Dunkin' is doubling down on drinks and rethinking its approach to food, and in the short term that's paying off. / Dunkin' Donuts Dunkin' is doubling down on drinks and rethinking its approach to food, and in the short term that's paying off. / Dunkin' Donuts

Dunkin’ Donuts’ Beverage Strategy Is Working, at Least for Now

Dunkin’ Donuts’ gamble on new beverage offerings to boost sales, beyond its flagship hot and iced coffee drinks, is paying off early for the company that will also soon go by a new name.

The restaurant chain reported revenue of $19.9 million in the third quarter ending in September. Domestic same-store sales also improved by 1.3 percent in the period, backed by new cold brew and frozen beverages as well as its recently introduced $2 Dunkin’ Run menu, sporting popular snacks like Dunkin’ fries, according to the company.

“The success of cold brew and frozen beverages is a meaningful achievement as we strive to grow our beverage business outside of what we’re most known for,” said CEO David Hoffmann, in a conference call with investors, Thursday. “Our loyalists continue to be extremely strong. The name of game now is going after ‘switchers’ in the marketplace, and turning those switchers into loyalists as well.”

Latest financial earnings come as Dunkin’ Donuts is in the midst of a massive overhaul. The Canton, Massachusetts-based company has already gutted its food menu by 10 percent this year to focus more on drinks, and better serve today’s on-the-go consumer.

In July, Dunkin’ Donuts earmarked $100 million toward revamping its growing store footprint—increasing by 52 locations in the quarter—with 65% of those funds going towards new espresso equipment. The restaurant chain made it no secret this week it plans to compete with Starbucks by portraying itself as the cheaper, faster option for lattes, cappuccinos and Americanos that are just as satisfying.

In early market tests, in Baltimore, a 16-ounce hot latte is on average 60 cents cheaper than nearby Starbucks locations, The Wall Street Journal reported. The company also continues to add self-serve cold beverages on tap for customers that include cold brew, original-blend coffee and iced tea, as part of its next-generation store strategy.

Dunkin’ Donuts chose not to disclose any specific metrics to investors on next-gen market tests during its earnings call. A total of 31 remodels were completed in the quarter. The company says it expects a full rollout of its next-gen stores to be completed anytime between the holiday season and early 2019.

A Lack of People Traffic

Similar to Starbucks, and a number of other food chains, in-store customer traffic remains an issue for Dunkin’ Donuts. Mobile transactions also only account for three percent of total sales. Hoffman disclosed the company is shifting away from its previous mobile digital strategy, which was far too reliant on coupons, to rectify this.

“As it relates to traffic and transactions, we’re very similar to others in the industry,” said Hoffmann. “We’re still not pleased with where we need to be, but the third quarter was another quarter of sequential improvement.”

Starbucks is due to report fourth quarter earnings on Nov. 1. The coffee giant last reported third quarter comparable-store sales growth of one percent in July on the back of a three percent increase in average ticket size.

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