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Espresso and value drive Dunkin’

Sales of espresso drinks are up 40% this year, and the company said it is starting to see benefits from digital investments.
Photograph courtesy of Dunkin'

America increasingly runs on Dunkin’s espresso drinks.

The Canton, Mass.-based coffee chain said Thursday that its same-store sales rose 1.5% in the third quarter ended Sept. 30, as the company generated stronger sales from its espresso-based drinks and convinced more customers to order value sandwiches.

The performance was somewhat typical for many restaurant chains these days: Its sales came from customers ordering higher-priced items. But customers came in less often, as traffic at the chain declined.

It was also a typical quarter for Dunkin’, which in the past three years has averaged quarterly same-store sales growth of 1%. Since the company went public in 2010, it has had only two negative quarters. But it has also been nearly six years since its comparable store sales rose more than 3%.

Still, company executives say the espresso platform has been a big win. The drinks, including its new latte line, now represent 10% of the chain’s sales. Espresso drinks are up 40% over the past year, since the company made a big investment into the beverage line.

“The quality improvements are driving our results,” Dunkin’ CEO Dave Hoffmann said on the company’s third quarter earnings call Thursday. “But we also know that we can do more. We are a beverage-led brand, and espresso is a big part of our future. But we will also fight to hard to protect our leadership in drip coffee, both hot and iced.”

Cold coffee in particular is a major battlefront in the beverage wars. Dunkin’s Seattle-based rival, Starbucks, generated 6% same-store sales growth last quarter thanks largely to its own cold beverage platform.

Hoffmann said Dunkin’ is selling new iced coffee brewers nationwide to improve the quality of those drinks. “We are a leader in iced coffee and are taking meaningful steps to grow our market share,” he said.

Dunkin’ nearly a year ago invested $100 million to help operators add new espresso machines into its restaurants.

That investment included some spending on new technology, a major area of focus for a chain that competes with both Starbucks and McDonald’s, two chains pushing hard themselves to use innovative technology to improve service.

Dunkin’ recently expanded the capabilities of its DD Perks loyalty program, which now has 12 million members and contributes 13% to sales. Loyalty members can now get points no matter how they pay for their orders.

That move “is going to give us tremendous upside,” Stephanie Meltzer-Paul, vice president of digital and loyalty marketing, said on the call. “That’s really going to unlock the program and open it up to a lot more members.”

The company also processed 18 million mobile orders last quarter, up 25% over the previous year.

Dunkin’ expects delivery to be an important sales lever. The company said it’s working with multiple delivery providers and is delivering products in three major markets: New York City, Boston and Philadelphia.

“We’re excited about the space as we learn more and scale into the future,” Hoffmann said.

Dunkin’ believes that its new remodel strategy will help it build more technological capabilities in the coming years. The 9,500-unit chain expects to have 500 locations in its new “NextGen” image by the end of this year.

The company said guest satisfaction scores are higher at stores in the new image and that the remodels are driving “double-digit” category increases. That includes more iced coffee sales coming through the new tap system and more bakery orders thanks to the new glass case that are part of the NextGen remodel. It also generates more mobile orders thanks to a pickup area for those customers.

“NextGen quietly has been one of our single biggest traffic drivers and continues to be so as we add more units,” Hoffmann said.

Dunkin’ has high hopes for one potential short-term traffic driver in its Beyond Sausage breakfast sandwich, which it will expand nationwide beginning next week. The company tested it in Manhattan but also “in other parts of America that resemble more of a coast-to-coast play,” Hoffmann said.

“We’re very excited about this,” he said, noting that sales dropped only slightly after the sandwich’s initial launch in specific markets and then “held steady” thereafter.

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