Coffee Maker Gets Close to Seattle

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Dunkin Brands Group (NASDAQ: DNKN) is going west. Dunkin Donuts plans to open its maiden California locations -- with the exception of existing locations at a military base -- in the southern part of the state in 2015. It may be California today, but Dunkin isn't stopping there.

Dunkin expects to double its U.S. presence to 15,000 locations over the "long term," according to company executives speaking at a recent investor conference. The coffee brand was founded in Quincy, Massachusetts in 1950 and has saturated much of the Northeast already. It is working its way south and west, and eventually may be populating Starbucks' (NASDAQ: SBUX) backyard in Seattle, Washington, as Dunkin Brands identified the state as one of its future markets in recent marketing materials.

In 2013, Dunkin Donuts plans to add as many as 360 domestic store locations to its existing 7,306 U.S. stores. The expansion plan involves adding 3,000 stores east of the Mississippi and also pushing west, where Dunkin Donuts assesses the future market opportunity at 5,000 of store locations.

Dunkin rival Starbucks already operates more than 11,000 stores in the U.S. and has plans to add at least another 1,500 in the U.S. alone by 2017. Starbucks already has approximately 7,000 international units, including a recent expansion in India.

Incidentally, Winston Salem, NC-based Krispy Kreme Doughnuts (NYSE: KKD) opened its maiden location in India only days ago. The company has outlined an aggressive growth strategy that in addition to India and emerging markets includes a domestic expansion. Krispy Kreme expects to increase its U.S. presence by more than 70% over the next several years, according to Bloomberg.

Dunkin Brands also has competition from McDonald's (NYSE: MCD), which has been focusing on its coffee offering. Dunkin Donuts may have the Kcup, but McDonald's is encroaching on specialty coffee makers' turf. The fast-food restaurant entered the $5.6 billion packaged coffee market only weeks ago in Canada, but has been mum about any plans to offer the product in the U.S., according to the Wall Street Journal.

Dunkin's Plans

While Starbucks' international presence trumps that of Dunkin Brands, the Massachusetts-based company may have something up its sleeve. With the appointment of Giorgio Minardi as president of Dunkin Brands' International last February, the company appears eager to reveal details about an overseas strategy. Dunkin is also pointing to its Baskin Robbins ice cream division as a "crown jewel" in its international expansion plans, according to Travis. More details on Dunkin's international focus are expected to emerge in the company's upcoming 4Q earnings and fiscal year 2012 results.

Currently, Dunkin Brands' U.S. locations generate nearly 75% of revenues. Baskin Robbins produces just below 20% of revenues, while the remainder of sales stem from the international business. Nonetheless, Dunkin considers the international segment a"fast growing business for the future," according to Dunkin Brands chief executive Nigel Travis speaking at the investment conference.

In a recent Wall Street Journal interview, Travis took pride in the company's value proposition, which is reflected in the fact that its franchisees have not raised the cost for a cup of coffee for years in many cases.

Dunkin Brands, which pays a quarterly dividend of $0.15 per share, recently revised its projected fiscal 2012 EPS to a range of between $1.25 to $1.27 from previous estimates of between $1.22-$1.25.  We'll know the results on Jan. 31. The stock has already advanced approximately 44% over the past 12 months, but if Dunkin Brands unveils more details about its growth strategy, including its overseas expansion, the stock could see some additional upside very soon.


GerelynT has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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