to continue this sustained success, the company said.
The boom of espresso drove a 4.7 percent systemwide sales increase and a 1.7 percent lift of same-store sales over the last quarter. Q2 represented the strongest two-year quarterly comp performance since launching cold brew in 2016, Dunkin’s chief executive officer David Hoffmann said on a conference call. On National Doughnut Day, guests enjoyed more than 11 million doughnuts—the most the brand has ever moved in a day, he added.
Dunkin’s international presence also remains strong. The brand’s global same-store sales lifted 5.6 percent, marking the eighth consecutive quarter of positive growth.
Dunkin’ said it has “democratized espresso” and it believes it could do the same with other trends, Hoffmann said.
“We believe there is an opportunity to do more when it comes to giving consumers great tasting, better-for-you options at affordable price points,” he said.
Menu innovation plays a big part of the brand’s five-year transformation strategy. In April, Dunkin’ tested an Egg White Bowl—featuring 14 grams of protein and only 250 calories—as a new addition to its Power Platform. The pilot lasted 60 days. Dunkin’s chief marketing officer Tony Weisman didn’t give an exact date, but said the brand intends on bringing them back.
“We’re a believer in bowls,” he said. “I think what we did in the 60 days that we had the Bowls in, is that we demonstrated to both consumers and to our own system that bowls is a form-factor that we can do easily quickly and doesn’t get in the way of your get in, get out, get out of your way approach to great coffee fast.”
Customers have also craved different protein options. Dunkin’ partnered with Beyond Meat to create an affordable Beyond Sausage.
“We’re the first U.S. restaurant chain to serve a sandwich that features 100 percent plant-based Beyond Sausage,” Hoffmann said. “The Beyond Sandwich is a terrific example of the new menu we’re offering at Dunkin’.”
Although it’s only available in Manhattan, Hoffmann said the chain plans on ultimately taking it nationwide. The limited availability was a strategic move and “is consistent with our whole view our democratizing trends, and making value as part of this new plant-based meat option,” Weisman said.
The Beyond Sausage sandwich is priced in line with Dunkin’s other premium items, allowing customers to try the product without having to pay for an upgrade. Weisman said Dunkin’ worked with Beyond to create a plant-based meat product in line with the same per-ounce price as an animal-based meat.
“It’s very consistent with our view that this is an enormous trend, more and more consumers are trying it, and there is no reason that price barrier should get in the way,” Weisman added.
Dunkin’s first national value platform in company history—the Go2s, which first launched in Q2 of 2018—continues to exceed internal expectations. Dunkin’ introduced a revised version of the Go2s in January and helped capture customers across the afternoon daypart. The story remains the same for Q2.
“In Q2, we lapped last year’s national launch of Go2s, offering 2 bagels for $4 dollars, propelled the category, and delivered the best quarterly bagel sales performance on record,” Hoffmann said.
On a two-year stack, bagels and breakfast sandwiches had more than 15 percent same-store sales growth. Average Go2 tickets went up $1 from $8 to $9 and Dunkin’ said 75 percent of Go2 transactions still contain a beverage.
Dunkin’s Digital Transformation
After hearing customers’ demands for an easier app experience, the brand rolled out a refreshed platform during the quarter. The new app simplified the on-the-go ordering process. The improvements contributed to a 30 percent year-over-year sales increase. Those sales made up 4 percent of total transactions during Q2, which is consistent with last quarter.
There are now 11.7 million DD Perks members enrolled in the loyalty program. Dunkin’ gained about 1 million new members over the last quarter thanks to an update that allowed guests to enroll in one step. Executives are happy with that boost, but there is still room to grow on the digital front.
“There is tremendous runway ahead of us, when it comes to growing our digital platform,” Hoffmann said. “These latest advances, delivery, multi-tender, guest checkout, app upgrades are all making the Dunkin’ experience as frictionless as possible.”
In April, Dunkin’ launched multi-tender on its app and in more than 1,000 Dunkin’ restaurants. The new feature allows guests to earn points regardless of how they pay, which, in turn, is driving enrollment. Multi-tender is a valuable tool to boost memberships in the program. Hoffmann believes the feature will be rolled out nationally by the end of the year.
“Mobile order and pay is clearly a winning proposition for Dunkin’,” Hoffmann said. “It enables guests to get in, get out and get on their way.”
A guest checkout feature will be rolled out soon that will allow non-Perks members to use on-the-go ordering without having to be a part of the loyalty program or input a credit card number into the app. This will open up mobile ordering to everyone, Hoffmann said.
Dunkin’s marketing shifted to highlight the on-the-go mobile feature and Perks program in stores and at the end of commercials.
The future of NextGen stores
As a part of Dunkin’s brand transformation, the new NextGen prototype rolled out last year. The modern design is attracting more franchisees to think about moving up remodels and updating restaurants. Since launch, Dunkin’ worked with franchisees to optimize the model to ensure the new design works for everyone.
“We are working strategically with our franchisees to kick off the next wave of remodels into the new Next Gen image,” Hoffmann said. “And we have solid alignment with franchisees, because Next Gen remodels are showing great results.”
During the second quarter, 46 new franchise locations opened. Dunkin’ kicked off the next round of remodels on July 1 and 30 remodels were completed in Q2. By the end of the year, 500 NextGen stores should be operating, Dunkin’s chief operating officer Scott Murphy said.
“I expect that to actually almost be double the historic rate of remodels in the next couple of years as we go,” Murphy said. “Now we have such a large fleet, it will take a while to get the entire asset base transformed, but the good news is we’re seeing such strong results out of that, we’ve got some decent pull demand from the franchisees for the remodels.”
So far, franchisees feel confident in the NextGen store. The investment may be more upfront, but the franchisees are getting a quicker return than they have with former remodels, Murphy said.
“We’ve launched new menu innovation with broader consumer appeal, re-imagined the restaurant experience, growing digital and delivery platforms, and integrated both brands into modern culture,” Hoffmann said. “As we always say, it’s a journey. But there is no doubt in my mind that the strategic actions we’re taking are driving customer noticeable change, and of course, sustainable results.”