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Disclaimer: I am not a certified financial professional.  All articles and posts are opinions expressed by me, a contributor to the Common Cents Finance platform.  The information provided is not a research report or financial advice.  It should not be used as the basis to buy or sell a security, nor is it an offer to buy or sell a security.  This article may generate revenue through affiliate commission at no cost to you.

Recently, Dunkin’ Brands ($DNKN), the parent of Dunkin’ Donuts, was acquired by Inspire Brands, a rapidly growing restaurant company.  On the surface, this may seem just like an interesting headline and nothing more.  However, that is simply not the case.  

The takeover of Dunkin’ Brands is much more than a headline, as it has many lessons scattered throughout. This move demonstrates the need to take on risk and be aggressive to grow a business. It also depicts how a business needs to adapt itself in order to be successful. Further, Inspire demonstrates how one can be a contrarian when investing.

America Runs on Dunkin’

The average American drinks three cups of coffee per day.  That might seem like a high number if you are not from the United States.  But, if you are, then that number might actually seem lower than you would think.  The United States is dependent on coffee, as 64% of citizens claim to drink it on a daily basis.  As a result, coffee chains have thrived in the nation.  One particularly successful one is Dunkin’.

Dunkin’ Donuts is one of America’s go-to coffee brands, hence its tagline “America Runs on Dunkin’.”  The chain has been a staple in the country since it opened in Massachusetts in the 1950s.

In recent year, Dunkin’ definitely lost some market share to rising competitors. With new market trends and a pandemic ongoing, one would imagine that the coffee chain would take a step back. But, that is not the case, as they have been able to succeed even when the odds point to the contrary.

A Change in Image

Last year, Dunkin’ removed the word “Donuts” from its name, indicating how it wants to be known for more than its doughnuts.

Dunkin’ has been able to build upon their success and continue to thrive even during a pandemic.  The coffee chain jumped on recent trends, such as oat milk and TikTok.  It added oat milk as a menu option and partnered with TikTok star Charli D’Amelio, which subsequently led to app downloads spiking 57%.  This partnership also resulted in hundreds of thousands of sold drinks and an increase in DD Perks member signups.  The company’s recent moves have evidently appealed to younger consumers, for which Dunkin’ was not known prior.

For years, Starbucks ($SBUX) has been the coffee of choice for many young consumers in the United States, largely due to their luxurious beverages.  However, it now appears Dunkin’ is starting to appeal to many of this younger demographic, which has helped business.

The company reported an increase in demand for drinks that are more difficult to make on their own. If they are too difficult to make in their own kitchen, consumers may be more likely to continue their spending at Dunkin’ locations.  The company hopes for this to continue for the unforeseeable future.

During this pandemic, Dunkin’ closed roughly 700 of its locations.  Typically, such news would be seen as a negative for a company, but this is different.  These locations did not generate significant traffic or revenue for the corporation, as they were only small kiosks in gas stations.  Further, the company feels that closing these locations actually improves its brand image, as it wants to be seen as an independent coffee chain, not some small pit stop.  This demonstrates how the company has really overhauled its brand to appeal to a wider audience.

Although the company is seventy years old this year, it still has found ways to differentiate itself and set itself up for long-term success.  This is evident in the company’s stock price, as it is up over 40% year-to-date. 

Benefiting from Its Business Model

During this pandemic, Dunkin’ also benefited from its business model.  Dunkin’ locations do not emphasize sit-down dining.  Rather, they essentially encourage customers to order their food and drinks to-go, whether in-person or using the drive-thru.  When indoor dining was prohibited in the United States, this did not affect the coffee chain at all, since they are used to not having indoor dinings.  

As a result, the business was able to continue almost as normal.  Albeit, it definitely lost consumers due to fewer people commuting to work.  However, being open like prior allowed the company to prevent tremendous sustained losses.  Unlike Dunkin’, Starbucks, for example, relies heavily on the indoor consumption of its products.  Although they have a broader global footprint, Starbucks was not in the best shape during this pandemic due to its own business model.

New Road for Dunkin’

The collection of brands owned by Inspire Brands.

Dunkin’ Brands’ excellent decision making has paid off for the company and its shareholders.  Late in October, Dunkin’ Brand Group was acquired by rapidly growing restaurant group Inspire Brands.  The deal marks the largest restaurant acquisition since 2014, when Burger King-parent Restaurant Brands International Inc acquired Tim Hortons. Upon the news, Dunkin’s stock hit an all-time high, as the deal totaled $11 billion.  This move will make the coffee chain a privately-owned company as a new addition to Inspire’s collection of franchises.  In just two years, the company has been able to acquire Jimmy Johns, Sonic, Arby’s, and Buffalo Wild Wings.  

Last year, the company acquired Jimmy John’s, a struggling sandwich chain, for an undisclosed amount.  The year prior, Inspire purchased Sonic for $2.3 billion.  This just demonstrates how aggressive the company has been in attempting to expand, which is definitely working.

After this deal with Dunkin’, Inspire will have more than 31,000 total locations among its various brands.  This surpassed competitors, like Restaurant Brands International Inc., only trailing competitor Yum! Brands.  Inspire is now one of the largest restaurant companies in the United States.

Inspire Brands was founded in 2018 by former Arby’s CEO Paul Brown and Neal Aronson.  The company has been very aggressive since its inception, looking to grow and dominate the food market, and it is doing just that.  This is evident in the company’s bid for Dunkin’, which was much higher than competitors would have likely been able to afford.  

This acquisition differs from previous ones, as Dunkin’ is a thriving business.  Every takeover by Inspire prior to this involved a struggling brand.  The company typically acquires struggling businesses, looking to revamp its existing business model.  This approach is very hands-on, as executives look to recreate the menus and atmospheres of these restaurants to appeal to consumers.

Takeaways

Always Look to Adapt and Grow

Dunkin’s ability to adapt to its market allowed it to stay relevant and ultimately thrive during a global pandemic. This is an example of a company identifying an opportunity to change and doing so successfully. This is far different from Kodak, which did not take action and suffered as a result.

On both a business and individual level, you should always look for an opportunity to adapt and grow. Doing so would allow you to always remain competitive. If you do not adapt, you can be somewhat outdated and get surpassed by competitors.

You always want to have some type of competitive edge, whether that is knowing a skill or using new technology in a business. This would increase your odds of long-term success in the business world.

Be Aggressive & Embrace Risk

Inspire Brands has grown tremendously in just two years. They have also spent well about $20 billion to do so. For some, this might seem like a really high figure, and it is. However, I would not say it is ridiculous.

The company had a strategy to acquire brands that resonate with consumers, and they were able to do so effectively. Their aggressiveness in these acquisitions has allowed them to stand apart from competitors. For example, the high price point of Inspire’s bid for Dunkin’ actually deterred competitors from being able to afford such a deal. As a result, they took a competitive advantage. They eliminated threats from their competition to grow the business.

Did they take on risk? Yes, of course. They acquired several struggling food chains and overpaid for another. But, taking on risk is necessary to grow a business. This is true on an individual level also.

If you are investing in the stock market (especially if you are young), you should look to take on as much risk and be as aggressive as possible. You are at such a young age that any mistake you make can be fixed over time. Further, the more risk you take on, the greater your returns can be.

However, this does not mean to take on risk for the sake of doing so. Always be calculated with risk. Too much risk can definitely be a bad thing. Simply investing in the stock market is risky in itself, more than enough for you to benefit.

You should never be afraid to take risks or be aggressive, especially if you are younger. If you are, then you probably will never start investing and not make significant money as a result.

Don’t Be Scared to Be a Contrarian

There is an old saying among investors: buy low, sell high. This is the ideal scenario for any investor. You sell when the market is hot and buy when it takes. Why doesn’t everyone follow this advice?

Well, it is not that simple. Often enough, emotions interfere with levelheaded investing. Many investors tend to follow market trends because it makes them feel more comfortable. They probably invest when everyone is buying and sell when everyone is selling. Being a part of a large crowd provides that sense of comfort that you are making the right decision.

However, this should not be. Doing this is directly contradicting the buy low, sell high mindset. Following the crowd can leave significant money on the table, and I doubt you would want that. For an example of how to behave on the market, just look at Inspire.

Inspire Brands has taken a contrarian approach when it comes to acquisitions. Companies like Sonic and Jimmy John’s have actually not been performing all that well. Regardless of performance and the sentiment surrounding the brands, Inspire took a chance and purchased both. This move contradicts the majority opinion about the two chains, but Inspire does not care. This approach follows the buy low, sell high mindset. Doing this actually limits Inspire’s downside, since these brands are at low points in terms of performance. It also gives them tremendous upside, as there is much room for growth, even if it means only reaching peak historic numbers.

This is an approach that you can take when investing. I am not saying buy multibillion-dollar food chains, but I am advocating not to follow the opinion of the market. For example, when the market tanks, like it did this past March, don’t look to sell your stocks. Instead, look to acquire more. In all likelihood, the market will eventually recover, meaning you just bought a bunch of stocks at a discount. Consistently doing this whenever there is a downturn could lead to tremendous gains over time. You just need to remove emotion and not follow the market’s opinions.

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Post Author: Anthony Crincoli

Anthony is the Founder and Lead Content Creator for Common Cents Finance. Away from the platform, Anthony is a CPA Candidate and an auditor for a Big Four public accounting firm. He has a passion for personal finance and looks to promote financial literacy whenever and however he can.

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