Dunkin' (DNKN) Entry Into Pre-Made, Cold Coffee Market Should Give Profits a Jolt - TheStreet

Dunkin' Brands (DNKN) - Get Report seems to have been dogging Starbucks' every move this year. But following the Seattle-based chain's playbook has not been a bad thing.

So far this year Dunkin' shares have shot up by more than 34%. And now the company has announced another move into a Starbucks-dominated space that should prove beneficial for investors. The company is partnering with Coca-Cola to bring ready-to-drink coffees to Dunkin' shops, grocery chains and convenience stores.

It is a good time to buy Dunkin' stock. Shares rose in Thursday trading.

Dunkin' Donuts with its pairings of glazed doughnuts and cups of good old coffee rather than fancy pastries and drinks that require an Italian dictionary to order has a more down-to-earth reputation than Starbucks or other coffee chains.

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But Dunkin' has faced a dilemma as Starbucks locations have popped up on practically every street corner. From 2011 to 2016, same-store sales growth plunged from 5.4% to 1.4%.

That's when the company began innovating to improve its business.

In June, Dunkin' launched a new loyalty rewards app to rival Starbucks' program. In addition, it's been testing cold- and nitro-brew coffees and ramping up its espresso and fancier coffee offerings. And the company was even ahead of Starbucks in rolling out its pumpkin spice-flavored drinks and desserts before the larger chain's much-heralded Pumpkin Spice Latte.

Coca-Cola will manufacture and distribute the bottled iced coffees, which will rival Starbucks' popular bottled Frappuccino line. The drinks will be available in a range of flavors. 

CEO Nigel Travis notes that the bottled coffee line will bring Dunkin' coffee to consumers who wouldn't necessarily stop in one of the chain's stores. "Some of our Dunkin' customers were drinking other people's products because we weren't there," he said. Dunkin' already sells packaged coffee blends on grocery shelves, but these coffees will be new to the cooler.

Starbucks has been marketing its cold bottled coffee drinks in a 50-50 partnership with PepsiCo since 1997. It currently controls around 97% of the ready-to-drink coffee market in the U.S. So Dunkin' is far removed from making a serious dent in the market.

Dunkin' will split profits from read-to-drink coffee sales with Dunkin' Donuts franchises. 

However, investors should expect profits once these drinks roll out. There are enough rabid Dunkin' fans to send sales soaring. That will result in some strong profits.


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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.