CANTON, MASS. — Strategic moves set in motion several years ago have helped Dunkin’ US weather the current pandemic. The company’s investments in menu simplification, new espresso equipment and an improved digital experience are delivering returns during a challenging period, said David L. Hoffmann, chief executive officer of Dunkin’ Brands Group, Inc.
“America’s morning ritual has been upended with customers working and children attending school from home,” Mr. Hoffmann said during an Oct. 29 earnings call. “As a result, they began visiting Dunkin’ later in the day, and we needed to respond with food and beverages that were suited for morning and afternoon dayparts. Because we simplified our menu, we created room for growth for all-day product innovation. 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.”
Recent specialty beverage launches have included a matcha latte, a pink velvet macchiato and an oat milk latte. Dunkin’ also has partnered with a social media star in a beverage introduction to appeal to younger consumers. Additionally, the company rolled out its fall menu products in August, earlier than ever “because we knew the guests were craving the comfort of autumn,” said Scott Murphy, president of Dunkin’ Americas, adding, “This drove record average weekly sales for espresso and a significant increase in donut sales.”
Another key action was a transition completed earlier in the year to bring the Dunkin’ mobile app in-house, which has allowed the company to more than double the number of updates, Mr. Hoffmann said.
“These enhancements have clearly resonated with guests as we surpassed 21% of sales through our digital assets in the third quarter,” he said. “Value has also taken on greater importance for our guests during COVID. This has driven enrollment and active participation in our loyalty program. We’re learning more about our guest purchasing behaviors than ever before, clearly paving the way for a loyalty transformation next year.”
More than one in five Dunkin’ transactions occurs through a digital channel, Mr. Murphy said.
“Mobile ordering, delivery and curbside growth have increased exponentially as customers demand contactless purchasing and easier accessibility to the brands they love,” he said. “On-the-go mobile ordering now represents 8% of our 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.”
Comparable store sales at Dunkin’ US grew 0.9% during the quarter, driven by a favorable mix shift to family-size bulk orders and sales of snack items and premium espresso and specialty beverages. The results were partially offset by increased discounting driven by national and local value offers and a decline in traffic to Dunkin’ restaurants due to the pandemic.
At Baskin-Robbins US, comparable store sales grew 6.5% during the quarter, driven by sales of more expensive items such as ice cream cakes and prepacked quarts that offset a decrease in traffic due to the pandemic.
Consolidated net income for the third quarter ended Sept. 26 was $74 million, equal to 90¢ per share, up 2.2% from $72.4 million, or 87¢ per share, in the prior-year period.
Revenues totaled $361.5 million, up 1.6% from $355.9 million.
Comparable store sales declined 16% at Dunkin’ International and 0.5% at Baskin-Robbins International.
The company continues to expect to permanently close approximately 800 Dunkin’ US locations in 2020 as part of a real estate portfolio rationalization, representing approximately 8% of the Dunkin’ US total restaurant footprint. Year to date, 687 Dunkin’ US locations have closed, including 466 during the third quarter.
“For many franchisees, closing these restaurants will enable them to redeploy capital into the brand, whether through NextGen remodels, building new restaurants or relocating restaurants to higher traffic areas where they can add a drive-thru,” Mr. Murphy said. “In keeping with our development focus on quality over quantity, year-to-date, our 2020 gross openings are exceeding our initial targets for new first-year sales. So while our franchisees are opening fewer units this year due to COVID, the ones they are opening are generating higher sales per restaurant. Franchisees also completed 60 remodels during the third quarter, bringing our total number of NextGen restaurants, both new and remodeled, to more than 800. Leveraging our learnings from COVID, we now have a NextGen remodel that is ‘low contact’ and includes options such as removable seating, no-touch faucets, a walk up window and a reconfigured front line to further encourage social distancing for customers in the queue. Of all the lessons we learned during COVID, the power of the drive-thru was overwhelmingly evident.”
Several days prior to the release of its third-quarter financials, Dunkin’ management confirmed it had held preliminary discussions to be acquired by Inspire Brands, the parent company of Arby’s, Buffalo Wild Wings, Sonic Drive-In, Rusty Taco, and Jimmy John’s Sandwiches. During the earnings call, Mr. Hoffmann declined to comment further on the matter until a transaction is agreed upon or discussions are terminated.