Dunkin' Brands Eyes Big Expansion

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) plans to double the number of outlets of its subsidiary Dunkin' Donuts in the U.S. in the next 20 years.

The move will increase the number of outlets to a whopping 14,000 in the U.S. alone. The company will also debut Baskin-Robbins in Vietnam. Dunkin' Brands competes with McDonald's (MCD), Starbucks (SBUX), Krispy Kreme, Dairy Queen and Cold Stone Creamery to name a few.

The stock has gained almost 5% since the start of the year. We estimate a $29 price for Dunkin' Brands, which is about 10% above the market price.

See our full analysis of Dunkin' Brands here.

As part of its ambitious plans, Dunkin' plans to reduce its royalty fees for the first few years of operations as an incentive for franchisees. Almost all of the company's current 7,000 outlets in the U.S. are franchised. The company also signed an agreement with National DCP LLC, which would make it the exclusive supplier for all of Dunkin' Donuts outlets in the U.S. The company believes the deal will help accelerate its expansion plans.

According to our estimates, Dunkin' Donuts' U.S. operations contribute more than 60% to the overall stock price. Currently, Dunkin' Donuts has around 7,000 outlets in the U.S., and we expect it to increase to 9,000 by the end of 2018.

Dunkin Donuts' U.S. operations contribute a lot more than its international operations primarily due to higher Average Revenue per Outlet (ARO) enjoyed by the U.S. outlets. International outlets suffer from low AROs, less than one-fourth of that of the U.S. outlets. However, with a plethora of outlets opening up in the next few years, the company has to be careful that its new outlets don't cannibalize the sales of its existing stores, reminiscent of Starbucks back in 2008 which led to the closure of hundreds of its outlets.

Baskin-Robbins signed a franchise agreement with Blue Star Corp Ltd., a Vietnamese food manufacturing company, which will see the opening of about 50 new Baskin-Robbins restaurants over the next few years. The first three will be opened this week in Ho Chi Minh City. With this agreement, the ice cream chain will have 2,000 outlets in the Asia-Pacific region alone.

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