As a company, is it ever a bad thing to admit you got way ahead of yourself? We don't think so. Dunkin's store expansion and remodeling efforts were very aggressive last quarter. Almost three months in, expect to see more of that advertising it has been promising us.
— Danni Santana
Dunkin’ Donut’s implementation of its Blueprint for Growth strategy — featuring simpler order pickup, new store designs, and espresso drinks — caused comparable store sales to flatten last quarter, the company reported, Thursday.
A year ago, Dunkin’ simplified its menu by 10 percent, allowing the chain to make room for product innovation on espresso, frozen beverages, and afternoon snacking options. A total of $65 million was earmarked by the company for funding towards new espresso equipment.
CEO Dave Hoffmann told investors on Dunkin’s earnings call that new drinks, particularly espresso, are critical to the chain’s success going forward. Dunkin installed new espresso machines in more than 9,000 locations in the U.S. beginning on Nov. 18, while also training 100,000 employees on the equipment, according to the company.
“Espresso has driven incremental rooftop sales and traffic, and has grown 200 basis points as a percentage of overall sales mix since launch,” said Hoffmann. “It drives a premium basket compared to drip coffee transactions, and skews towards younger consumers.”
Dunkin’s Blueprint for Growth is a five-year plan, one that the company underestimated the initial rollout of. The chain scaled back its media and advertising spend in the quarter, which would have highlighted espresso offerings and new store designs in the quarter, crediting the sheer size of the remodeling project. That miscalculation also hurt store sales, in the end.
“This strategy may have impacted short-term sales, but we knew it was the right thing to do for our franchisees, crews, and our customers,” Hoffmann said.
Part of Dunkin’s growth strategy is expanding its brick-and-mortar presence outside of New England. In the fourth quarter, franchisees opened 392 new stores, including 278 in the U.S. A majority of those locations were outside of Northeast markets, Hoffmann said.
Dunkin also nearly tripled its initial target of 50 next-generation stores over the period, finishing with 130 new or remodeled locations across the country. That number is significantly higher than the 31 next-gen stores launched last quarter.
The stores feature order pickup stations, self-serve beverages, and new interior design. Dunkin plans to open 200 to 250 next-gen stores annually, while also shuttering older locations.
Hoffmann said new restaurants opened last year contributed more than $150 million to system-wide sales that topped out at a little over $900 million. System-wide sales for Dunkin’ grew 3 percent overall in the fourth quarter on revenue growth of 1.5 percent.