Why Dunkin' Donuts Could Crush The Competition

dunkin donuts

AP/Mark Lennihan

Burger, chicken, bakery and other quick-serve and fast-casual chains had better factor Dunkin' Donuts into their competitive analyses because Dunkin's coming for them.

In its quarterly call with analysts this week, the doughnuts-and-coffee chain made clear it's no longer just a major morning contender. It intends to be a player all day, taking customers and market share from any chain that underestimates it.

"We have learned that the Dunkin' brand has permission to go into almost any category as long as it falls into being great food at a great value in a fast, friendly and convenient environment," John Costello, Dunkin' Brands president of global marketing & innovation, told analysts. "So we see opportunities to continue to expand the breakfast platform. We think there are significant opportunities to expand the PM platform on sandwiches. But we also think that there are … opportunities to expand grab-and-go."Advertisement

Dunkin' manages to add LTOs without burning out its operations. "We work very closely with our operations and franchisee partners to make sure that those products are easy to make and very profitable for our franchisees," Costello said. It doesn't let LTOs hang around. They're in; they're out.

It isn't bragging if you can back it up and Dunkin' Donuts had the numbers last year to feel confident about 2014. U.S. comp sales were +3.5% for Q4, +3.4% for 2013 (+8 over the past two years). Operating income increased 27.3%. It grew by nearly 5%, opening 371 units in the U.S., the most in five years. And 80% of the new units have drive-thrus.

"We introduced more than 40 new products in 2013 and our product pipeline is stronger than ever," said Chairman-CEO Nigel Travis. Some were breakfast items, like the Hot & Spicy Breakfast Sandwich line, but others were midday items like new chicken Bakery Sandwiches, a Deluxe Grilled Cheese and wraps. Its has a healthful-eating menu (DDSmart) and has tested gluten-free doughnuts and muffins. It has a specialty coffee program that is the equal of McCafé and exceeds what Burger King or Wendy's have going. And its coffee already is sold as ground beans or K-Cups at retail.

Its mobile app has been downloaded more than 5.5 million times and it has a loyalty program, Dunkin' Perks, that most QSRs don't. Dunkin' Donuts has reloadable cards like Starbucks and saw double-digit growth in activations last year.

Like the burger chains, Dunkin' Donuts is pushing unit remodeling. Its "Fresh Brew" designs include four styles: Original Blend, Cappuccino Blend, Dark Roast and Jazz. More than 600 of its U.S. restaurants have been reimaged, which is better than Wendy's pace. Dunkin' still has plenty of room for growth. It only started selling franchises at the beginning 2013 and has commitments for nearly 100 already there. But CFO Paul Carbone told analysts "we believe we still have a 3,000 store opportunity east of the Mississippi River."Advertisement

"I've been amazed at the extendability of the Dunkin' Donuts brand," Costello said, and that's not what its competitors want to hear in a zero-growth marketplace.

And just maybe Dunkin' Brands will acquire one of those competitors. Travis told Bloomberg this week that it "could take on another business if it's a franchise business with growth. We would be extra cautious in whatever we would take on and it has to fit our mantra of a great brand with franchising potential." He added that it's "highly unlikely to be soon."

But other chains had better be looking over their shoulders. Dunkin's closing fast, fueled by a lot of coffee.Advertisement