July 27, 2011
Make way for Dunkin!
Yesterday, on July 26th, Dunkin Brands Group, Inc. had its IPO. With an initial offering price of $19 per share, the company raised in excess of $420 million. Out of the various IPOs we have seen in 2011, this one appears to be more on the conservative side and maybe even historical. The company itself has been around for more than 60 years. That is certainly not the case for Pandora, LinkedIn, GroupOn, and some of the other technology, Internet-based rising stars that raised money this year by offering common stock.
Surprising to me was that the company has only penetrated half the U.S. market. I can recall having an impossible time finding a DD outlet in Florida a few years ago. Nigel Travis, current CEO, says himself that 65% of the U.S. market is still unchartered territory (geographically).
The WSJ article on the IPO today focuses much on the future competition between DD, Starbucks, and McDonalds. Do I believe that my coffee will become much cheaper because of future price wars? Not really. Though certainly during economic hardship you risk losing less of your customer base. I also do recall DD running an ad campaign in its stores highlighting the fact that there have not been any price increases in x number of years. As I mentioned, I really do believe their marketing team and marketing partners have their fingers on the pulse of what is going on. Brand once again seems to be the key notion here. And the more I explore the various consumer markets through these commentaries, the more the value of branding becomes evident.
Without extensive further research what I find interesting here is the growth potential this roughly $580 million company still seems to have. International expansion is the key objective going forward. In October 2010, the company opened its 20th DD store in Mainland China, which according to the CEO is a major focus for the company. [Who does not look at BRIC for future growth these days?] Information I found online seems to indicate that DD now has 8,835 stores worldwide, of which 6,800 are located in the U.S.
If growth in the industry, which appears to be in the low-single digits, comes from taking over customers, it looks to me as if McDonalds has the most to lose. [On a side note, since, yes I am a proud Mom, my 6-year old still refers to the giant fast food provider as "Old Mac Donald"…as in the farm song. I simply can't get myself to correct him. Maybe when he is 7.] While held back by the economic challenges, times for DD seem to look relatively rosy. Nigel Travis appears to have a good track record with a success story at Papa John's on his resume before joining Dunkin Brands in January 2009. Mildly disturbing was a comment I read online indicating that on top of the already existing debt load, owners took out an additional loan in November 2010 to borrow money in order to pay themselves $500 million in dividends. Oh boy – should we open that can of worms and go there? I did not do further research to verify whether this is true or not. If it is, well, that is one side of Corporate America… I am sure sooner or later I will write some commentary on the always-so-highly-debated-topic of unjust compensation for senior executives.