Franchising: Study of A Success and A Failure

IMEN301: Technology Management & Strategy | Homework #3

Group #4

Christina Lehmann
Neelotpal Shukla
Nijansh Verma

Ref: http://www.investopedia.com/terms/f/franchise.asp

Ref: http://en.wikipedia.org/wiki/Franchising

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

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.

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


CANDIDATE REQUIREMENTS
AVAILABLE MARKET
Should be in a country which is open for development (in Pink)


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.


RESOURCES: FINANCIAL

Net Worth: $

250, 000

Liquid Cash Available: $125,


000

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


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

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: http://www.entrepreneur.com/franchises/dunkindonuts/282304-0.html

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.

BRANDING AND MARKETING
Regional Marketing and Free
Access to Marketing Tools
Dunkin' Brands owns and
operates LSMnow.com, a onestop shop for local store
marketing needs. Franchisees get
free downloads of brandapproved, customizable creative,
local store marketing programs,
and other valuable resources.

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.

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.


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

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

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


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: http://smallbusiness.chron.com/open-krispy-kreme-doughnut-business-10206.html

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


Resources: Financial

Liquid Capital Required: $1,000,000
(initial investments range from $928,000

to $1,883,250)
Minimum Net Worth : $5 million


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.

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: http://www.morebusiness.com/franchise-risks

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)


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


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: http://money.cnn.com/magazines/fsb/fsb_archive/2002/05/01/322792/

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: http://money.cnn.com/magazines/fsb/fsb_archive/2002/05/01/322792/

Franchising: Study of A Success and A Failure

Franchising: Study of A Success and A Failure

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Franchising: Study of A Success and A Failure