Dunkin’ Donuts to Open 150 Stores in SoCal

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Need more coffee shops in Los Angeles? Dunkin’ Donuts is coming back to town.

The East Coast staple, one of the most recognized names in coffee and donuts, said Wednesday that it’s returning to Southern California with plans to open 150 stores starting in two years — and eventually as many as 1,000 statewide.

Unlike in the past, when it had roughly a dozen shops in California before pulling out in the late 1990s, the Canton, Mass., company plans a bigger commitment of franchised operations to compete in an already crowded market for coffee, donuts and quick breakfasts.

Analysts warned that the company, Dunkin’ Brands Group Inc., must navigate around a series of potential pitfalls but could become as established in California as it is elsewhere.

“They’re going after the blue-collar, anti-Starbucks customer. And that’s served them quite well in the rest of the country,” said Wedbush Securities analyst Nick Setyan.

Wednesday’s announcement sent some consumers into spasms of elation and struck others with trepidation as they gave voice on Twitter to their emotions.

“I’ll be camping outside the LA Dunkin Donuts store like those Twihards camp … at a Twilight premiere,” wrote Los Angeles Twitter user Annie Stamell.

Eric Spiegelman of L.A. tweeted: “Dunkin’ Donuts is coming to Los Angeles which means I never have to go to New York again!”

But Jayme Roxann Wright tweeted that she wasn’t too happy: “I always thought it was nice that there were so many mom and pop stores:(”

And Silver Lake Twitter user Meg Howe wrote: “Oh man, the one thing I wanted to leave in Boston.”

Starting in 2015, franchisees in Los Angeles, Riverside, San Diego, San Bernardino, Ventura and Orange counties are expected to have about 150 stores open, the company said.

It also is looking to eventually expand along the border with Nevada, according to its website.

The economics “make sense,” Chief Executive Nigel Travis said, pointing out that the company has a franchise-owned procurement and distribution center in Phoenix and has been standardizing pricing throughout the country.

For now, there aren’t any plans for the Bay Area. But the company said it expects to have 1,000 stores across the state down the line.

Shares of Dunkin’ Brands rose 87 cents, or more than 2% on Wednesday, to $34.89 after the morning announcement.

The brand holds a cultish appeal among many East Coast transplants to Los Angeles. They often trek to Las Vegas or Phoenix for the nearest fix.

The brand is no stranger on the West Coast. Dunkin’ Donuts packaged coffee is sold in grocery stores across California, and its commercials are on TV stations statewide. Dunkin’ Brands owns 455 Baskin-Robbins ice cream shops in the state and began selling K-cup packs of its coffee there last fall.

Dunkin’ Brand’s initial public offering in July reignited hopes from analysts and fans that the chain — half of whose 10,000 locations are in the New England and New York markets — would look West.

But Dunkin’s path back to California has been a multiyear tease.

After closing its California shops in the late 1990s, Dunkin’ Donuts tried a comeback in Sacramento in 2002, but that was short-lived.

Last spring, it opened a branch on the Camp Pendleton military base, where civilians aren’t allowed.

Analysts said Dunkin’ Brands will have to tread carefully in the Southland.

“Growth just never comes easy; expectations have to be set appropriately,” said analyst Conrad Lyon at B. Riley & Co.

“When you go into a new territory, there’s a nice honeymoon period where sales tend to be strong out of the gate, but then they slow down and could take years, if not decades, to build back up.”

Southern California is saturated with rivals peddling coffee, donuts and related products.

Starbucks alone has 2,500 locations across the state. McDonald’s, with its McCafé coffee line, has 800 restaurants from Bakersfield to San Diego.

And a slew of local independent brands — the Urth Caffés, the Café Gratitudes, the Donut Man-style shops — engender passionate loyalty from joe-drinkers and donut-munchers.

“Everywhere in the country is competitive now,” Dunkin’s Travis said. “We’ve competed pretty well.”

Dunkin’ Donuts is entering Southern California at a time of steady gains.

The coffee and breakfast sector is being bolstered by more double-paycheck households, longer working hours and higher incomes nationwide.

The segment will grow 2.3% this year to reach $38.6 billion in sales, according to research group Minter.

Morning meals make up more than 90% of recent traffic growth in the quick service restaurant segment, experts said, leading McDonald’s, Wendy’s, Taco Bell and other companies to push their early menus.

The Peet’s and the Tully’s coffee brands, long present in California, were recently bought by new owners, and Wall Street has pegged Jamba Juice and Krispy Kreme donuts as likely takeover candidates, sending their stocks surging in recent weeks.

But the small operations may have to worry most about Dunkin’ Donuts’ arrival.

“The independents mostly don’t have the marketing clout of major chains,” Travis said. “Often, we pick up share from independents rather than directly from Starbucks, McDonald’s or anyone else.”

Dunkin’ also has to take into account the sprawling Southland landscape, which will make it harder to create the same demand that its stores in the densely populated East Coast and Northeast centers muster, analysts said.

Franchisees will need to be able to afford locations with built-in bakery facilities.

They’ll also need drive-throughs, a feature that for Dunkin’ often generate double the revenue of stores without it, said Pacific Management Consulting Group principal John Gordon.

“In coastal California, all of those good sites have already been taken, unlike in the Northeast where Dunkin’ was the first guy on the spot,” Gordon said. “They’re coming into an area that’s already over-built and over-developed.”

The chain also will have to recalibrate its coffee blends from the lighter roasts favored east of Denver to the darker varieties preferred in the West, he said.

Dunkin’ said it’s already working on more regionalized products, such as Coco Leche donuts in Miami and sausage kolaches in Dallas.

“If there are appropriate localized products we can innovate for California, we will,” Travis said.

Nationwide, the chain said it opened 291 net new stores in 2012, and plans to open up to 360 new outlets this year.

The company said it is considering more openings at colleges and universities, casinos, military bases, supermarkets, airports and similar areas.

Dunkin’ hopes eventually to have more than 15,000 shops nationwide. Already, the business sells 1.7 billion cups of coffee a year, according to the NPD Group research firm.

-Los Angeles Times

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