Will Dunkin’ Donuts Make the Same Mistakes that Crispy Creme Made?

“Time to bake the donuts,” as Fred the Baker use to say. Dunkin’ Brands Group Inc. (DNKN), owner of Dunkin’ Donuts and Baskin-Robbins Ice Cream, went public yesterday with an impressive debut. DNKN opened at $19 per share and closed at $27.85 per share. That’s up $8.85 or a 46.58 % increase on a very rocky day for the stock market.

Dunkin’ Donuts and Baskin-Robbins have been in business since the 1940s. This morning I just had to see some of those ads with Fred the Baker, on his faithful mission to bake the donuts every day for his loyal customer base. You can still find those charming ads over at YouTube, if you’re charged with a similar caffeine shot of nostalgia like me.

But how ’bout the business deal? Why so much enthusiasm for this IPO? And are our memories short? Look what happened to Crispy Creme back in 2003. The price peaked at $49.37 per share, but then proceeds to plummet (can’t find the percent loss of market value). When Crispy Creme went public in 2000 it jumped up 76 %, 30 % more than Dunkin’ Brands.

fred the baker

You should recognize, however, the problem with Crispy Creme was they tried to expand too fast, then they had an accounting debacle which caused a flight from the stock. Dunkin’ has just 6,800 stores currently but projects opening 15,000 U.S. stores over the next 20 years. This looks like a reasonable level of growth, given the fact that Dunkin’ has little presence in the West and the Midwest.

Furthermore, comparisons are popping up with Starbucks, the gourmet coffee king. Dunkin’ Donut’s cup of coffee (I haven’t tried it yet) is their biggest seller and is competitive with Starbucks in many ways. Beverage sales comprise 60 % of DD’s total sales. In comparison, the clientele of Dunkin’ is much more loyal than Starbucks.

Also, Dunkin’ appeals to regular people, whereas Starbucks is promulgated as more upscale. Some of this social engineering spin may be just image fluff, but it seems to stick in the mind of the public. When I go to Starbucks, I don’t notice any class distinctions, but then again I live in Austin, where T-shirts and blue jeans are an ubiquitous ‘Wall Street garb.’

dunkin donuts

The social angle is so much small talk. Why wouldn’t a bunch of yuppies want to pay a visit to Fred the Baker? They most certainly will once some of these new DD stores are built! Another more important issue is that most Dunkin’ Donut stores are franchised and Starbucks are company run. Cost can be held down better at a franchise store.

Baskin-Robbins are mostly franchised also. I managed a BRIC store in the late 1970s. Baskin-Robbins is very well managed and enormously popular in suburban neighborhoods, such as North Dallas, where I worked many years ago. I drove by the old store late last summer, and it’s still humming. The Baskin-Robbins portion of Dunkin’ Brands Groups Inc. is a solid plus to this venture.

Quite a bit of debt is on the books. This debt can be paid down by investments in DNKN stock shares, however. Hopefully, a lesson is learned from the tanking of Crispy Creme. Slow, measured growth is always a good idea. Sound accounting is a must, if you favor survival. We’ll watch the DNKN ticker symbol with tender loving care. In the meantime, I need to see another Fred the Baker ad. “Time to bake the donuts.”