Dunkin' Franchisees Rebuff 2008 Agreement

CANTON, Mass. (Blue MauMau) - In an email from the DD Independent Franchise Owners association to its members, President Mark Dubinsky presented their Comments to 2008 Franchise Agreement and Other Business Issues analyzing significant issues.

He stated, "Let's be sure to keep the lines of communications open and work together to unite all franchisees in rejecting these draconian terms and conditions as unacceptable, if not patently offensive." Blue MauMau received the email from an anonymous source. Dubinsky told members the effective date for the new Franchise Disclosure Document (FDD) is July 1, 2008, but as in the past, it is subject to amendment.

One important issue DDIFO points out is that while 20 percent of continuing advertising fees may be used for expenditures to enhance the brand, the remaining 80 percent is open to no requirement that the spending is proportionate to contributions. Also, the adequate audit procedure by franchisees is now removed and the class action for the advertising fund has been eliminated.

Regarding the litigation section of the new agreement, DDIFO feels there is much room for improvement. It states while franchisee actions are limited to two years, Dunkin' Donuts' claims have no such limitation. Franchisees must also waive their rights to a jury trial and punitive damages in any suit, and litigation fees now have no reasonable limit. The association also observes that franchisee termination continues to be onerous and without cure for failure to obey all laws. It states, "Franchisor continues to oppose, repeal, or amend state laws that will level the playing field for franchisees."

DDIFO views other provisions as unfair, such as franchisees having no right to arbitration once sued by franchisor. It explains that Dunkin' retains the right to file court actions for collection, trademark, goodwill, and termination, negating franchisees' use of arbitration. And, the 2008 FDD states that based on franchisor's "belief" of underreporting by the franchisee, personal, federal and state tax returns now must be produced.

Under Remodeling, the DDIFO gives a break down in Rhode Island and Massachusetts, showing the average cost, plus the annual finance charge. It then shows the amount in sales that will be required to pay off the remodeling loan. In its analysis, it states an additional 11.3 million customer visits is needed in Rhode Island annually, estimating 150 stores in the state, just to break even. And in Massachusetts, based on an estimated 800 stores, it will take an additional 60 million customers after the remodel investment.

DDIFO criticizes that in investing these amounts, some $300,000, into the remodels, the "shelve life" should be longer than 10 years, that in past years investments of $50,000 to $100,000 had the same shelf life.

"Channeling, new Dunkin' Donut stores and competition have decreased individual store customer count," Dubinsky says, and he asks the burning question, "How do we expect to hit the numbers listed above to protect franchisee profitability?"