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Dunkin Brands Group Inc (DNKN), Starbucks Corporation (SBUX), McDonald’s Corporation (MCD): A Quick Service Restaurant Heading in Two Different Directions

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At one time, Dunkin Brands Group Inc (NASDAQ:DNKN) was best known for its doughnuts, or … donuts. After all, most people refer to this sweet and caffeine-product packed establishment as Dunkin’ Donuts, not Dunkin’ Brands. It’s called Dunkin’ Brands because it includes Baskin-Robbins, a hard-serve ice cream treat that many look forward to on occasion.

While Dunkin Brands Group Inc (NASDAQ:DNKN) still offers tasty doughnuts and refreshing ice cream, it’s now best known for its coffee. Therefore, let’s see how it stacks up against other quick-service coffee providers.

Dunkin Brands Group Inc (NASDAQ:DNKN)

A top-tier brand

Regardless of what you read from this point forward, it should be noted that Dunkin’ Donuts and Baskin-Robbins are top-tier brand names. Therefore, their potential is always going to be high, especially in strong consumer-spending environments.

Decelerating comps growth (for the most part)

The good news is that Dunkin Brands Group Inc (NASDAQ:DNKN) is still seeing comps growth, which can’t be said for all quick-service restaurants. The bad news is that comps growth has decelerated in two of four of its segments:

Q2 2012 Q2 2013
Dunkin’ Donuts U.S. 4% 4%
Dunkin’ Donuts International 3.5% (1.7%)
Baskin-Robbins U.S. 4.6% 1.6%
Baskin’ Robbins International 1.5% 2.6%

Domestically, Dunkin’ Donuts has maintained its comps-growth pace thanks to higher average ticket and improved traffic. For higher average ticket, increased demand for premium-priced cold beverages and sandwiches played a big role. The traffic-boost stems from product innovation and effective marketing.

Staying on the domestic front, Baskin-Robbins saw a big decline in comps growth. Put simply, more people like to eat ice cream at home these days. The decline in growth was partially offset by limited-time offers for take-home ice cream as well as flavors of the month and cake sales.

Moving overseas, Dunkin’ Donuts didn’t provide a reason for its comps decline. For Baskin-Robbins, we at least know that demand is strong in South Korea.

If you only looked at total revenue for the quarter, which by the way moved 5.9% higher to $10.1 million year-over-year, then you would only see a positive trend. But this number includes 151 new net openings, which helped drive the number.

The overall takeaway here is that Dunkin’ Donuts is performing on par domestically, and sub-par internationally; and that Baskin-Robbins is performing well internationally, but not as well domestically. Perhaps a different coffee provider offers a better investment opportunity.

Dunkin’ Brands vs. peers

When you think of coffee, Starbucks Corporation (NASDAQ:SBUX) should immediately come to mind. Starbucks might not be growing as fast as it did in the past, but it’s still growing. And with consistent product innovations added to its menu, it seems as though the growth will never stop. Starbucks also has growth potential in emerging markets. However, one of the biggest reasons many investors prefer Starbucks over Dunkin Brands Group Inc (NASDAQ:DNKN) is pricing power.

Starbucks Corporation (NASDAQ:SBUX) has the ability to charge premium prices for its specialty coffees, which aids the company’s top line. Another reason some investors prefer Starbucks over Dunkin’ Brands is atmosphere. The cozy and pleasant atmosphere at Starbucks shouldn’t be overlooked. It’s much more appealing than the atmosphere at most Dunkin’ Donuts, and it’s what keeps customers at the location, often ordering more drinks and snacks as they sit and work or socialize.

Then there’s the polar opposite of Starbucks Corporation (NASDAQ:SBUX) when it comes to coffee, which is McDonald’s Corporation (NYSE:MCD). This doesn’t refer to quality, but price. At McDonald’s, you can order many different coffees from the McCafe Menu, including Premium Roast Coffee, McCafe Mocha, and Premium Roast Iced Coffee. McDonald’s coffee is freshly brewed every 30 minutes, and it’s made from 100% Arabica beans. Plus, you won’t pay an arm and a leg. This has led many consumers to McDonald’s instead of Starbucks.

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