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Dunkin' Texas Expansion Plans Underway

Zacks Equity Research

In order to beef up its presence in Texas, coffee and doughnut maker Dunkin' Brands Group Inc. (DNKN) – which owns Dunkin’ Donuts and Baskin-Robbins brands -- inked store development agreements with two new franchise groups, Niknud LLC and Alamo Donuts LLC.

Per the deal, Niknud LLC will build 11 new restaurants across western Texas in Abilene, Amarillo, Lubbock and San Angelo by 2019, of which 8 will be traditional Dunkin' Donuts restaurants and 3 Dunkin' Donuts/Baskin-Robbins combo units. The first unit is expected to open next year.

Another franchise, Alamo Donuts LLC will develop 5 traditional Dunkin' Donuts restaurants and 1 Dunkin' Donuts/Baskin-Robbins combination unit in San Antonio, Texas by 2019.  Alamo Donuts is also expected to come up with its first outlet in 2014.

Dunkin' Donuts has been exploring the Texas market for quite some time now and has a long-term plan of opening more than 100 units in the region. Opportunities abound in still untapped markets like Beaumont, Wichita Falls, Tyler and Midland/Odessa. There is also scope for the growth of the Baskin-Robbins brand in Texas.

As per the National Restaurant Association, the restaurant industry in Texas contributes considerably to the state’s revenues. According to the research organization, Texas restaurants are expected to record $40.8 billion in sales in 2013.  Other restaurant chains active in the state for years include Krispy Kreme Doughnuts, Inc. (KKD) and Starbucks Corp. (SBUX).

As a point of reference, this unit expansion is part of the company’s goal to double its portfolio in the U.S. over the next 20 years. It intends to open 330-360 restaurants in the U.S. in 2013, with the majority of them scheduled to come up in Texas.

Canton, MA-based Dunkin’ Brands boasts an attractive growth story driven by its expansion plan, marketing strategy and menu innovation. Currently, the annual development rate of the doughnut giant is 5%. Further, the company intends to open nearly 15,000 restaurants under the Dunkin' Donuts brand in the U.S. within the next three to five years.

Dunkin' currently has a Zacks Rank #3 (Hold). One player in the restaurant industry, which looks attractive at current levels is Burger King Worldwide Inc. (BKW) with a Zacks Rank #2 (Buy).

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