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BOSTON – Jim Coen, the president and chief operating officer of Dunkin' Donuts Independent Franchise Owners, discusses the importance of franchisee associations, Dunkin' Brands and its future initiatives.
Mr. Coen has worked on the franchisor side with Super Coups, Merry Maids and an ice cream franchise. He has matched buyers to franchise brands as the president of Franchise Perfection and as the host of a popular radio show called "Let's Talk Franchising," broadcast on AM 1060 WBIX in Boston. Coen has been a long-time advocate of franchisee issues. He leads the New England Franchise Association as executive director. And it should also be noted that Coen is no stranger to the Internet and particularly to this news site. He was one of Blue MauMau's pioneer members. The new DDIFO website of Dunkin' information and news gives evidence of the depth of his communication skills in the new age.
Here's an exclusive interview.
BMM: How big is your independent franchisee association in comparison to the Dunkin' Donuts network?
Coen: There are approximately 8,000 Dunkin' Donut stores worldwide. But in New England plus upstate New York, which is the geographic area of DDIFO members, I think there’s something like 2500 stores. DDIFO has over 60 percent of those stores participating right now.
Let me explain.
Dunkin’ Donuts has a national distribution system cooperative, owned by franchise owners. That is referred to as a Distribution Commitment Partnership or DCP. All franchise owners purchase products from the DCP — all the tools, goods and services that are needed to operate a Dunkin’ Donuts. They are regional DCP's in the Dunkin' distribution system. The DDIFO office is located at the NEDCP in Bellingham, MA which services New England and upstate NY.
The DCP meets the specifications of the brand. So the brand is involved, but it has no investment or ownership, because Dunkin' Brands operates no company stores. Now in other brands the coop is owned mutually, such as in Burger King and Kentucky Fried Chicken. Both brands operate company stores so they have an interest in the buying coop. A coop helps those firms to utilize the strength of franchise owners and the company owned stores – increasing buying power to produce the best possible product at the best possible price at the fairest cost of distribution.
BMM: That's interesting. So the cooperative provides the product and the franchise system provides the business model. But where does DDIFO, or any franchise association, fit into that equation?
Coen: Franchise owners often are committed by contract to be franchisees for ten to twenty years. Hired management and executives of a franchise system are not necessarily as committed. Management changes. Franchisors are bought and sold. So a franchisee association’s number one mission is to protect the franchisee's interest in the trademark for whatever may happen down the line. You never know when that trademark may be put up for sale or be part and parcel of a bankruptcy. There isn’t a franchise system out there that should not have an independent franchisee association, if only for that one reason: to have a structure when and if that brand goes up for play, whether it be sold, IPO or bankruptcy.
Actually the reason DDIFO was created in 1989 was because of a hostile takeover bid that came from a gentleman out of Canada. At that time Dunkin’s was a public company. He was attempting to buy stock to release the hidden value of the real estate. That’s why the franchisor and franchise owners created DDIFO. And eventually the hostile takeover was blocked.
DDIFO is an organization whose sole purpose is to help and protect the franchisee's business and interests. We have no other purpose than to protect that significant asset.
BMM: But isn't it the franchisor, Dunkin’ Brands, that is there to help and protect the stores? And isn't it Dunkin' that has field employees to help with individual store operations and profitability? In other words, isn't DDIFO in some way doing the job that the franchisor is doing?
Coen: No. The goal of the brand is to protect and advance the brand. And sometimes what’s in the best interests of the brand is not in the best interests of the franchise owners. Look at the way a franchisor is compensated. They’re compensated through the collection of royalties. Royalty stream is based on top-line sales. They’re not compensated by profitability of the stores. They’re compensated by royalties.
Dunkin' Brands does not own any stores. They're 100% franchised, so they may install a program that may increase top-line sales, but cause profitability issues for the store or unit.
Franchisees are interested in bottom-line profitability; two distinctly different ways to run a business. What’s good for top-line sales may not be good for bottom-line profitability.
BMM: I’ve heard other franchise owner associations were baffled that there aren’t any owners on the DDIFO board. What made DDIFO go to that model?
Coen: We have a professional board of directors that is made up of non-franchise owners who are involved in business and or franchising. We also have an advisory council of franchise owners. So we’re a unique franchise owners association because we do not have any franchise owners at this stage that serve on our board of directors. The primary reason was that franchise owners felt they wanted to be anonymous. So the only way to be anonymous was to not be on the board.
BMM: Why would franchise owners want to participate in your independent franchise association anonymously?
Coen: They are concerned about being singled out [by the franchisor for repercussions] and feel because they are franchise owners they are limited in what they can say or do. I and the other board members are not franchise owners. We have not signed franchise agreements with Dunkin' Brands. [Note: In other words, Dunkin' cannot intimidate individual members of the board or terminate franchise agreements.]
Also, I will tell you though from my point of view, that sometimes store owners have a hard time separating their own particular ownership and their own particular best interest from those of the greater franchisee community. I think that can sometimes limit the effectiveness of franchisee associations.
BMM: I've heard it said that leading individual owner-operators in a franchisee association is kind of like herding cats. But speaking of leading, how is the DDIFO franchisee association affecting change in the Dunkin’ Brands system?
Coen: Herding cats? Pretty funny, pretty true, it's hard to get everyone on the same page. We try and focus on the number one goal which is to enhance and protect the business interests of the franchise owners. The franchise owners have a significant investment in the brand, with locations, distribution and production, so our interest is to protect and enhance those interests. What we want to try and do is, if we’re going to get into a tug of war, we want to do it in a way that is constructive to enhancing the brand, and minimize any negative impact that that tug of war may have on the brand in the public’s eye. That’s a major consideration.
BMM: What do you mean negative impact in the consumer or public’s eye?
Coen: Well, I mean if you’re forced to discuss all the problems in public, the public perception might be negative. So it’s in the best interests of both parties to have some of these discussions behind closed doors, and work them out and solve them – so they’re not a public display. But if neccesary, public display can be an effective way for a franchisee association to make a point.
BMM: Does DDIFO meet with Dunkin' Brands executives?
Coen: There are some conversations. You know, there isn’t a history of good communications in the last years since the time that Allied Domecq owned the company. And since the private equity firms purchased Dunkin’ Brands, there hasn’t been a lot of dialogue between DDIFO and the brand. This is a work in progress and there are some conversations. Are they substantive yet? I’m sad to say not enough yet.
BMM: Some franchisors see a threat with franchisee associations so they engage in no dialogue with them. And then there are franchisors that work very closely with independent franchisee associations. At least DDIFO has had a brand president come and speak with your members. Do you have any suggestions on how to engage franchisor leadership?
Coen: No, but I am open to suggestions. [Laughs.] Will Kussell [president of Dunkin' Donuts] did come to a DDIFO meeting last year to address the members.
We would like to see as much collaboration and interaction as we can possibly get. So I’m not satisfied and we will work as hard as we can to help enhance that effort: to have more dialogue, more collaboration, more communication and more working together to enhance and protect the brand from the point of view of all Dunkin’ Donuts franchise owners.
I think ultimately that’s what is needed to really bring this brand national and to bring it to its full potential. What a great brand Dunkin’ Donuts is. Franchise owners know that the potential for it is immense. So we all need to work together to reach that potential. And DDIFO is all for that.
BMM: You mentioned that dialogue with the franchisors is an important initiative. Tell me more about the issues that concern your members and the initiatives that DDIFO is engaging in.
Coen: One of the ways that Dunkin’ Brands communicates with franchisees is through the Brand Advisory Council, which does not have any significant voting rights. It's an advisory council. DDIFO was instrumental in helping to create a profitability subcommittee last year. We offered legal resources, etc. to the Brand Advisory Council to help negotiate and draft the bylaws of the profitability subcommittee and give it teeth.
The theory is if Dunkin' wants to make any changes that will impact the profitability of franchise owners, whether it be a new product, a new system, new piece of equipment, or whatever, they are supposed to run it by the profitability subcommittee. That committee is up and running and through the leadership of Jim Allen, Brand Advisory Council co-chair, that committee is to act as a gatekeeper to store profitability. So there’s a collaborative effort where we were able to have an influence on behalf of our owners. Even though we’re not running it, even though it's not our committee, it feeds right into DDIFO's mission to protect and enhance the business interests of the franchise owners.
DDIFO commissioned the American Association of Franchisees and Dealers (AAFD) to grade the Dunkin’ Donuts franchise agreement using their Fair Franchising Standards. They issued their grade in February. We shared that grade with the brand on April 30 and requested a response. Unfortunately they have yet to respond, other than to say that they did receive it and were reviewing it. That’s the only response we got, which was a little disappointing. This is a big thing for DDIFO, and I don’t expect this initiative to be solved in 30 days. This is an initiative that’s going to take some time and some heavy lifting on both sides to correct and arrive at a more balanced agreement.
BMM: How did Dunkin’ Donuts do in its franchise agreement rating?
Coen: That’s one thing I would like to discuss first with the Brand. I am hopeful they are willing to have that discussion soon. If not I will give you a copy of the grading and the entire franchise community can discuss the grading of the Dunkin' Donuts franchise agreement to AAFD's Fair Franchising Standards.
BMM: In Dunkin's franchise agreement rating, what is the biggest thing that Dunkin' Donuts needs to improve?
Coen: From an overall perspective the AAFD grading identified a lack of collaboration, but I want to get away from the grading.
I will say that right in the Franchise Disclosure Document (FDD), all of the litigation initiated by the brand is disclosed for last year. There have been over 50 cases added in the most recent FDD. In the last five years there have been approximately 350 cases filed by the brand. There are approximately 1200 Dunkin' Donuts franchise owners in the U.S. Over 30 percent of them have had some sort of litigation with the brand, that is public information. I believe it is in the best interests of the value of the brand, for all parties, franchise owners and investors, that Dunkin' Brands find an alternative way to deal with the issues, whatever those issues may be.