Franchising: Study of A Success and A Failure


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After an introduction to franchising, the definition and motivation, two firms were studied: Dunkin Donuts as a success and Krispy Kreme as a failure.

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Franchising: Study of A Success and A Failure

  1. 1. IMEN301: Technology Management & Strategy | Homework #3 Group #4 Christina Lehmann Neelotpal Shukla Nijansh Verma
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  6. 6. COMPANY SNAPSHOT Founded in 1950 by WILLIAM ROSENBERG in QUINCY, MASSACHUSSETTS. First Franchise: 1955 It is now the world's leading baked goods and coffee chain owned by DUNKIN' BRANDS, INC Reference: Dunkin Donuts Official Website
  7. 7. COMPANY SNAPSHOT More than 3 MILLION customers per day 52 VARIETIES OF DONUTS More than a dozen coffee beverages as well as an array of bagels, breakfast sandwiches and other baked goods. At the end of 2011, there were 10,083 DUNKIN' DONUTS STORES worldwide, including 7,015 FRANCHISED RESTAURANTS in 36 United States and 3,068 international shops in 32 countries. Reference: Dunkin Donuts Official Website
  9. 9. START-UP COSTS Total Investment: Franchise Fee: $ 294,000 - $ 1,523,100 $40,000 - $90,000 Ongoing Royalty Fee: 5.9% OF GROSS SALES Term of Franchise Agreement: NOT RENEWABLE Reference: Dunkin Donuts Official Website
  10. 10. CANDIDATE REQUIREMENTS AVAILABLE MARKET Should be in a country which is open for development (in Pink) Reference: Dunkin Donuts Official Website
  11. 11. CANDIDATE REQUIREMENTS EXPERIENCE • In food service, retail or multi-unit management. • Understanding of local store marketing and community involvement. • Knowledge of real estate development process PASSION • Dedication for operational excellence. • Demonstrated ability to build a high performance team and organization. Reference: Dunkin Donuts Official Website
  12. 12. CANDIDATE REQUIREMENTS RESOURCES: FINANCIAL Net Worth: $ 250, 000 Liquid Cash Available: $125, Reference: Dunkin Donuts Official Website 000
  13. 13. CANDIDATE REQUIREMENTS RESOURCES: REAL ESTATE (PREFERRED) • Site Size: 1/4 - 2 acres Building Size: 1,200 to 2,600 square feet • Morning drive side • Drive-thru • Freestanding, shared pad or end-cap located in mixed use "major tenant" community shopping center with national or regional tenants • Option for 24 hour operations Reference: Dunkin Donuts Official Website
  14. 14. CANDIDATE REQUIREMENTS RESOURCES: REAL ESTATE (PREFERRED) • High visibility from major arteries • Easy ingress and egress (no more than 2 turns in or out) • Minimum of one (1) parking space for every three (3) seats • Signage: i. Building: maximize square feet, (use prototypical colors and materials) ii. Pylon and/or monument: maximize square feet, use prototypical colors and materials Reference: Dunkin Donuts Official Website
  16. 16. 1. STRONG FRANCHISE REPUTATION Dunkin Donuts had maintained a good image as a franchise as can be seen in the franchise rankings done by various organizations. This attracted potential franchisees and led to a larger network. Ranking 2013 2012 2011 2010 2009 Franchise 500®: 13 10 15 7 36 FastestGrowing: 9 6 29 4 6 America's Top Global: 12 9 13 6 31 Reference:
  17. 17. 2. PROVIDED STRONG SUPPORT FRANCHISE TEAM AND ADVISORY COUNCIL Newsletter, Meetings, Toll-free phone line, Grand opening, Security/safety procedures, Field operations/evaluations. All franchisees participate at the District Advisory Councils, and elected franchisee representatives participate at the Regional and Brand Advisory Councils. Together with the Dunkin' Team, the advisory councils focus on issues that impact franchisees and the brand. Reference: Dunkin Donuts Official Website
  18. 18. 2. PROVIDED STRONG SUPPORT BRANDING AND MARKETING Regional Marketing and Free Access to Marketing Tools Dunkin' Brands owns and operates, a onestop shop for local store marketing needs. Franchisees get free downloads of brandapproved, customizable creative, local store marketing programs, and other valuable resources. Reference: Dunkin Donuts Official Website
  19. 19. 2. PROVIDED STRONG SUPPORT TRAINING PROGRAM Dunkin Donuts conducts a our six-week course, where the candidates will have the tools so they can learn all about the brand and the ins and outs of restaurant management. Reference: Dunkin Donuts Official Website
  20. 20. 2. PROVIDED STRONG SUPPORT TECHNOLOGICAL SUPPORT Dunkin' Mobile, the mobile app, lets guests send virtual gift cards, load & reload their DD card, locate nearby Dunkin’ stores and view menu items. Reference: Dunkin Donuts Official Website
  22. 22. COMPANY SNAPSHOT Founded on July 13, 1937 by Vernon Rudolphin. Headquartered in Winston-Salem, North Carolina, United States First Franchise: 1982 Has 2.1% of the U.S. coffee and snack shop market (Starbucks:36%, Dunkin Donuts: 25%) Reference: Krispy Kreme Official Website
  23. 23. COMPANY SNAPSHOT 20 different Donuts, Sale of Donuts: 88% of total retail sale 141 Domestic Franchise Stores in 29 states, 358 International Franchise Stores in 18 countries 83 Company stores in 18 states and the District of Columbia Reference: Krispy Kreme Official Website
  25. 25. START-UP COSTS Royalty fee: 4.5% of their total sales plus 2% to for brand development and public relations costs Start-up cost: $25,000 – $50,000 Total investment: $933,000 – $1,888,250 Reference: Dunkin Donuts Official Website
  26. 26. CANDIDATE REQUIREMENTS Available Market USA: Chicago, Buffalo/Rochester, Harrisburg, Lancaster, York, Houston ASIA: India, China, Taiwan, Singapore EUROPE: Russia, Poland, Hungary, Czech Republic, Bulgaria, Romania, Spain, Portugal, France, Germany, Belgium, Norway, Holland, Sweden, Finland, Greece, Italy Canada, Mexico, Puerto Rico, Australia Reference:
  27. 27. CANDIDATE REQUIREMENTS Core Requirements Passionate about the Krispy Kreme brand and products proven track record of running a successful business (retail/ restaurant industries) Highly committed to providing great customer service Strong Understanding of the local culture Reference:
  28. 28. CANDIDATE REQUIREMENTS Resources: Financial Liquid Capital Required: $1,000,000 (initial investments range from $928,000 to $1,883,250) Minimum Net Worth : $5 million Reference:
  29. 29. CANDIDATE REQUIREMENTS Resources: Real Estate Hotlight stores: extend to 3,600 sq ft (approx.) generally located on retail parks/leisure parks/busy arterial routes in major cities Fresh shops: comprise of 300 sq ft kiosks or 1,000 sq ft in-line retail units. Units are required to be on busy thoroughfares, transport hubs or shopping centers. Reference:
  30. 30. WHY DID THEY FAIL?
  31. 31. WHY DID THEIR FRANCHISE FAIL? 1. Aggressive Growth • Attempt to sell its brand everywhere and anywhere, from gas stations to kiosk (dilutes appeal of core product) • Allow franchise locations that are too close in proximity (new store may offer additional revenue to the home office, but the overall result is less profit for each individual store owner) e.g. 2003 – 2004: second quarter revenues increased by 15% same store revenues only by 1% Reference:
  32. 32. WHY DID THEIR FRANCHISE FAIL? 2. Market Oversaturated Distance to actual key product by new introduction of product lines (line of high-carb, high-calorie frozen drinks, or "drinkable donuts”, sugar-free donut, large coffee section, sausage rolls) Reference:
  33. 33. WHY DID THEIR FRANCHISE FAIL? 3. Profit over Growth mistake • “Channel Stuffing": Stores received twice the inventory at the end of quarter so corporation could bolster its reported profits • Questionable transactions and self-dealing accusations over the buybacks of franchisees Reference:
  34. 34. WHY DID THEIR FRANCHISE FAIL? 4. Accounting scandal 2005 • Franchisees are forced to purchase equipment/supplies from headquarters with extreme markups (greedy short-term profit generating solution) • Result: 31% percent of sales were generated for required mix and doughnut-making equipment Reference:
  35. 35. COMPARING TO DUNKIN DONUTS Dunkin Donuts generally does not sell equipment or product to its franchisees, they have a strong royalty stream that is based solely on store sales Company looks to own profit rather than profit of all franchisees as it has gone public and trades stock shares on the public market, which forced company to produce high profits at the parent-company level, while its outlets struggled. Reference: