Coffee industry: A brief overview

Market Realist

Key Highlights: Dunkin' Brands Q4 2013 Earnings Report (Part 2 of 5)

(Continued from Part 1)

Industry performance has been a mix of good and not so good during Dunkin’ Brands’ fourth quarter. Dunkin beat both analysts’ earnings and revenue estimates, as mentioned earlier. Similarly, Starbucks beat the earnings estimates in 1Q14 by two cents (2.7%). The worrisome bit of information the company published during this earnings call is its revenues figure, which missed the analysts’ estimates by roughly $60 million (-1.4%).

Market opportunities

In terms of individual franchise growth figures, franchises are poised to capitalize on high industry growth in the core markets. Executives believe the core market is well penetrated with roughly 9,000 people per store. However, certain geographical areas within the core market, such as Upstate New York, lack many franchise locations and provide healthy growth opportunities. Plus, growth opportunities lie in non-traditional marketplaces, such as: airports, train stations, casinos, resorts, armed force bases, and university campuses nationwide.

Expansion overview

Dunkin’ Brands global development did not go unnoticed among the industry. The company indicated in its most recent filing that net new franchises were 149 for domestic locations in 4Q13, flat compared to 4Q12. Also, 70% of these locations featured a drive-thru, a luxury that Dunkin’ Brands seeks to acquire more of in time. Full-year net development growth was 24% in core markets, 32% in established markets, and 27% in emerging markets. Nearly all coffee industry players feel they still have strong growth opportunities domestically in both well-penetrated and under-penetrated markets. The on-the-go consumer is looking for quicker coffee and breakfasts from restaurants like Dunkin’; the way to accommodate this desire is with more locations, closer to the consumer. As long as industry players like Starbucks and Dunkin can sustain growth from a financial point of view (that is, opening a location at a cost of cannibalizing sales at another), room for growth exists.

Continue to Part 3

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