Today, we’re talking about doughnuts and coffee and their impact on commercial real estate. As you are no doubt aware, doughnuts and coffee are the two greatest things in the entire world. As such, this segment of the quick-service restaurant industry is an immense and highly competitive part of the overall restaurant space.
A while back, I did a ranking of the top restaurant operators in North America(based on revenue, not store count). We saw McDonald’s (NYSE:MCD) crush the competition, of course (Subway would have won if this were a measure of number of locations), with other prominent appearances by the likes ofStarbucks (NASDAQ:SBUX), Wendy’s (NASDAQ:WEN), Darden Restaurants (NYSE:DRI), and of course Yum! Brands’ (NYSE:YUM) vast collection of quick-service and fast-casual fare.
At #6 on the list is Dunkin’ Brands Group (NASDAQ:DNKN) (DD and Baskin-Robbins). And just above them at #5 is a company you may not have heard of, 3G Capital Partners, which owns a restaurant chain you’ve definitely heard of: Burger King.
Burger King, you may recall, made waves last fall when it announced an $11 billion merger and corporate inversion (moving its international HQ out of the country, with attendant tax benefits) with Canadian coffee-and-doughnut impresario Tim Hortons, which signals the beginning of an intensified U.S. foray on the part of the latter.
A couple of numbers: Dunkin’ Donuts reportedly operates roughly 11,000 stores throughout the world. The Oakville, Ontario-based Tim Hortons, by contrast, operates approximately 4,600 stores – less than half Dunkin’ Donuts’ store count, but certainly respectable. Also, the Canadian breakfast staple has its sights set on the Middle East – including markets like UAE, Saudi Arabia, Oman, and Kuwait – to further compete with the international giant that is Dunkin’ Donuts.
But it looks like the United States will most likely be ground zero for an inevitable Dunkin’ Donuts/Tim Hortons brand battle as the two chains vie for a greater piece of the non-gourmet (i.e., non-Starbucks) coffee market.
Let’s take a look at one of the most quintessentially American markets in the country: Missouri. Here, we’re seeing major expansion plans on the part of both competitors in the St. Louis and Kansas City areas and beyond.Commercial Property Executive reports:
Dunkin’ Donuts has announced the signing of a development agreement with franchise group Berliner III LLC to develop 14 new restaurants in St. Louis, Mo., as well as two new locations in Kansas City, Mo.
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Dunkin’ Donuts currently operates 13 locations in the St. Louis area, according to the St. Louis Business Journal. Tim Hortons-another coffee and breakfast chain-is also planning to open 40 new locations in the area, the St. Louis Post-Dispatch reported.
On the other hand, this does not mean 2015 is the year of unbridled store development. In fact, Tim Hortons for one is paring down its offerings in some parts of the country, such as New England, where without warning the company shuttered 21 locations across Maine and New York.
Could this be a sign that one or both companies are pursuing greater saturation in the Midwest? There is evidence for this, as we see in this article from Investors.com, which reports on a similar development frenzy in Indiana and Dunkin’ Donuts’ incentive program to boost franchisees’ participation in this Midwestern development spree.
Granted, Tim Hortons and Dunkin’ Donuts stores have small footprints, but 30-40 new locations of each in the space of a year adds up to some great occupancy improvement (and equally important: drives traffic to adjacent businesses). This is particularly beneficial in many Midwestern CRE markets where retail fundamentals are on the softer side.
