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The real question with DNKN ability to succeed-encroachment

The real question is what DNKN does to its franchisees after they have built out a particular market and weathered the bad years. Once they enter into profitable years, their territory agreements tend to expire. Will DNKN renew them, or simply pimp them out to any schmuck with a check that wants to plant a flag in the territory builder's home and steal his profits?

Worse, will it let its biggest franchisees poach into the new markets it is selling now when the newbies' territories expire and siphon off the fruits of their labors?

So don't buy into thefalse Dunkin dream?

Why should I invest and then be shut out of the actual profit after years of losses? Why does Dunkin let other people steal the profits after you spend millions to build out your territory, and leave you wondering how you will pay back your investors or banks?

Built out market could be as early as 2025

Guest observes: "The real question is what DNKN does to its franchisees after they have built out a particular market "

Any thoughts of when California or Arizona might be built out to the point that they begin to see encroachment problems? 2033? (I think the first of the California contracts would begin to expire in 2033.)

Guest observes: "will it let its biggest franchisees poach into the new markets it is selling now"

Good idea. Its big franchisees should have a chance to expand into the new markets. They understand best how to run a successful Dunkin' shop. They'll also have an easier time obtaining loans for the expansion.

And the new Dunkin' Donuts builders will get the shaft!

Yay! Cheap new shops for pennies on the dollar after they blow their money and Dunkin Brands let's other franchisees raid their expired territories before they get their loans paid off. Nice pressure on them to to just roll over and go away after they lose their investment capital. Fun!

Nothing like history repeating itself. It's good to be an jnsider predator watching the newbies happily spend their dough for you.

Jim Coen's picture

DNKN So Far So Good

 

No doubt DNKN' asset light model that Nigel explains has been well received by Wall Street.  

Nigel and his team have done an excellent job of talking the talk as well as walking the walk. They have collaborated with franchisees, empowered the franchisee owned supply chain, executed a well designed brand strategy and incentivized franchisees to build units.

The multi-billion dollar question is whether that is enough to fill in the white space.

Keep in mind that Dunkin’ Donuts has attempted to expand beyond its footprint many times over the last 50 years and has had some successes, but many failures.

The most important question that needs to be answered is whether franchisees in new markets can get to unit profitability fast enough to allow them to continue to expand and fulfill their development commitments. There are indications that Dunkin’ Brands strategy of expanding into contiguous markets is showing signs of success.

Meeting development schedules over the next couple of years will be important for Dunkin’ Brands to maintain its “darling” status on Wall Street.

Stock Disclosure: I have no position with DNKN stock.

john a. gordon's picture

Dunkin Brands: Wall Street v. Main Street Story

Other than Jim Coen's good comments, I'd note three other points to the themes from the Forbes puff piece story, as well as the BMM headline.

Stock price and "asset light" are only so relevant to the franchisees on Main Street.  "Asset Light" is a Wall Street sell side and M&A marketing term that means that franchisees invest and fund virtually all of the company's growth. Stock price only indirectly affects franchisees as as the stock price moves higher, the pressure on the system moves proportionalely higher. Senior Company execs think alot about stock price, it is their big payday.

Pressure on a system can be both bad and good. Good in that problems are seen quickly and worked more vigorously, bad possibly in that chains become same store sales and development drtiven and forget about the franchisees health. How it turns out depends on the CEO and the franchisee community.

The US DD franchisees won the supply chain in 1982 as a settlement to litigation. Thus, litigation can work. I doubt anyone at the time other than founder Robert  Rosenberg was happy with that outcome.  But today, that franchisee supply chain ownership is a point of competitive advantage versus other franchisors, especially Tim Horton's. 

John A. Gordon, CFFA
www.pacificmanagementconsultinggroup.com

DNKN Expansion

"Keep in mind that Dunkin’ Donuts has attempted to expand beyond its footprint many times over the last 50 years and has had some successes, but many failures."

Dunkin' has repeatedly tried to expand outside it's core market in the past and failed miserably in the West. Fortunately, management realized the reason for their previous failure and worked hard to roll-up the regional distribution centers with the hopes of achieving national pricing efficiencies through the supply chain.

Dunkin' lost the game many years ago to Starbucks as they built the coffee market through well calculated expansion in major metropolitan markets before entering the suburbs. Today, many desirable trade areas West of the Mississippi have developed regional taste preferences with local brands having their own consumer cult like followings. Getting coffee consumers to transition to a different brew is an uphill challenge for Dunkin'.

The reality is, success in Dunkin's core markets can not be easily replicated nationally. Unfortunately, Dunkin's asset-light model means franchisees buying into the national expansion will be the ones holding the bag if management fails again.

To management's credit, they have created a lucrative business model that ensures short-term successes regardless of their long-term franchisees.

Darnelle White's picture

Doughnut offerings throughout country see major uptick

There's a vacuum between demand for a strong, national doughnut brand and limited supplies. The competition knows it. They are vamping up their menus.

Here's what Technomic reports:

According to Technomic’s MenuMonitor database, 121 doughnut items were listed on the Top 500 restaurant chain menus in December 2012, compared to 90 items listed for the same month in 2011. This 34 percent year-over-year increase in menu incidence of doughnut listings shows that even amidst a national health movement, these indulgent treats have a respectable stronghold on Americans’ current cravings.

Dunk'n competitors, even your indirect ones, are anticipating your move. They aren't staying still. They do not want to see their market share erode away. But Dunkin's advantages are sizable and the groundwork for national store expansion has been laid -- e.g. strong demand, incredible national and local brand awareness and a transparent supply-chain management system owned and directed by franchisees that lower a shop's cost of goods sold.

It's hard to believe that a stronger system would come out of all the conflict and franchisee carnage that the chain has seen over the past years but it has. Dunkin' store owners have pushed for the right things, resulting in a slightly more collaborative franchisor than the competition. (This stubborn and abusive franchisor has not moved easily.) To their credit, Dunkin' store owners have created a stronger operating system for the chain by focusing on their own self-interest of having more profitable stores, benefitted franchising efforts in getting more franchisees by negotiating less abusive franchise contracts and have wisely advised their franchisor on building better brand loyalty.

Competitors, beware!

Donuts are popular again...

Good observation Darnelle...

We've noticed a resurgence in the popularity of mom-n-pop donut shops popping up across the US. Donut mongers have found a niche to service customers looking for specialized treats.

There are a handful of these shops in Oregon, such as, Tonali's, Up With Donuts, Staccato, Tigard Donut, Sesame Donuts, Honey Jar, and Donut Queen to name a few.

Of particular interest is Sesame Donuts. The owners took advantage of an opportunity to buy out a failed Dunkin' Donuts shop. They renovated the store and bought in their own recipe. Today, it's a huge success.

Perhaps, there will be other similar mom-n-pop success stories in the donut space as national brands attempt to expand beyond their existing footprints.

It ain't the coffee

"Getting coffee consumers to transition to a different brew is an uphill challenge for Dunkin'."

The ol' "our people won't like the taste of your products in our neck of the woods" argument, What do you make of the popularity of Dunkin' coffee nationwide? It is well-stocked and popular in my local supermarket in Oregon.

Granville_Bean's picture

It's not just the taste.

It's the "culture" of the shops. Like "Starbux is for hipsters" (or wannabee hipsters) who can order in their insider fake Italian jargon that makes them feel special. (WTF happened to "small, medium, large".) Dunkin is more like "None of that nonsense, I'll do it myself". 

DIY Coffee

DD rolled out do-it-yourself coffee in my local Costco. The grounds are cheaper than buying the 1lbs bags at the DD I use to go to. Love brewing it at home in the french press I bought from Starbucks. Plus, the purchases helps me add value to my annual Costco rebate rewards.

Dunkin supermarket coffee is NOT even Dunkin coffee

It is not the same blend as the coffee sold and brewed in Dunkin' Donuts shops for over 65 years. It is a completely different coffee made by the same people who make crappy Folgers instant "coffee". It has zero to do with the long tradition and culture of real Dunkin' Donuts coffee.

DD supermarket coffee ain't the real thing?

Many franchisees know the story of the two different supply chains used to distribute coffee in the stores and the supermarkets. It's probably one of the worst management decision I have ever seen. At the end of the day, consumers don't know it because it's still branded as DD.

If one is superior over the other, it doesn't say much for the brand's credibility. The same brand being funded by the franchisees.

Granville_Bean's picture

well yeah...

Guest tells us that the supermarket and store coffees are not the same.  Well yeah. It's about branding and establishing the brand. So what if the coffee is different, as Guest notes, the customer doesn't know (or much care). Also, they'd be un-surprised if their home coffee and the store coffee tasted a little different (if they could even tell). They might just as well think the difference was due to differences in how it was made in store vs. home.

This revelation is a big "so what". There is really no reason to expect that supermarkets and f'see stores would be supplied in the same way, or that they even should be.

Consumers DO care about Dunkin' Donuts authenticity

They care mostly about price, as well. This favors the authentic Dunkin' Donuts coffee which can only be bought in a Dunkin shop. When you explain to customers that the grocery and big box coffee isn't really Dunkin Donuts coffee, that it only has the logo on it and is really for. A company that makes crappy instant coffee, they understand.

A typical reply to finding this out is " no wonder it never tastes the same at home!" Then they see that oz for oz, you get a lower price on the real Dunkin' Donuts coffee sold in Dunkin' Donuts shops. The fake Dunkin' Donuts coffee sellers use off size bags to disguise how much more expensive the fake stuff is (10 oz bags versus the traditional full pound sold in Dunkin' Donuts shops, or a 40oz super expensive bag sold in big box "discount" shops)

It mattersmtomthe people paying for value and authenticity. Like anything else, once they know the game, they play to win.

Price and Quality

Many customers ask me about the difference in taste between the coffee they make at home and the one they purchase in my stores. I use to tell them that they are sourced differently. The reaction I generally got was one of distrust. Since my money is invested in the "brand", I just tell my guest now the difference is in the way the coffee is brewed in the store vs. at home.

I've never bought in to DBI's expansion plans but it seems to be working based on their stock performance.

DD & My Louis Vuitton

I've been getting a lot of compliments on my new Louis Vuitton handbag for a 1/3 of the cost. It looks and feels like the real thing. Those other ladies don't need to know I followed some Chinese woman through a Chinatown back alley to purchase it.

Cold lady left Louis Vuitton bags in alley to head to Dunkin'

I saw her too. The lady in Chinatown just left her fake Louis Vuitton bags sitting in a foot of new fallen snow. "Knock offs cheap, can replace," she told herself. "It cold. Me no can replace."

She headed over to New York Supermarket to purchase a bag of authorized Dunkin' coffee to heat up at home. Unfortunately, the wind kicked up and it became bitterly frigid. So she decided to make a pit stop at the Columbus Park Dunkin' franchise on her way home.

"Haiyah, gwailou sure know how make coffee," she exclaimed, sipping on the hot java. And then added, "but no understand how make tea."

Re: It ain't the coffee

Hmm...another management success. DBI enjoys a nice royalty stream off the Smucker's retail distribution deal without any franchisees. The customer has learned to brew Dunkin' coffee at home. Now, the plan is to teach those same consumers that are buying the coffee off the well stocked shelves in Oregon to come into a retail store at a premium.

Where I'm from in middle America, we're watching our dollars and cents cause it's not easy to retain a portion of my paycheck for the saving account nowadays.

They've got me hooked

I understand you guys in the MidWest can't get enough of the Dunk'n bags of coffee at your supermarket.

As for me, I'm afraid not just any cup of caffeine will do the trick. Starbucks has me hooked. I buy DIY Starbucks at the supermarket and then I walk into a Starbucks store while on the road all the time and buy a $4 cup. They've got me thinking of them throughout the day. They get me both at home and on the road.

Dunk'n DIY coffee is very popular here at the supermarket. There is strong brand loyalty that has been built up but we don't have any Dunk'n stores.

DNKN MBA Case Study

DBI is selling a story of having Dunkin all day - on the road and in the supermarkets. In markets where the stores came before the supermarket sales the consumers are multi-channel users.

GB talked about a "culture" that was created by Starbucks in their retail stores. Part of that hipster/individualism culture includes long lines, socializing, and a premium beverage menu. Once SBUX dominated the major metropolitan markets throughout United States, they ventured into the supermarkets. That strategy has proven to be very successful. Consumers expecting to a pay premium can enjoy their favorite brew in the comfort of their homes for pennies of what it would cost in the retail stores.

Dunkin' has had a history of playing follow the leader and "me-to". Their corporate culture limited the brand's ability to go national decades ago when the timing was ripe.

Now, Dunkin' is going to reinvent the wheel and sell a story that people who have been trained to purchase Dunkin' coffee at a discount are craving the experience, and are demanding the convenience, of walking into a retail store to pay a premium. I wish them success.

MBA students will be studying the strategies of the 2 brands in the coming years after the story unfolds.

Don Sniegowski's picture

The untold story of Dunk'n franchisees who changed the world

The real but yet untold story of Dunk'n was just how its franchisees pulled the levers to turn around Dunk'n Brands, without having any official authority or even recognition. I've never seen anything quite like it. It took incredible franchising abuse to get Dunk'n franchisees motivated. But when the emboldened franchisees came together, they were able to shrewdly and smartly take a cruel world, filled with sharks, and begin changing it for the better. Amazingly, all parties began to profit from those changes. Imagine that!

The story of what happened behind the scenes is in the queue. It's begging to be set free.

I'm so glad that I was an eye witness. Thank you, franchisees. And an especially big thank you to your appointed and elected leaders who kept Blue MauMau in the loop.

Hold the phone on the feel good Dunkin story

This franchise maven hears that there is trouble afoot In Dunkin world due o store expansion issues in the heart of their market. Why such a stupid thing could happen when there is sooooo much white space expansion does not speak well of the franchisor's development team.

Is Dunkin poised AGAIN to snatch defeat from the jaws of victory? And for what? Who exactly would benefit from destroying this strong brand?

I remember the proclamations of doo by the "experts" here

and that goof who wrote the book Dunked. Remember him? The guy literally harassed his tenant, so he could force him out of a lease and bulldoze the building to build a Dunkin Donuts; then he lost everything. Karma is a bitch.

Doom was closer than you think

The old management came perilously close to shutting down the game for Dunkin'. That chain would have shrunk, just like Cold Stone, TCBY, the old AFC Enterprises, Bennigans, Friendly's and a whole bunch more. If they continued, there would have been book after book, news article after press release like Dunk'd.

Dunkin' Doom was closer than you think

This is absolutely correct. A greedy and inept management team almost sank a successful brand that had huge national and international potential.

They drove very profitable franchisees to seek immediate exit strategies instead of focusing on their business.

As a result, years of potential growth was simply wasted, with franchisees (who are 100% responsible for growth) re-tratecd, re-trenced and invested their capital in other businesses and other brands. They nearly snatched defeat from the jaws of victory until the management house got cleaned out.