Dunkin Brands Essay

India is a huge market that most of the companies want to have for their own benefits, the reason for these is the amount of people that live there. The poblation is comparing like china, this important details is gold for every company. Consummtion of every persona is a big data to colect . As the company operates in a highly competitive segment of the food retail industry, brand recognition, product quality, customer service, and competitive pricing are key to building and maintaining market share.

Recent earnings have been strong, with sales revenues growing both domestically and internationally. While the firm boasts the highest operating margins of anyone in its peer group, high interest expenses have tempered net margins. The company has rebounded strongly from the recent recession, though many of its larger competitors have demonstrated more robust financial health. In particular, the firm’s substantial indebtedness may hamper its ambitions to expand profitably if access to affordable financing is diminished.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

As a result of the 2006 leveraged buyout, the company holds approximately $1. 46 billion in long-term debt obligations. The company’s heavy debt burden and relative illiquidity also increase its vulnerability to adverse changes in macroeconomic conditions. In order to mitigate these long term risks and provide greater financial flexibility, we recommend the firm begin to significantly pay down its debt. US-based foods chain Dunkin’ Donuts has come to India just a few months ahead of the arrival of its global archrival Starbucks, by launching its first store in the national capital on Tuesday.

Starbucks is expected to launch in September this year. The company, headquartered at Canton in Massachusetts, plans to set up eight to 10 stores this financial year — all in Delhi. That, it says, would earmark its journey to slowly turn out to be a pan-India player with about 100 stores in the country in the next five years. Its strategy is to be an “affordable” eating place that would bring in the moolah from food. This would thus be unlike the case in the US, where coffee reigns supreme in terms of revenue. | |

Hari S Bhartia, co-chairman and founder of Jubilant Bhartia Group, said the aim was to launch an affordable brand in India. “Our products like coffee are priced 10 per cent to 15 per cent lower than competitors,” he noted. “We want more customers to come in so that we get scale in the business. ” The stores will be wholly owned by Jubilant FoodWorks, which also has the rights for Domino’s Pizza and replicate the same model of affordibility. It will pay a royalty fee to Dunkin. Globally, Dunkin’ Donuts has over 10,000 restaurants across 32 countries. It recorded a sales of $6. 4 billion in 2011.

The 1950-founded company, which is scaling up presence in Asia, is planning to open 300 restaurants in the region over the next few years. Bhartia wants to clearly differentiate Dunkin from its rivals, especially that of Starbucks. “There are 1,800 coffee cafes in the country and diverse brands; Starbucks will be one of them,” he points out. “Our effort will be to differentiate between other coffee players by offering all-day services. ” To achieve that, Dunkin Donuts & More’ will offer a diverse food options ranging from donuts (or doughnuts, at Rs 45) to cabiatta sandwiches (Rs 90-110) and, of course, donuts.

However, Dunkin is the market leader in the US in regular, decaf ice and hot flavoured coffee in the US. To keep a tab on costs as well as on the quality, 90 per cent of the ingredients are being sourced locally. “We took a year to develop our vendor base,” Bhartia said. “We only import items, for which we didn’t find the right quality. ” The company will leverage Domino vendors. It is also synergising many departments like human resources, finance, IT and supply-chain operations between both the brands to ensure profitability in the store-level operations by the year-end.

Also, Bhartia said he would be looking for a third foods brand once he consolidates on Dunkin. Suprisingly, Bhartia does not think that the US model for the chain would work in India. “In India, the coffee culture is growing. We expect 60 per cent to 70 per cent of our revenues to come from sale of food products. That is why we have worked hard on our menu,” he revealed. “In the US, coffee is the biggest revenue earner. ” Dunkin’ Donuts like its pizza business is being targeted at urban consumers aged up to 35 years. – BUSINESS STANDARD REPORT

PEST Analysis in India POLTICAL These refer to government policy such as the degree of intervention in the economy. What goods and servicesdoes a government want to provide? To what extentdoes it believe in subsidising firms? What are itspriorities in terms of business support? Politicaldecisions can impact on many vital areas for businesssuch as the education of the workforce, the health of the nation and the quality of the infrastructure of theeconomy such as the road and rail system. India is the biggest democracy in the World.

Thegovernment type is federal republic. Based on Englishcommon law, judicial review of legislative acts, acceptscompulsory ICJ jurisdiction with reservations, separatepersonal law codes apply to Muslims, Christians, andHindus. The political Situation in the India is more orless stable. ECONOMICAL It includes interest rates, taxation changes, economicgrowth, inflation and exchange rates. As you will seethroughout the “Foundations of Economics” book economic change can have a major impact on a firm’sbehaviour.

For example: higher interest rates may deter investment because it costs more to borrow a strong currency may make exporting more difficult because it may raise the price in terms of foreign currency inflation may provoke higher wage demands from employees and raise costs higher national income growth may boost demand for a firm’s products In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector.

The main objectives of India’s development plans were: initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty, Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries, Reduce inequalities of income and wealth SOCIAL Changes in social trends can impact on the demand for a firm’s products and the availability and willingness of individuals to work. In the India, for example, the population has been ageing. This has increased the costs for firms who are committed to pension payments for their employees because their staff are living longer.

It also means some firms have started torecruit older employees to tap into this growing labour poor. It describes the characteristics of the society in which the organization exists. Literacy rate, customs, values, beliefs, lifestyle, demographic features and mobility of population are part o the social environment. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenarioIndia is the second most populous nation in the worl dwith an approximate population of over 1. billionpeople. This population is divided in the following agestructure: 0-14 years – 31. 8%, 15-64 years – 63. 1% and65 years and above – 5. 1%. TECHNOLOGICAL New technologies create new products and newprocesses. MP3 players, computer games, online gambling and high definition TVs are all new markets created by technological advances. Online shopping, bar coding and computer aided design are all improvements to the way we do business as a result of better technology. Technology can reduce costs, improve quality and lead to innovation.

These developments can benefit consumers as well as the organizations providing the products. Today in India 3Gtechnology starts. A heavy infrastructure for band width. BSNL and Reliance have more covered city by opticalfibre. India has many Technological Projects. Good Service provider in IT sector ex TCS, Infosys and manymore. Financial PROFITABILITY AND MANAGEMENT EFFECTIVENESS During the past five years, Dunkin’ Brands has seen strong top-line revenue growth, as the firm continues to open stores in new domestic and international markets. Total sales revenue grew at a compound annual growth rate of 3. 8% during the same period, while it opened nearly 3,000 new stores worldwide. As operating expenses have fluctuated, earnings have also wavered amidst consistent revenue growth. UNADJUSTED MARGINS Source: Google Finance The firm reported a net loss in 2008 of nearly $270 million, during the heart of the recent economic slowdown, but a closer examination reveals that the fiscal year 2008 data includes a $332 million impairment expense. Impairment represents a specific reduction on the balance to adjust for changes in the value of the firm’s goodwill.

The expense comprises $294. 5 million of goodwill impairment charges related to its brands internationally, as well as a $34 million in trade name impairment related to Baskin-1Robbins U. S. We believe that adjusting for the 2008 impairment expense (and a similar, albeit smaller charge in 2011) better reflects the firm’s productivity in its core business operations. Below, we present a reconciliation of adjusted operating income and adjusted net income from operating income and net income respectively:

Source: Dunkin’ Brands 2011 10-K Annual Report Adjusting for major impairment charges demonstrates a steady growth in operating income, and the firm exhibits strong operating margins (which have held steady near 34%). As described in the industry comparable analysis, Dunkin’s margins are substantially higher than its competition, representing the ability of its core business to operate more efficiently. We believe one reason the firm is able to sustain such strong margins is due to its committed franchising model.

As franchisees fund the vast majority of the cost of new restaurant development as well as advertising, the firm is able to grow the system with lower capital requirements than many of its competitors. For example, franchisee contributions to the U. S. advertising funds were $316. 3 million Competition Dunkin’ boasts the highest operating margins of any firm in the comparison, indicating the relative efficiency of its core business operations. The firm’s margin has remained steady around 34% since 2007, suggesting a consistency in the company’s operational effectiveness.

This is especially important for Dunkin’, as healthy operating margins are essential for the firm to be able to pay its fixed costs, namely interest on debt. As stated earlier, one reason for the strong margins is the franchising model. The firm is able to expand its brands with lower capital requirements since franchisees bear 13 the cost of advertising and new restaurant development. While the firm compares well in operating margin, it performs poorly in net margin due to high interest expenses.

Dunkin’ also lags far behind in management effectiveness as measured by returns on assets and equity. Since ROA and ROE measure the firm’s efficiency in converting investment into bottom-line net income, Dunkin’s interest expenses once again diminish its relative performance. Alternatively, using operating returns before cost of borrowing (by adding back interest expenses into net income when calculating) will allow for a financing agnostic comparison. Dunkin’s relatively high P/E ratio suggests that investors are looking for continued growth from the company.

These growth expectations for the firm are likely built on the opportunities for expansion into new markets, especially for Dunkin’ Donuts in the Western United States. Price/book suggests that the company trades at a relative discount, possibly due to its very burdensome liabilities. This is confirmed in the leverage ratios: Dunkin’ is much more heavily levered than its competitors, claiming both the highest Debt/Assets and Debt/equity ratio in the peer group. In addition to its large debt burden, its low current ratio suggests the firm is relatively illiquid. The table below summarizes some of the key statistics for Dunkin’s competitors: