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4 Trends Affecting Dunkin' Brands

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- Dunkin' Brands (DNKN - Get Report) is a franchisor of quick service restaurants and operates globally through Dunkin' Donuts and Baskin-Robbins brand names. Dunkin' Donuts offers varied products including coffee, donuts, muffins, bagels, and breakfast sandwiches, among others, whereas Baskin-Robbins is a global chain of ice cream parlors.

At present, Dunkin' Donuts' U.S. segment contributes the most to Dunkin's revenues, with approximately 70% share of gross revenues. Going forward, we believe its contribution would decline slightly and Baskin-Robbins International would emerge as the key driver for growth. Dunkin' Brands competes with McDonald's (MCD), Starbucks (SBUX), Krispy Kreme, Dairy Queen and Cold Stone Creamery among others.

We recently launched our analysis of Dunkin' Brands stock with a $29 Trefis price estimate, which is around 10% ahead of the market price.

See our full analysis of Dunkin' Brands here.

Dunkin' Brands operates mainly on a full-fledged franchise model, unlike its competitors such as Starbucks and McDonald's which follow a mix of the company operated and franchise business model.

Margins are higher in the franchise model compared to the company-operated model as capital investments required are lower. New store development and substantially all of the store advertising costs are funded by franchisees and thus explain the high margins in this business model.

Here are the trends affecting Dunkin' Brands:

Increase in health consciousness among customers

The awareness about healthy food intake is increasing globally. Customers are cautious of health disorders resulting from junk food. Consequently, fast food companies have started offering healthier food offerings in order to catch up with this fast emerging trend. We believe this trend would emerge as a key factor that would govern Dunkin's product offerings in the future.

Dwindling consumer discretionary spending

Volatile economic conditions are directly affecting the fast food industry. The impending euro crisis, sluggish U.S. economic recovery and high unemployment rates are affecting disposable incomes worldwide.

Higher cost pressures troubling food and beverage sector

Rising inflation has significantly increased costs for food and beverage companies. Many of the firms have increased the prices of their offerings to fight inflation. However, continued inflationary pressures could significantly affect growth prospects.

Shift in Ice Cream Consumption in U.S.

The ice cream industry in the U.S. is shrinking gradually. A trend toward home consumption is growing and sales at ice cream parlors are declining. Baskin-Robbins is gradually closing down its franchises in the U.S. and expects the trend to continue in the coming years.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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