Dunkin’ Brands CEO David Hoffmann had a little bit of a different earnings call this week with Wall Street analysts than the norm since he took over in July 2018. He finally received a few questions about his plans to dial up international growth for Dunkin’ (DNKN) instead of Wall Street’s singular focus on the health of the U.S. coffee market and digital ordering.
“This is the first quarter where I have been here and actually had some international questions,” Hoffmann remarked to Yahoo Finance about the call.
The questions by analysts on Dunkin’ international were well-placed.
Dunkin’ said this week that third-quarter international same-store sales surged 7.3% for its name-sake coffee and donut brand and 3% for ice cream seller Baskin Robbins. The third quarter marked the ninth straight quarter of same-store sales increases for the Dunkin’ brand overseas.
Dunkin’ U.S. sales, for a dose of perspective, only rose 1.5% in the third quarter.
Executives credit improving the in-store experience, establishing a delivery infrastructure and growing its business outside of restaurants for the solid international trends of late.
Strong growth for Dunkin’s brands internationally has historically not been the norm, with its chains often playing backseat to larger operations like Starbucks and the lunch/dinner food formats out of Yum! Brands (namely Pizza Hut and KFC). The inconsistency in the performance through the years has led Dunkin’ to stay focused on three main international markets: Japan, South Korea, and the Middle East.
Using joint venture agreements, Dunkin’ Brands has opened close to 5,000 restaurants — split between Dunkin and Baskin Robbins — in these three markets, per its latest annual report. The company is approaching 10,000 Dunkin’ stores in the U.S. and 2,600 Baskin Robbins.
Methodical international expansion
The patient approach to international store openings for Dunkin’ has extended to China, a fast-growing coffee market led by Starbucks and Luckin Coffee. Prior to joining Dunkin’ in 2016, the company inked a joint venture deal to open 1,400 restaurants in China over the next 20 years. Thus far, the company has barely made a dent in achieving that 1,400 store target — it has 21 Dunkin’ and 51 Baskin Robbins open now in the country.
Hoffmann is no stranger to running international restaurants — which could partially explain the turn in Dunkin’s international fortunes. Before arriving to Dunkin’, Hoffmann spent 22 years at McDonald’s, leading many of its international operations (importantly China). His knowledge of the international restaurant business scene and Dunkin’s rebounding overseas sales does set the stage for a more aggressive rollout of restaurants beyond the U.S. over the next five years.
Hell, even Wendy’s is poised to dial up its international growth pretty much for the first-time ever. If a hamburger chain such as Wendy’s could do it, a brand known for selling good coffee fast like Dunkin’ could do it — especially in such a strong consumer backdrop for coffee globally.
Hoffmann is playing his expansion cards closely, however.
“We have been methodical on stabilizing international and getting to where it is today. We have done a nice job this year of paying attention to our interests in the joint ventures, specifically Korea and Japan. We have added some external talent to be part of that, both in Korea and Japan. So at this point, to me I am excited about China — I built a career over there — but right now we are taking each market one by one, but China is certainly on our plans for growth down the road — but it will be in a very sequential format,” Hoffmann said.