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Dunkin' Broadens U.S. Reach

Zacks Equity Research

Consistent with its goal of doubling its presence in the U.S. over the next 20 years, the operational arm of Dunkin Brands Group, Inc. (DNKN) – Dunkin’ Donuts – recently inked two multi-store development deals with existing franchise partners to expand its footprint in Wisconsin and Michigan.

Dunkin’ Donuts penned the first deal with Zee Development Group, LLC to open 11 units across Wisconsin's Green Bay and Milwaukee cities. Per the deal, one restaurant is slated to open in 2014 and the others by 2019. Zee Development Group currently owns and operates around 400 Dunkin' Donuts units in New York, Massachusetts, Pennsylvania, New Jersey, Connecticut and Central and Southern Milwaukee.

The restaurant industry in Wisconsin acts as a driving force to the U.S. economy. Milwaukee and Green Bay are among the largest cities in the state and home to peers of Dunkin’ Donuts such as Darden Restaurants, Inc. (DRI) and Starbucks Corp. (SBUX). As per the National Restaurant Associations, the restaurant sector in Wisconsin is projected to generate around $7 billion of total revenues in 2012.

Recently, Dunkin’ Donuts opened the first of ten restaurants in Wisconsin's Appleton city in association with Midwest Mocha LLC. The second restaurant is slated to open in 2013. As a matter of fact, Dunkin’ Donuts has earlier penned an agreement with the franchisee partner to open ten units in Green Bay, Appleton and the surrounding areas of northeast Wisconsin.

The second deal is with Sack of Donuts, LLC for 10 units in Grand Rapids city of Michigan. The first unit will come up in 2013 and the rest by 2018. Last quarter, Dunkin’ Donuts signed its first deal with Sack of Donuts to open eight restaurants in Michigan and Indiana, with one unit already open in Michigan’s Kalamazoo city. The next two will open in Indiana by early 2013.

Michigan has a promising restaurant industry, with a number of peers of Dunkin’ Donuts in Grand Rapids such as Krispy Kreme Doughnuts, Inc. (KKD) and Panera Bread Co. (PNRA). The National Restaurant Associations projects that Michigan’s restaurant industry will generate total revenues of approximately $12.6 billion in 2012.

Management believes that tremendous franchise opportunities still exist in the Wisconsin market, particularly in LaCrosse and in Michigan mainly in Oceana, Newaygo and Montcalm counties.

Dunkin’ Donuts is focused on its strategy to seize growth opportunities and cater to consumer needs of individual markets. Thus, the company continues to expand through development of single and multi-unit opportunities. In order to be competitive and innovative, Dunkin’ Donuts offers services through various types of real estate restaurant formats including free-standing restaurants, end caps, in-line sites, gas and convenience, travel plazas, on-university campus and others.

Dunkin' Donuts is the market leader in the coffee, donut, bagel and muffin categories. In the third quarter, the company’s franchisees and licensees opened 114 new Dunkin' Donuts restaurants worldwide, including 36 in the international market and 78 in the U.S. As of September 30, 2012, the company owned 10,283 Dunkin' Donuts restaurants globally.

We currently have a long-term Neutral recommendation on Dunkin’ Brands. Also, it carries a short-term Zacks #3 Rank (Hold).

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