Dunkin' Donuts Goes Public

Some traders on Wall Street get their daily caffeine and sugar fix from their local Dunkin’ Donuts. On Wednesday morning they’re going to be trading Dunkin’ stock, too. The Canton-based company is now listed on the NASDAQ exchange under the ticker symbol DNKN, having raised $423 million in a high-demand IPO.

We all know Dunkin’ Donuts so well here, it’s easy to forget how crazy the chain’s TV ads must sound to people who aren’t from here. You know the commercials, the ones usually showing smiling police officers and construction workers with the slogan, "America runs on Dunkin.'"

That’s a pretty bold claim when you’re basically an East Coast chain that’s expanded to the Midwest. There’s only one Dunkin’ store for every million people in the western part of country. But that’s exactly what the company wants to change with its IPO: "To broadly to market to all Americans, not just specific demographic groups," said Darren Tristano, an analyst at the food industry consulting firm Technomic in Chicago. He said people think of Dunkin’ as a doughnut chain, but it actually makes the majority of its money selling coffee and other drinks.

Its unpretentious, blue-collar style has helped Dunkin' grow its profits. And it’s something the company thinks can be successful in more parts of the country.

"They serve a very good quality coffee in an unpretentious way," Tristano said.

According to Tristano, that makes the main competitor of Dunkin' Donuts that other coffee chain, based in Seattle: Starbucks.

"I don’t like Starbucks," said loyal Dunkin’ customer Joe Fine, sipping coffee at a store in Jamaica Plain. No WiFi in the store, no hip music either, but Fine doesn’t care.

"Doesn’t have a lot of atmosphere but I normally don’t sit in one, I normally get it to go," he said.

That unpretentious, blue-collar style has helped Dunkin' grow its profits. And it’s something the company thinks can be successful in more parts of the country.

Tristano said Dunkin' Brands is going to use the money it raises in this IPO to pay off some debt, which he said will pave the way for faster expansion, "because what it allows them to do is to invest in the brand — to market and advertise, instead of paying off debt and interest against that debt."

Much of that debt comes from Dunkin’s private equity owners, including Boston’s Bain Capital. They bought the doughnut chain five years ago. And even after this IPO, those firms are still going to own most of the company. Their hope is to use the money from the sale to boost profits, so they can sell off more stock later at an even higher price. But David Menlow, of ipofinancial.com, said that strategy could backfire.

"If the company falters in any way whatsoever with the expansion plans, investors will probably be merciless with selling the stock," Menlow said.

Another consideration is that Dunkin’ stores are franchises, whose owners are often immigrants.

Jim Coen runs the association Dunkin’ Donuts Franchise Owners. He said some of his members are worried this IPO will now bring more Wall Street pressure to boost profits.

"So I don’t necessarily see where that growth is going to come from. Unless the stores increase profitability and increase free cash flow. And in this economy, that’s a bit of a challenge," Coen said.

But Tristano is more optimistic about Dunkin' going public, saying the growth will come from new markets.

"Ultimately, who doesn’t like doughnuts? It’s been a way of life in the Midwest and will likely find its way into the West Coast and international markets."

That’s right, international markets, too. With new stores in countries like India and Germany, the company hopes it can leverage its IPO to make not just America, but the world run on Dunkin.'