Dunkin's Problem Isn't Chanos Short. It's the Cost of Ice Cream

(Bloomberg) -- Commodity inflation has now even reached the flavorings going into ice cream.

Dairy and vanilla prices in particular are weighing down returns at Baskin-Robbins, a unit of Dunkin’ Brands Group Inc., according to Dunkin’ Chief Executive Officer Nigel Travis.

“It puts pressure on both our margins internationally, and the costs to our franchisees, so we’ve taken this very seriously,” Travis said Thursday in an interview after Dunkin’ reported first-quarter results. “We’ve got a task force working on it.”

His comments echoed the struggle across consumer-goods and other industries with costlier raw materials. So far, Baskin-Robbins has been negotiating lower prices on pecans and cocoa to help make up for the surge in vanilla costs, and it’s testing other ice-cream flavors, too, to reduce how much vanilla it needs, Travis said. Bad weather in Madagascar, the world’s biggest vanilla producer, has recently hurt the crop there.

Baskin-Robbins is pushing delivery service and adding drive-thru locations to boost ice cream sales in the U.S. The 7,900-store chain also has a strong presence outside its U.S. home market in Asia and the Middle East.

Pricier ingredients weren’t the only headaches for Dunkin’ on Thursday. Short seller Jim Chanos identified the company as one of his targets during an interview with CNBC, reiterating a call he made in December. The shares fell 0.4 percent to $61.96 at 3:19 p.m. in New York, paring an earlier decline of as much as 2.3 percent.

©2018 Bloomberg L.P.

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