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Dunkin Donuts May Win Health Care Battle

Tickers in this article: DNKN

Debra Borchardt: Let's talk about health initiatives. Every one is talking about eating healthy and I want to be healthy...but you've got donuts. How is it that donuts are still doing well when everyone is proclaiming that they want to be so healthy?

Nigel Travis: Well most people, and I'm one of them, go into a casual dining restaurant, I'm going to order a salad and at the last minute, I change my mind. I think we all have that kind of resistance to actually doing what's right. We try to give our customers choices. Several years ago we introduced DD Smart . It's been relatively successful. It's not a huge part of the menu, but it gives people choices. If they are feeling today in early January, after the holiday season that they want something that's not so heavy, we've got wraps.

We've just come out with a product and I think we're going to look back and say that was one of the best things we ever did. It's right on the fringe of DD Smart. It's under 400 calories, but it's a healthy sandwich and that's our turkey sausage sandwich. It's got fried egg in it as well. It's got plenty of protein. It's doing very well already. I think that's going to be the wave of the future. The products that really are attractive to look at, really make you crave, but at the same time are relatively healthy. Not the ultimate, but very low calories.

Debra Borchardt: There has been a lot of talk about the new healthcare mandate and how it's affecting quick service restaurants. Are you going to be affected by the changes in insurance requirements for your employees?

Nigel Travis: We're going to be affected like everyone. We're working very hard on franchise economics, as I mentioned earlier and we think we can mitigate most of the costs. We're involved with the national restaurant association in lobbying to have some of the provisions improved. It's not going to go away, however some of them could be improved. We're also working with our franchisees to find ways to mitigate the costs, reduce the costs of some of their items, new programs to increase their revenue. We are now franchisees together on this. The relationship that we have is very strong. The open discussions we've had about healthcare, the impact on the P&L, have been very productive. I'm confident that it's not going to be a big barrier.

In fact it could be just the other way. Some other chains may be forced to raise their prices; it may make Dunkin' Donuts even more of a value play than it is already.

Debra Borchardt: Your outlook for 2013? Are you positive? Are you concerned? Choppy? What do you expect?