Will McD's Smoothie Create a Meltdown?

Canadian PhD and talks funny - but he is absolutely right. Any big concept can knock off any little, small gauge franchise concept by simply adding that buisness to its mix. What amazes me is that the small gauge people have still not seen the weakness of their situation and closed their doors. Thay are doomed. It makes no difference if their product is more earth friendly, orgasmic, vitamin enriched, multi flavored, better for you. If the big footprint store takes the concept and discounts it, they eliminate a "destination required" competitor with ease. The public is not comprised of connoiseurs or environmentalists or sponsors of the wonderful but cost inefficiet.  The public will always seek the lowest and most convenient option.

But FranWads are still buying smoothie franchises. Lambs to the slaughter.

Excellent discussion. Like McDonald’s, DD introduced Bagels, in 1997, and overnight, the Dunkin’ brand became mom-n-pop’s goliath franchised retail competitor.

Guest writes:
“The two brands are not equals with Dunkin in the dominant position and the Baskins in "fractional add-on" role.”

True. However, in today’s global market we must consider the international landscape to determine equity dominance. Internationally, the “brand” is franchised as joint venture arrangements – both DD & BR. Although there may be a slight management fee, the returns are driven primarily by profitability, and the profits are generally shared 50/50 between the joint venture partnership(s) . In this context, global marketing expenditures capitalize the trademark’s goodwill value. Domestically, the franchisor is a top line feeder, and is motivated to target their investments internationally to build their bottom feeding valued added financial creditworthiness. BR has historically had international dominance over DD. Therefore, in structuring the 2006 144a DB Master Finance, LLC whole business securitization, equity ownership of DD was merged into BR International, LLC (BRINT) prior to the issuance of the indenture on May 26, 2006. As a whole, the result, technically, subordinated DD equity ownership control to BR’s global equity ownership dominance.

To get back on topic – In the DD/BR combo environment, smoothies were already in the signature BR product mix prior to the 2005 DD smoothie launch. Better yet, BR’s smoothies were actually made with real “fruit” unlike many of today’s fruit purees and concentrated smoothie mixes. BR and real “fruit” have long history together – however, I’ll spare you the boredom of “bananas” for now….

So, what happened? To launch the smoothie introduction, DD went all out on the marketing $$$ but it was not necessarily a result of huge $$$ investments in R&D and consumer feedback studies. Rather, the result was a huge consumer “response” into our stores only to find out that the “new” smoothies were nothing but hyped up “crap”. One costumer even said it almost made her puke since DD’s smoothie "smelt" like vomit. However, the geniuses, at Brand Central, considered the “launch” a huge success. Nothing changed for DD internationally. BR, on the other hand, in the international arena managed to increase smoothies sales given the increased global marketing budget for “Smoothies”. Hence, the “genius” was in the reallocation of the global marketing $$$ into the dominant international brand – BR. DD’s smoothie still sucks… And, we don’t sell as many smoothies as we used to at the BR counter. In the domestic market, a consumer walking into a DD/BR for a smoothie – now, walks up to DD only without associating Ice Cream with Smoothies. Another form of domestic franchisee equity value extraction was successfully executed up at “Brand Central”.

As per Dr. Hayes conclusion, my experience is in line with the “trend” that consumers will migrate towards the perceived dominant branded market player. $$$ buys it all….

Btw – I satisfied the PO-ed DD customer by making her a “real” fruit smoothie over at the BR counter – using fresh strawberries and a “banana” (Chiquita – I believe was the “brand”).

main meal item, but a side item or dessert item. Franchises that have as their  main product things that are side or dessert items will not be able to cut it when the big guys add their core product as an item to their broader main meal concept.

Guest writes:  "I never thought a hamburger QSR or a sub sandwich business format franchise was a good idea because at best, it is only a fractional offering by other chains. That is to say, Arby's recent launch of sub sandwiches will destroy Jimmy John's Subs, which puts all of its retail space to serving subs."

1.  I don't know what you are saying, and whether you think that this a counter-example to the thesis.

But, let's deal with it on its face. The mere addition of franchisor's B product by franchisor A isn't sufficient to destroy B. The concept is foolish on its face.

However, if the addition of the product lowers or removes franchisor's B unique selling proposition, its barrier to competitive entry, that may be sufficient.  It will certainly effect franchisor B.  Think of how Subway rolled out cheaper toasted subs to beat back Quiznos- the product offering was related directly to Quiznos' usp.  

Richard has helpfully pointed out another way in which the usp of a franchisor B could be damaged - it is no longer the destination of choice because franchisor A now carries a more complete menu - dinner and dessert in the case of smoothies and yogurt.

Guest writes: "Did DQ shift away from dedicated soft-serve ice cream shops because the biggies recently added soft-serve to their product offerings, or is there something bigger happening in the ice cream sector?"

2.  DQ closed a number of stores which were suited only to serving soft ice cream.  But, perhaps you have something else in mind?