Dunkin’ Brands (DNKN) has made a lot of money selling all-American donuts to the masses here in the States. But now that the stock of parent Dunkin Donuts has struggled to grow after its 2011 IPO, the company is looking overseas for growth.
Dunkin’ Brands recently announced plans to expand within the Euroepan Union, interviewing prospective franchisees in major cities in Austria, Belgium, Denmark and the Netherlands this year and broadening expansion into 2015.
The news is sweet for DNKN stock investors, who are looking for something to change the recent trajectory of shares. Investors have lost about 5% so far in 2014; DNKN also has lagged the market in the last 12 months, with just 12% gains for Dunkin’ Donuts stock vs. about 16% gains for the S&P 500 index.
But will the approach pay off and put Dunkin’ Donuts on the world map the same way that coffee giant Starbucks (SBUX) has gone global in the last several years?
I think it will.
Instead of Dunkin’ Donuts, Dunkin’ Danish?
Dunkin’ Brands executed a 2011 IPO in part because DNKN was very much a regional power in the U.S. At the time, a big part of the narrative behind the Dunkin’ Brands stock offering was expansion — that “the plan is to grow Dunkin’ Donuts west of the Mississippi through franchisee expansion,” as Business Insider put it.
Investors ate up that story, as Dunkin’ Brands priced its IPO at $19 per share of DNKN stock, then quickly raced up to the low $30 range by the end of 2012 and the high $40s by the end of 2013.
Now, Dunkin’ Brands stock has languished as the initial craze of the initial public offering has faded and growth expectations haven’t kept up. The recent decision to jump into Europe makes sense, then, as DNKN looks beyond the U.S.
However, the move also makes sense in that Dunkin Donuts stock is not simply exporting American tastes; the company plans to compete on European soil with European foods from danishes to croissants.
This is a very smart decision, and the proof of this concept has been borne out by companies like Yum Brands (YUM) and Domino’s Pizza (DPZ) that have achieved big international success by adapting to local tastes rather than simply exporting the old U.S. standbys. For instance, a potato and paneer burrito at Taco Bell restaurants in India fueled big growth for the YUM restaurant chain at a time in which other Western brands were lagging in India.
Execution will be key, and there’s still risk to DNKN stock holders should the company launch an ill-advised menu or partner with the wrong franchisees in the wrong regions of Europe.
However, on the surface, the Dunkin’ Brands expansion is the right move at the right time.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via@JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
