Another Major Dunkin Franchise, Kainos, Goes Bankrupt

The Dunkin’ franchise system is receiving word of yet another major multiunit franchise failing. On Monday, the operator of 56 Dunkin’ shops filed for bankruptcy, Kainos Partners, is the latest in a growing list. In June the largest franchise operator on the west coast of Florida as well as a Nashville-based multiunit operator filed for bankruptcy.

In the case of Kainos, not only did the dropping demand for donuts and increasing ingredient costs push it over, but also alleged embezzlement by its past chief financial officer.

Kainos Partners also said it discovered that its chief financial officer had engaged in $420,000 worth of financial transactions involving company assets for his personal use. The executive was fired in February.

Like the Nashville-area franchise operator, Kainos said its largest creditor is CIT Group Inc (CIT.N), which is owed about $25 million. Under the planned reorganization, CIT will reduce the amount it is owed in return for a 72.5 percent stake in the reorganized company. - Reuters

In May the head of the wealthy Zales family of jewelry chain Zales Corp, had signed a contract with Dunkin’ that it must set up 70 Dunkin’ stores in North Texas. After setting up four stores and three more in the works, Donald Zale said he couldn’t meet his development plans because he couldn’t get financing.

"Lines of credit for all franchising simply collapsed," Donald [Zale] says. "I don't remember exactly how we found out, but the message came through loud and clear: 'Hey, don't go building any more stores, because we don't have any more money for you.' " – Dallas Morning News

So naturally he quietly shuttered all existing stores and walked away from the deal. The Zales can now more fully focus on their Blockbuster franchises. Blockbuster announced Monday that it is considering the shuttering of all its 7,000 stores.

Dunkin’ has traditionally been small mom and pop owner-operators who have become multiunit franchisees by slowly  expanding a unit at a time. But Dunkin’ recently has pushed a large area development model in desire to quickly expand from its base in New England. Dunkin’ insiders are now wondering if there is a problem with that model.