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Dunkin Donuts May Win Health Care Battle

Tickers in this article: DNKN

NEW YORK ( TheStreet -- Debra Borchardt:

Dunkin' Donuts (DNKN) is expanding into California, 330 to 360 new stores for 2013. How are you able to manage that fast growth?

Nigel Travis: Well, I'm delighted to say I've got a great team. We've got great franchisees. We've got great unit economics. I think the real answer to your question is, I came in right in the middle of the recession. I learned a lot about how tough life could be. We applied the lessons from the recession to our store development, improved our systems, really focused on unit economics, we improved our marketing, we have national marketing now for the last three years. So, that helps. That gives us the cover.

But I think the trick is to be really organized. Our real estate team put together our numbers. We pro forma every store. We have a very high hit rate in terms of the success of the new stores against their pro forma. So, I think it's by being organized, by being absolutely fanatical. It is in many ways a loss if any store doesn't make it. We've had very few of those in recent times. I think it's the combination of all those facts. We are very focused on the unit economics of our franchisees.

Debra Borchardt: Dunkin' Donuts is known for its good coffee, but it seems a lot of your competitors in the market are now touting their coffees. Everyone is getting into the coffee business all of a sudden. So, how are you able to keep the focus on your coffee and away from your competitors?

Nigel Travis: Well, several things. Firstly, our coffee is obviously brewed fresh, it's changed at a very regular rate, and it's obviously got a profile that's attractive to a lot of people. I'm amazed, even when I go to England the number of people that ask me to take over Dunkin' coffee. These are people that haven't had a lot of time to get used to it. So, there is something about the flavor profile, I can't claim any personal part in that success. It's been there a long time. I think that's important.

I think also, we've managed to do a great job of putting breakfast sandwiches alongside the coffee, particularly in the morning. We provide food very quickly. So, fast great service. We've improved the quality of our stores I think dramatically in the last few years.

So, I think it's that combination of breakfast sandwiches, which by, the way are nearly as high a margin for our franchisees as beverages. So, that combination has worked very well. I'd say that, it's probably not the best way of phrasing it, but the breakfast sandwiches are the glue that pulls in the coffee.