Sugar rush

The world loves its sugar and caffeine goods, especially in the Middle East. With global sales worth nearly $9bn, Nigel Travis, chairman and CEO of Dunkin’ Brands Group – owners of the Dunkin’ Donuts and Baskin-Robbins brands – is aiming to tap into the region’s sweet tooth by opening hundreds of new stores over the next five years
Under Nigel Travis stewardship, Dunkin Brands profits more than doubled in the second quarter.
By Shane McGinley
Fri 23 Aug 2013 11:45 AM

One of the questions we like asking global bosses is whether they have any plans to jump on the latest resurgence in the Gulf property markets and leverage the growing appetite for big brash projects, thereby extending their brand in a whole new direction.

After all, did Armani ever expect to go from Italian suits to Dubai suites? Did Enzo Ferrari have Abu Dhabi and the world’s fastest rollercoaster in mind when he was designing the classic sports car? This summer, even the popular mobile phone gaming app Angry Birds announced plans for a series of theme parks across the Middle East, so anything seems possible.

“I have never been asked that question before,” laughs Nigel Travis, chairman and chief executive officer of US-based Dunkin' Brands Group, which operates the popular Dunkin’ Donuts and Baskin-Robbins outlets.

How about whizzing down a loop in a donut-shaped ride or a Baskin-Robbins ice-cream arcade shooting game? The possibilities are endless, surely?

“The answer is probably not,” he says honestly, dashing all our creative big ideas. “We do an awful lot of great PR; we are like a PR machine and we pick up a lot of publicity. I am not sure there is a need to go out of our way to do it but it is an interesting idea.

“It is highly unlikely. We are very focused on the digital world. In the US we are working on a new loyalty programme and we are working on a new app. We think we can reach out to our customers digitally instead of going for physical properties.”

While a rollercoaster rush is not on the cards, Travis may need a sugar rush in order to keep up with the pace the company has experienced in recent years and to meet the epic expansion plans Dunkin' Brands has in store for the Middle East.

The numbers certainly are sweet: at the end of 2012, Dunkin’ Brands Group had franchisee-reported sales of approximately $8.8bn. Its worldwide scoop is also truly massive: according to the company’s 2012 annual report, it had 10,400 Dunkin' Donuts outlets in 31 countries, while Baskin-Robbins has nearly 7,000 restaurants in 45 countries.

The Middle East represents about 15 percent of its global market, but Travis says the region is often referred to as one of its “crown jewels” in its international portfolio. “On a per store basis, [the Middle East] has higher average weekly sales than the US for Baskin-Robbins and Dunkin’ Donuts,” he brags, but then again we all know residents in the Middle East love their sugary goods, morning caffeine buzz and instant service.

For that reason alone, Travis has some impressive plans for both brands in the region. “We have been in the Middle East since 1979. It is one of our fastest-growing regions. We feel there is still significant growth opportunity… We have aggressive growth plans in the region for both Baskin-Robbins and its sister brand, Dunkin’ Donuts, and are aiming for 75 to 100 new stores annually between both brands for the next two to five years.”

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That’s nearly 500 new stores on top of approximately 950 it already has open.

The Massachusetts-based firm operates via a franchise model and currently operates 296 Dunkin’ Donuts outlets in the region, with stores in Kuwait, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia and the UAE. Saudi Arabia and the UAE are its biggest markets with 137 and 73 outlets, respectively. It is not currently in Bahrain, Egypt or Yemen, but it’s surely only a matter of time.

Baskin-Robbins is the world’s largest chain of ice cream specialty shops, serving more than 300 million customers each year. It opened its 650th store in the Middle East this summer and operates in Bahrain, Kuwait, Egypt, Lebanon, Oman, Qatar, Saudi Arabia, the UAE and Yemen. Again, Saudi Arabia and the UAE are its biggest markets with 318 and 149 outlets respectively.

“We have a lot of interest in the Middle East... We will be going into a new country soon this year,” Travis says, with Bahrain an easy bet.

Residents in the region just can’t get enough of the company’s treats, it seems. According to the company’s 2012 annual report, Dunkin' Donuts had 3,173 restaurants in 31 countries outside the US and its international franchisee-reported sales for the year amounted to $663m.

Baskin-Robbins had 4,517 restaurants in 45 countries outside the US and amounted to approximately $1.4bn of international franchisee-reported sales for the same period. In terms of international growth, the last decade has seen total Dunkin' Donuts points of distribution outside the US grow from 1,605 to 3,173, while total overseas Baskin-Robbins points of distribution grew from 2,292 to 4,517.

While it does not give an exact breakdown of geographical sales, the firm’s 2012 report also said Asia and the Middle East generated franchisee-reported sales of $2bn last year, which represented 23 percent of the company’s global sales.

Its associates are also looking outside the Middle East for opportunities as one of the company’s main franchise partners in the region - Dubai-based Galadari Brothers - earlier this year announced that the two firms had signed a joint venture to open approximately 200 additional Baskin-Robbins shops in Australia over the next ten years, more than tripling the brand's presence in the country.

In terms of ownership, the Middle East had, up until January this year, a direct ownership link through the Carlyle Group, the US private-equity firm in which Abu Dhabi’s Mubadala owns a 7.5 percent stake.

Washington-based Carlyle bought a stake in Dunkin’ Brands Group in 2006 and benefitted from the company’s successful initial public offering (IPO) in July 2011. Along with fellow private equity investors Bain Capital and Thomas H. Lee Partners, it exited the company in January 2013, with the three firms earning a reported $2.425bn from their investment.

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British-born Travis was promoted to chairman in May this year, but a strong track record  is nothing new for him. From 2005 through to 2008, he served as president and CEO of Papa John’s, the pizza chain that has baked up annual global sales of $2.1bn and more than 3,300 restaurants in more than 30 countries. During his four-year tenure with the company, he managed to triple Papa John’s online sales, as well as steering its international expansion.

Prior to Papa John’s, Travis was with Blockbuster from 1994 to 2004, where, as president and chief operating officer, he saw global sales increase by over 50 percent and the international business was developed to encompass 26 countries with revenues of $1.8bn.

He also has links to the region as he started his career at Burger King, first as senior vice president of human resources and later as managing director for Europe, the Middle East and Africa.

But despite his previous success, trying to get the best out of Dunkin’ Brands is no cakewalk. One of the ways Travis wants to get as much profit for his franchisees is to try and extend potential business hours. Most of its stores are seen as morning outlets and the majority of business is done by about 11am.

It is also not helped by the fact that a 2012 survey from US-based Nation’s Restaurant News found the chain’s stores scored second-lowest for atmosphere, with Starbucks, Krispy Kreme Doughnuts, Caribou Coffee and Tim Hortons obviously deemed a lot more fun to hang out in.

As a result, the firm has offered franchises various investment schemes to help them modernise their stores, with some spending up to $700,000 on faux-leather chairs, glass partitions with LED lights, cozy booth seating and wall murals.

“Dunkin’ in the US has been very much a morning brand. We have refocused on the afternoon and morning and PM,” says Travis. “We have introduced Wi-Fi in each store and more comfortable seating and music and TV and products for the afternoon, such as a chicken sandwich aimed at the dinner slot.

“We are pleased with that push and there is more to come. The morning has always been strong but if we can build on the capacity throughout the rest of the day it will result in better economics for our franchisees, which will mean more stores.”

Another big help for franchise owners is the recent two-year slump in coffee prices, which is providing a profit boost for retailers. Global coffee production will exceed demand by 4.46 million bags in the 2013-2014 season, the fourth straight year of production surpluses that will see inventories hit their highest mark since 2009, according to the US Department of Agriculture.

“That doesn’t benefit us as a company as the franchises are the ones that benefit. But anything that does anything for unit economics is great for us as we are. We like the current commodity environment,” Travis says modestly.

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Recent profit figures show all these factors certainly are helping. Dunkin' Brands Group's second-quarter profit more than doubled, helped by positive signs from the US. Its biggest business by revenue, the US market, reported a four percent rise in same-store sales for the quarter. As a holding company, the company’s net income rose to $40.8m from $18.5 m a year earlier.

Having worked in the fast food area for decades, Travis is used to battling the obesity question. In a region with such a dire record for obesity and diabetes, does the 63-year-old worry about the impact of the lavish expansion plans he is presiding over?

“We have a clear philosophy. We want to give our consumers the choice of products and we on the Dunkin’ side have a range of products that are called DDSmart, which is better-for-you products that tend to be lower in sugar, salt and calories.”

On the Baskin-Robbins side, they also have a range called BRight Choices, which has no sugar added and consists of reduced-fat pineapple and coconut-flavored ice cream with chunks of pineapple.

In the midst of all this positivity, we got in touch with Edwin J. Shanahan, executive director of DDIFO (Dunkin Donuts Independent Franchise Owners) for the inside scoop about what is really happening at the grassroots level. He was particularly pleased with the new incentives introduced to help new franchisees, which include the ability to amortise the initial $25,000 franchise fee over a period of ten years and a reduction in the royalty rate for products.

“It is absolutely effective,” Shanahan says. “Any financial assistance that a franchisee can realise when beginning a new enterprise such as opening up new stores is very much welcome. It helps pave the way for the long-term success that is the ultimate goal. These types of incentives can be just “what the doctor ordered” to put the success of the franchise that much more within reach.”

So is there anything Travis and his team could do more? “I don’t know that there is any one thing I would point to that the company could do to support franchisees, other than continue to listen to their needs and their issues as they arise. The franchisee is not only the face of Dunkin’ Donuts, but its very lifeblood. It is imperative that the company keeps the needs and concerns of the franchisees in the forefront of every decision.”

With nearly $9bn dollars in sales, a rising share price, a recent doubling in holding profits and outlet numbers growing all the time, Travis and his team are certainly keeping pace. We may have had too much caffeine but we’re still holding out for that Dunkin’ Donuts rollercoaster ride, though, before we’re totally convinced.

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