Wall Street or As the World Turns

August 9, 2011

Wall Street or As the World Turns 

Harsh times – truly. As an investor, how do you prepare and how do you respond? Do you stay put and wait it out or do you try to make adjustments to your portfolio, which seem oh so unpredictable? It seems that every time I read the daily newspapers, the commentary on investments and stock markets is contradicting what it said the day before. And who is to blame with so much uncertainty, economic crises, etc. Who can truly predict how major investors react on a day-to-day basis. Us small fish only seem to be able to make small adjustments, the less risky kind, but we are clearly vulnerable to the large investors that seem to change direction from one day to another, with some fantastic master plan in mind: ripples for them, waves for us.

Image: http://www.loveisanorientation.com/

Just last week, there was an article in the WSJ talking about the promising after-IPO gains investors could benefit from.  The government had reached a consensus and made a budget deal, dare I say there seemed to be hope. Companies such as Pandora and LinkedIn that had recently seen great gains during their IPOs, seemed to signal positive energy in the market.  And then the tower started shaking… Standard and Poors downgraded the U.S.' AAA credit rating and the stock market began sliding. According to USA Today, the Dow slipped over 600 points yesterday, and those shining new stars on the stock market saw their share prices decline. The article continues to point out that the "window for IPOs [slammed] shut". In fact, if you have read any newspaper over the last few days, the most common headlines are "economic recession expected to be worse than in 2007" or "Just when it seemed safe, Wall Street tanks like it's 2008." How comforting. But where to turn?

International investments seem to be a non-option. Climbing debt is shaking the foundation of several economies/countries. The Euro may be a bit unpredictable, maybe not depreciating as rapidly as expected, but so far in 2011, the currency peaked in February and has been depreciating (with a few ups and downs) ever since. Real estate is a tough one these days [think long-term my fellow real estate owners!!]. Gold never seems to fail, up +3.7% yesterday and +20.3% for the year. [Protect your jewelry ladies!!]

So, what are our prospects? The Federal Reserve Policy Committee is meeting today to discuss the state of the economy, but seemingly no one expects a stimulus plan to be presented. The downgrading of the country's credit status has President Obama committed to finding additional ways to cut back and reduce the deficit [tax discussions remain on the table], though he clearly seemed aggravated by the credit rating and the impact it had on the already wounded economy. President Obama, I hear you loud and clear. If things were not bad enough, Wall Street just needs to add another layer of complexity, panic, and financial crisis….Thank you very much!!  While I do have investments and manage my portfolio, my random word associations with Wall Street are "legalized gambling" and "mafia". Too harsh? Obviously with discussions and credit ratings of the current nature, consumers will panic and spending will be conservative. The downward spiral continues. So who is helped? We shall return to this thought... 

To add to the investment and economic confusion, USA Today also reports that "U.S. banks get more cash than they want". With the European debt crisis, investors have pulled away from European banks leading to cash influx in the U.S., but apparently, they don't want the cash either given that there is little current opportunity to invest it profitably.

Oh what a dilemma! Those who have it don't want it and those who don't have it are desperately seeking it.  In the meantime, those controlling it are playing games and setting the world in panic [to make even more money]. So what are we supposed to do? Once again, are we supposed to stay put in fear of rising unemployment and layoffs? Should we conserve our savings and spend cautiously? By the way what is going to happen to our interest rates and inflation? Let's see what the Fed's policy committee comes back with. Better yet, let's not read newspapers for a week and pretend Wall Street does not exist and everything is the same…oh what peace….

Make Way for Dunkin!

July 27, 2011

Make way for Dunkin!

Yesterday, on July 26^th, 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.

I am a big Dunkin Donuts (DD) fan myself and believe that they have been rather clever in their marketing and advertising. The company has proven to be innovative in its thinking by introducing new drinks, new food items, integrating their stores in select gas stations and supermarkets. The concept of temporarily introducing new products and measure their acceptance before committing significant resources to them seems smart.

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 middle or the country also appears to have much lower coffee consumption than the coastal areas. Different pace of life...

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 20^th 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.

Until the IPO, ownership of Dunkin Brands Group lay in the hands of several private equity firms that continue to hold a stake now: Bain Capital Partners, Carlyle Corporation and Thomas H Lee Partners. They reportedly acquired the company for $2.4 billion in 2006. It is interesting to me that private equity firms keep buying these large organizations, really across all industries and segments. They tend to run them nice and lean.

Anyway, for today my point is "Go DD". Growth awaits if pursued with continued clever marketing, an eye on geographic expansion and diversification, and the right amount of humbleness!

My suggestion for creative diversification: Copy the idea of an ice cream truck and hit the spray parks and playgrounds and beaches with a DD truck/van to deliver iced-coffee during the summer. I would give anything for an iced latte during those moments….

Note: Picture was accessed on July 27, 2011, at http://www.dunkinfranchising.com/