With so many bleak topics in today’s news it is exciting to come across something that is good for a changr. The Dunkin’ Donuts stock price rose 47%. There are a couple of reasons why investors are looking to Dunkin’ Donuts as an attractive investment. Although DD has a heavy debt load, they are taking the next six months to pay the debt down to a more reasonable level. DD is also planning on expanding its store base both in the US and abroad.
Realize that this is not just a donut shop. They also own Baskin-Robbins. They are also viewed as a serious threat to Starbucks on the East coast. Who would think that DD is a threat to Starbucks? With 6,800 stores DD is about half the size of Starbucks. However DD franchises all of its stores while Starbucks licenses a good portion of theirs. This means the DD’s capital expenses are kept low with high operating margins.
If Dunkin’ Donuts gives Starbucks a run for its money who benefits? Obviously the DD investor will, but so will the consumer. Those of us that like coffee will be able to get a cheaper cup of coffee. when the consumer has a choice, quality of the choice will go up and the price will go down. That is basic economics.
So Dunkin’ Donuts grow baby grow. Starbucks needs someone to keep them humble and help us to get a decent price for a great up of coffee.
And that is my thought for the day!