Dunkin’ Privatization Bid Points To Caffeinated Competition

News that Dunkin’ Brands might be taken private in an $8 billion deal with a 20 percent premium suggests that investors could be seeing value in restaurant and retail chains that are reinventing themselves in the post-COVID era.

Dunkin’, the parent firm of some 21,000 Dunkin’ and Baskin-Robbins locations, confirmed that it has held preliminary talks with Inspire Brands, which already owns Arby’s, Buffalo Wild Wings and Sonic.

Dunkin’ said there was no certainty that any agreement will be reached, and that it would have no further comment until a transaction was agreed upon or discussions were terminated.

However, the talks are coming at a critical juncture for Dunkin’s coffee business. The chain dropped the word “Donuts” from the “Dunkin’ Donuts” name at the start of 2019, and has been working to modernize its menu and offer new drinks. It is also in the process of closing 800 underperforming stores.

All of those steps have been seen as a way for Dunkin’ to better challenge Starbucks and other rivals in the highly competitive coffee space.

In the wake of the Dunkin’ news, RBC Capital Markets Analyst Christopher Carril told CNBC that he expects more large, multi-brand restaurant companies to consider acquisitions, including Restaurant Brands International, Yum Brands and Darden Restaurants.

The New Digital Coffee Run

The digital side of the coffee business is also under renewed scrutiny. Even before news of the buyout talks, Dunkin’ Chief Digital and Strategy Officer Philip Auerbach said in July that the company was working on revving up its online and mobile operations.

Like all restaurants, Dunkin’ is still in the process of retooling to adjust to COVID-era business and lifestyle changes, such as fewer people commuting due to increased work-from-home arrangements.

At the same time, a cutting-edge customer loyalty program and an array of payment options at Starbucks are also seen as areas where Dunkin’ could improve.

Panera’s highly successful new monthly coffee subscription launched in February. Paytronix CEO Andrew Robbins recently told Karen Webster that after an ill-timed start, the $8.99-a-month subscriptions are selling like gangbusters, and are generating increased visits and ticket sizes.

Robbins said subscription members come in about 40 percent more often than their non-subscribing counterparts – and the frequency of their visits jumps 200 percent after subscribing. They also attach high-margin goods like bagels, muffins and breakfast sandwiches to their coffee orders.

Times Are Changing

If nothing else, the new Panera program has shown how innovation and relatively small adaptations can pump new life into existing brands – and garner interest from companies such as Inspire, which could benefit from synergies with its existing stable of brands.

“Dunkin’ has demonstrated strong recovery trends amid a challenging environment,” analysts at Credit Suisse said in a report on Friday (Oct. 24) cited by The Financial Times. They pointed to the fact that 70 percent of Dunkin’ outlets have drive-thrus that allow people to reduce COVID exposure by not going inside.

The FT also pointed out that a deal with Inspire would reverse Dunkin’s nine-year tenure as a public company, which began when Bain Capital, the Carlyle Group and Thomas H. Lee Partners took the company public in 2011.