Survey Results Show Overwhelming Dissatisfaction Among Franchisees
BOSTON, Mass. (Blue MauMau) - At the International Franchise Association's 48th Annual Convention in Orlando this week, Dunkin' Donuts had a strong presence with 46 members attending. The event, "Building the Future Together," continually acknowledged Bill Rosenberg, founder of Dunkin Donuts and IFA, as a leader in promoting balance and fairness in franchising. One famous Rosenberg quote: "In order to have a healthy franchise system, you have to have healthy franchisees and a healthy franchisor."
But this morning the DD Independent Franchise Owners, Inc. (DDIFO) released survey results from 100 New England and New York franchisees, representing 1000 shops, showing an overwhelming dissatisfaction in the way Dunkin' Brands is distributing its products. The franchisor has signed agreements with Sara Lee, Proctor & Gamble and Hess gas stations, allowing them to place Dunkin's number one product, coffee, into grocery stores, gas stations, kiosks, private cafeterias and other retail outlets. But according to DDIFO President Mark A. Dubinsky by doing so they will ultimately devalue the iconic Dunkin' coffee brand.
Franchisees Express Concerns Regarding Dunkin' Partnerships
The survey was conducted in January 2007, through Zoomerang. Despite the company's expansion into new U.S. and international markets--7,900 shops in 31 countries--99 percent of survey respondents said their cash flow from operations has been declining for some time and is showing little sign of improvement. Between 97 and 98 percent said they object to Dunkin's partnership with Sara Lee food services division and Hess gas stations in distributing its products. And 59 percent feel the P&G deal devalues their franchise. P&G has been allowed to sell coffee in supermarkets, drug stores and off-price retailers.
"We have concerns about operating standards," and Dubinsky asks, "Are they going to be held at the same standards that franchisees are held to in their franchise stores? We don't know." He also said they need to have the company focus on things that actually drive customers to the stores, not to divert traffic away from them. " We want them to focus on what is good for franchisees. As franchisee sales increase so do corporate royalties." According to Dubinsky, franchisees spend hundreds of thousands of dollars to set up each individual store, only to then have the company do things that divert traffic from them. He said, "That is crazy."
Regarding Dunkin's statement recently that it intends to do an IPO in the not too distant future, Dubinsky said, " We believe they are doing things that are in their own-self interest which could be at the expense of the franchisee'![]()
s best interest." He said the franchisor is owned by a trio of equity firms.
Franchisee Attorney Warns Dunkin', A House Divided Cannot Stand.
Kevin McCarthy, an attorney in Massachusetts who represents several Dunkin' Donuts franchisees was surprised by the survey results. "I was shocked to see the nearly unanimous percentage of Dunkin' franchisees who oppose this new strategic direction." He said the reported loss of sales, decline in shop profits and perhaps most important of all the devaluation of the Dunkin' brand should raise a "BIG RED FLAG" to Dunkin' management and equity owners. "This certainly does not portend well for any upcoming public offering."
He also feels it is sad to see communications between a major franchisor such as Dunkin' Brands and its franchisees get so bad that the franchisees have to resort to major press releases to finally express themselves on critical strategic issues such as the cutting of outside deals with major consumer retailers like P&G. He also explains, "Forcing Dunkin' franchisees to invest heavily in pizza and flatbread ovens and related products when their core business is said to be under stress is the exact same mistake Starbucks just made - a mistake Starbucks just reversed as they recently announced that they were discontinuing their non-core oven related sandwich business to re-focus on their traditional coffee business."
McCarthy's recommendation to Dunkin' management is to start communicating better with their franchisees. He said they obviously have little knowledge of the fact that they do not support strategies that attempt to grow the corporate bottom line at the expense of the franchise owner's bottom line. He asks, "If the franchisees don't agree with a corporate strategy then does Dunkin' management really expect the public will? "A house divided cannot stand".
Dunkin' Insists Partnerships Will Fortify Company's Position in Competitive Marketplace
But according to a statement from Stephen J. Caldeira, Chief Communications and Public Affairs Officer for Dunkin’ Brands, Inc. the company has good reason for its strategic plan: “Dunkin’ Brands and our senior leadership team communicate broadly and directly with our entire Dunkin’ Donuts franchisee system about all of our strategic partnerships, which are designed to build out the Dunkin’ Donuts brand for the long-term.
We do extensive due diligence on all strategic partnerships to ensure that our alliances with these world-class companies strengthen the Dunkin’ Donuts brand for the benefit of all, including franchisees. These partnerships are part of our brand seeding strategy to be the national leader in the coffee category. The common thread in all of these partnerships is to fortify our position within an extremely competitive marketplace by not conceding any of the playing field to entrenched national competitors.
Our goal is to increase franchisee profitability by responding to ‘on-the-move’ consumers’ desire for their brand of coffee wherever they go, and we’re confident that these partnerships will achieve this goal—quite simply, if our franchisees do not do well, then we do not do well.”
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