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More Dunkin' Donuts in Texas

Zacks Equity Research

Canton, MA-based Dunkin' Brands Group, Inc. (DNKN) is set to expand its footprint in Houston, Texas. In this regard, Dunkin’ Brands, the owner and operator of Dunkin’ Donuts and Baskin-Robbins, has formed a multi-unit deal with its existing franchisee, New York Donuts Group, Inc.

Under the terms of the agreement, Dunkin’ Brands will introduce nine new restaurants in Houston, of which eight are Dunkin' Donuts units and one Dunkin' Donuts/Baskin-Robbins combo, over the next seven years. The first unit is slated to open for business in 2014.

The company is also hiring new franchise partners to open new Dunkin' Donuts units in other parts of Texas including Beaumont, Rio Grande Valley and Victoria. Apart from this, Dunkin' Brands is also looking for new development opportunities in Houston and Austin for its Baskin-Robbins brands.

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. The emerging dining industry of Texas and its growing population caught the attention of Dunkin’ Brands. This Zacks Rank #3 (Hold) company intends to open 330-360 restaurants in the U.S. in 2013, with a lion’s share scheduled to come up in Texas.

Texas’ restaurant industry is a major contributor to the U.S. GDP. According to the National Restaurant Association, Texas’ emerging restaurant industry will generate total revenue of nearly $40.8 billion in 2013. Several other restaurant chains, which are active in the state for years include Krispy Kreme Doughnuts, Inc. (KKD) and Starbucks Corp. (SBUX).

Dunkin’ Brands boasts an attractive growth story, driven by its expansion plan, marketing innovation and menu innovation. Currently, the company expects that its annual development rate will be 5% in the long term. 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.

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