President of Franchisees Says Dunkin Should Learn from Krispy Kreme's Mistakes

BILLINGHAM, Mass. (Blue MauMau) - In the President's Message in DDIFO Times' latest newsletter, Mark Dubinsky reminds members of competitor Krispy Kreme's demise, linking it to the franchisor not being focused on franchisee profitability. He said many experts point to the company's aggressive expansion plan while others believe that it was an ill-conceived business model. "No matter what the cause," he states, "Krispy Kreme is no longer the major competitor it once was.  Because Krispy Kreme's luster has faded into the sunset, he jokes, "Their franchisees no longer have to hire police details to manage the crowds."  In fact, he states, many of its outlets have closed in California, New Mexico, Arizona, Illinois, New York, and Massachusetts.

The association president's message may have a familiar ring to it for many in the franchise community. He tells that franchisees are concerned that Dunkin' Brand's management team and its private equity owners are too focused on building franchisor profitability in anticipation of an initial public offering (IPO). "Some say that this focus . . . is the inevitable outcome of a private equity purchase which topped $2.4 billion and which may yield five times that in an IPO," he says.

But unlike many QSR (quick service restaurants), Dunkin'  shops are 100 percent franchised owned. "And, if Dunkin' Brands fails to provide its current and potential franchisees with a favorable rate of return on their investments, then it is unlikely that financial institutions will be willing to finance new projects or existing shop remodels," he explains. In today's unfavorable ROI environment, DDIFO assesses Dunkin' will find it difficult if not impossible to find franchisees for its next 10,000 stores it intends to franchise.

"We have hopes that Dunkin' Brands senior management team has learned from the mistakes of Krispy Kreme and will take the proper steps to ensure franchisee profitability." But he adds that profits are not what they used to be for the franchisees. He asks, "Do we have confidence that Dunkin' Brands is committed to returning franchisee cash flows to previously high level and beyond. If the answer is no, then we have a responsibility to stand up and be heard."