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Yahoo Finance Presents: Dunkin' Brands CEO Dave Hoffmann

In this episode of Yahoo Finance Presents, correspondent Brian Sozzi speaks with Dunkin' Brands CEO Dave Hoffmann about the impact coronavirus is having on the companies franchise owners and employees.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: All right, I'm joined by David Hoffman, the CEO of Dunkin' Brands. David, good to see you.

DAVID HOFFMAN: Yeah, great to see you, Brian.

BRIAN SOZZI: Even though it's remote and virtually, good to see you nonetheless. So you guys are fresh off your first quarter. Take us through the business a little bit. We're seeing a lot of different trends throughout the restaurant industry. We've had a lot of restaurants store closures, but some stores are open and delivering. What does it look like from the Dunkin' perspective?

DAVID HOFFMAN: Yeah, Brian, you know, prior to the crisis, as you know, we were headed towards our best quarter since 2013 with positive traffic. And then once the crisis hit, we just went inward, and we started to really focus on simply just doing the right thing for our franchisees, our suppliers, our brand employees, our restaurant employees, our guests. And that was a big part of what we were focused on.

And look, everything then started to gear towards the safety and security of our crew and our guests. And so we've, you know, we've made a brand standard, gloves, masks, plexiglass guards, as well as we just shipped infrared thermometers to every restaurant in the US this past week to be prepared.

And then, you know, on the franchisee side, great franchisees. And we've really rallied around each other. But we made the restaurant easier to operate, very flexible on hours of operation. Very flexible on limited menu. We call the limited menu Essentials or Essentials Plus that they could pull down.

And then, as you know, a big focus was then around the financial health of the franchisees and their liquidity. And so we extended payment terms on a lot of items related to, you know, the franchise fees and the marketing fees, just to make sure that all three legs of the stool-- the franchisees, the brand, and our suppliers-- were strong during all of this.

BRIAN SOZZI: Dave, any sense on when your restaurants and some of your bigger markets like New York City will get to reopen?

DAVID HOFFMAN: Yeah, we're starting to see more openings every day. So today, 90% of our restaurants are open on the Dunkin' side and the Baskin side. And, you know, that 10%, which is under 1,000 today, a lot of universities, a lot of transportation hubs, and then in New York as well. So temporarily closed today, but we're seeing more and more openings in the New York area, where it's been, you know, the hardest hit.

But again, we view those as temporary closings, and we're really encouraged by what we're seeing. And I think, you know, today if you heard me on the call this morning, we saw minus 35% same store sales in the month of March. Now it's hovering around minus 20%. It's still not an acceptable level, but you're starting to see those stimulus checks roll in, a few of the markets starting to open up and be a little bit looser with, you know, getting out and active again.

So we're encouraged by some of the green shoots that we're seeing out there. And look, we'll do whatever it takes to get New York up and running again. And so we just stand with our franchisees down there and applaud everything that they've done in the local hospitals as well.

BRIAN SOZZI: You know, Dave, we've seen a big economic downturn in this country since the last time we talked a couple of months ago. Are you seeing it-- how are you seeing that translate into your business? Are people buying smaller coffees? Are they just buying coffee and not a donut? Are you seeing trade down?

DAVID HOFFMAN: Yeah, actually, average ticket is actually growing. And you know, you can understand that because people are coming through and ordering for bigger group size. But it's been pretty broad-based. I mean, food and beverage is both up much. Matcha lattes are up, and the new items.

What we have seen, though-- and again, this is intuitive with people at home-- the six to nine day part has shifted to 10:00 to 2:00 PM. So that 10:00 AM to 2:00 PM were positive in sales year over year, and so, you know, we think when the workforce comes back, we're going to continue to capture, but we like what we're seeing out of the afternoon.

And as you know, we've spent some considerable resources investing in that afternoon day part as well with whether it's our happy hour or espresso and our snacking menu. Right now, we've got croissant stuffers in the restaurants.

We're not doing a lot of advertising above the line. It's a lot of in-store, but it's doing incredibly well. And those are the types of, you know, great on the go food that we think our customers are asking for and pairing well with our beverage offering.

BRIAN SOZZI: David, you were the architect. Before you were CEO the architect of this transition bit to Dunkin' Brands and more on the go, slimmer menu, more espresso coffee. So as you take a step back during this situation, if you had a chance to take a step back a little bit, what does the next five years look like for Dunkin'? How will the brand have to change?

DAVID HOFFMAN: Yeah, I think two forces, Brian, that we're really geared on. One is obvious in this environment, which is safety. And I just went through all of that. The other one, though, is around brand access. And look, we were already invested in that heavily before.

Pre-crisis, about 90% of our transactions went out the door through some form of takeaway. So it was easier for us to flex into that. Whatever the new reality-- customer reality-- is going to look like, we think we're well poised for that. 70% of our portfolio is comprised of drive-throughs.

We've added 1,000 curbside locations during the crisis. We're accelerating the digital in a big way. We've got 400,000 new active users from Q4 of last year to Q1 this year. Our delivery footprint has doubled from 2,000 stores to 4,000 stores. On the go mobile ordering, which you used frequently in the past--

BRIAN SOZZI: True.

DAVID HOFFMAN: Yeah, has done very well. And so that-- and throw in CPG as well, which is, you know, our channel business is up 20% to 30% with our bag coffee and K-cup. So we think that brand accessibility being allowing the consumer to access your brand, however they want to do it in whatever new environment there's going to be, we think we're well suited for that.

And it's just based on, you know, for seven years, we've been refining a brand and a model that is low touch, high frequency, affordable ticket. And we think that plays well in whatever the new consumer reality is going to look like.

BRIAN SOZZI: There will be a lot of restaurants that do not reopen. Thousands of restaurants will not reopen after this. How does that change the growth trajectory of a company like Dunkin' Brands? Not just Dunkin' itself, but also Baskin Robbins.

DAVID HOFFMAN: Yeah, and it's, you know-- and when you step back as a patriot, it's really sad to see all of this. You don't wish that upon anyone. And so that is unfortunately what's going on right now. We're, you know, again, we can get into this brand, but we're incredibly grateful for the PPP for our small business owners, our independent business owners, our franchisees.

But look, right now, we're just focused on taking care of Dunkin' and Baskin and being a good corporate citizen in the communities we serve today. I think down the road, there's a time to come and evaluate opportunities. That's not our mission now, but I will tell you, you know, my experience overseas.

And as I like to say, here internally, I feel like I've been in every crisis management foxhole possible. One of the things that we did do was separate and create a green team that was completely separate from the daily crisis management team. And that green team is focused on our business model, what we think we do well and can accentuate, and what are some of our opportunities, but also, how we're going to reemerge from this.

So we've already started thinking about, you know, expanding our footprint west of the Mississippi, a lot of the white space that may be available in this environment. So the discussions are going on behind the scenes. But I think that's going to have to wait for another day. Right now, we're just focused on making sure that all three legs of our stool, which is, you know, our franchisees, our suppliers, and the brand, are strong and standing tall right now.

BRIAN SOZZI: Before I let you go, you mentioned the PPP loans. Have some of your franchisees successfully accessed those loans?

DAVID HOFFMAN: Yeah, and if I could take a step back on that, Brian, first, you know, as a publicly traded company, let me say that Dunkin' Brands has neither applied for that and will not take that government money. So we are heavily focused on keeping America working. We have not and have no plans to furlough any employees. So we feel like that's been our obligation.

But you know, conversely, though, our franchisees, our great franchisees who employ, on average, 150 employees, we think PPP speaks directly to them. And we have helped them. Many have taken advantage of this. We've done a lot of communication, worked with financial institutions, done webinars as well.

And, you know, we're very grateful and appreciative of the federal government and the governors who have assisted in this program. Because it's really helped our franchisees keep America working during these times. So again, very appreciative of what's going on with the government's support there.

BRIAN SOZZI: Dave, lastly, on just staying on the government support, do you think there should be more a targeted relief plan to the hospitality industry?

DAVID HOFFMAN: You know what? I do. And I'm part of the National Restaurant Association and the White House opening up the economy a bit more. And so, look, there's a program that's been advanced around that. I support them. I think it's a well targeted, well placed program.

And I stand with the National Restaurant Association on how they're trying to advance that, not just for franchised restaurants like ourselves, who are small independent business owners, but for all the independent business owners that drive this economy and the service workers as well. So I would love to see that pushed through.

BRIAN SOZZI: All right, let's leave it there. David Hoffman, CEO of Dunkin' Brands, good to see you. Let's get those restaurants back open.

DAVID HOFFMAN: Thanks, Brian. Take care. Be safe.