Franchising is a popular method for expanding business. Through a licensing relationship a franchisor, or business owner, essentially sells a franchisee the rights to open a new business location. For instance, Planet Fitness has many franchise locations, all of which were sold to various franchisees across the country. Once the Planet Fitness franchisee purchases a franchise, they are granted the right to build their own location using preexisting systems, regulations, etc.
Franchising is an attractive business model for anyone new (or not) to the industry. Unlike an independent business, which requires growing from the ground up, a franchise comes with a pre-established, and usually successful, operational system. Through extensive training programs, franchisees learn all the ropes behind the business, eliminating the daunting trial and error process. Not to mention, a franchise comes with brand recognition is built right in.
FRANCHISING IS AN ATTRACTIVE BUSINESS MODEL FOR ANYONE NEW TO THE INDUSTRY.
Anyone looking to purchase a franchise will be given a Franchise Disclosure Document (FDD). It’s imperative that any franchisee fully understand the components and contents in any business’ FDD. Consisting of 23 different parts, the FDD, a legally mandated document, outlines different key pieces of information involved in franchise purchase. For instance, a Franchise Disclosure Document tells the interested franchisee more about the total fees and costs associated with purchasing the franchise of their choice.
The overall intention of the document is transparency. Both the company and franchisee need to be on the same wavelength in order for the purchase and future management of the business to run smoothly. Click here to see a more in-depth description and analysis of the Franchise Disclosure Document.
The Story Behind the Business
The story of Dunkin’ Donuts began in 1948 with a donut and coffee restaurant in Quincy, Massachusetts called “Open Kettle.” Founder William Rosenberg served donuts for five cents and premium cups of coffee for ten cents. After a brainstorming session with his executives, Rosenberg renamed his restaurant “Dunkin’ Donuts” in 1950. His goal was to, “make and serve the freshest, most delicious coffee and donuts quickly and courteously in modern, well- merchandised stores,” a philosophy which still holds true today.
In 1955, the first Dunkin’ Donuts franchise opened, and in just 10 years, the number of
restaurants had grown to over 100 shops. It was after reaching this milestone that, in 1972, Dunkin’
Donuts introduced its iconic Munchkins® donut hole treats. In the years since, Dunkin’ Donuts has
expanded its menu to include a wide variety of food and beverage options to keep guests running all day.
Dunkin’ Donuts coffee is available in a variety of delicious flavors, including classics like Hazelnut and French Vanilla, as well as seasonal flavors including the ever-popular Pumpkin. According to Brand Keys, Dunkin’ Donuts has maintained the #1 spot in customer loyalty in the coffee for 10 years running. In addition to coffee and espresso, Dunkin’ serves a host of other beverages such as hot chocolate, iced tea, Coolatta® frozen drinks and smoothies. The all-day food options feature innovative menu items like the Big N’ ToastedTM, alongside a number of other breakfast sandwiches and bakery products. More recent additions to the menu include Rainforest Alliance CertifiedTM Dark Roast coffee, Cold Brew and the Macchiato, as well as the Croissant Donut platform.
Dunkin’ Donuts has also become a leader in digital innovation. The Dunkin’ Mobile® App allows guests to pay right from the app with their virtual Dunkin’ Donuts Card. The App also lets guests browse the menu, locate the nearest Dunkin’ Donuts restaurant, access their DD Perks® account to find mobile coupons and offers, and more.
In 2016, Dunkin’ introduced On-the-Go Ordering, which allows DD Perks members place a mobile order up to 24 hours in advance, select their desired location, and then pick up their order inside a Dunkin’ Donuts restaurant, or at the drive-thru.
Since 1950, the number of Dunkin’ Donuts restaurants has increased to more than 12,000 worldwide, with locations in 45 countries. The company serves approximately 1.9 billion cups of hot and iced coffee every year, with standards for coffee excellence that are among the best in the industry. Over the long-term, the company plans to more than double its U.S. presence, which will put the total number of restaurants above 17,000.
Franchising Since 1955
John L. Luther, Chairman.
Nigel Travis, Director, Chief Executive Officer, and President.
Neil Moses, Chief Financial Officer and Manager.
Richard J. Emmett, Senior Vice President, General Counsel, Secretary and Manager.
Paul Twohig, Chief Operating Officer.
Bonnie Monahan, Vice President and Treasurer.
John Costello, Chief Marketing Officer.
Joseph Scafido, Chief Creative and Innovation Officer.
The Initial Franchise Fee for a Dunkin’ Donuts franchise depends on the type of development area. Item 5 of the Dunkin’ Donuts FDD divides these into three development types.
- Development Area Type 1: $80,000
- These designated areas include: Bangor, ME; Boston, MA; Hartford/New Haven, CT; Portland, ME; Providence, RI; Springfield, MA.
- Development Area Type 2: $60,000
- These designated areas include: New York, NY
- Development Area Type 3: $50,000
- These designated areas include: Albany, NY; Baltimore, MD; Burlington, VT; Chicago, IL; Miami/Ft Lauderdale, FL; Harrisburg, PA; Philadelphia, PA; Washington, DC; Wilkes Barre/Scranton, PA; West Palm Beach, FL; Salisbury, MD; and Presque Isle, ME
- Development Area Type 4: $40,000
- All other US areas not listed above
Dunkin’ Donuts does offer to facilitate certain lending arrangements using third party lenders. The amount and availability of financing varies according to the program and specific situation. However, financing can cover, construction, site acquisition, remodeling, or replacement of equipment. Often, inventory or supplies are not financed.
While qualifications for financing vary, there are some typical qualifications that Dunkin’ Donuts provides. Often, prospective franchisees eligible for financing must provide acceptable pre-financing cash flow, an acceptable level of net worth, and acceptable credit history, among other pieces of criteria.
There are contractual obligations that the franchisee must fulfill if they decide to take on Dunkin’ Donuts financing. For instance, a termination of the Franchise Agreement may constitute a default on the loan. Also, financing may not be transferable.
Training and Assistance
Franchisees of Dunkin’ Donuts must manage their first location with at least two other people, one of whom must be another partner and a designated representative. Depending on the amount of restaurants the franchisee decides to purchase, the number of partners grows.
All owners of the business must successfully complete the training program in a timely manner. All initial training programs must be completed before they are able to operate a business. Dunkin’ Donuts provides a three day franchise business course, which takes place in Boston. Each franchisee must attend this course in order to open their location.
Dunkin’ Donuts also has a Core Initial Training Program, which is a classroom style course that takes 24 days to complete. These courses take place in varied locations and depend on the franchisee, however, may require travel. This training program teaches food safety, restaurant management systems, POS training, among other aspects.
For new locations, Dunkin’ Donuts may select the site or approve of the prospective franchisee’s desired location. Often, the franchisor considers factors such as the proximity to retail activity, the preexisting customer base, the density of the nearby population, potential parking availability, etc. A multitude of factors is considered before any location is approved.
If the franchisee selects the location, they must provide various informational pieces for the franchisor. In this situation, the franchisee is forbidden to sign any lease before the location has been approved. If the franchisee decides to construct the location themselves, Dunkin’ Donuts will provide standard plans and specifications.
Term of Agreement and Renewal
Restrictions on Sources of Products and Services
All food products and supplies at the new Dunkin’ Donuts location must meet the franchisor’s specific requirements and standards. Franchisees are also obligated to purchase all items from approved distributors. The franchisee must also conform to the uniform Dunkin’ Donuts standards of quality, service, safety, and cleanliness. Any changes or updates in these standards must also be followed.
All suppliers must also demonstrate that they successfully meet the requirements to supply adequate quantities of food products. Dunkin’ Donuts suppliers must also meet quality standards, which all suppliers must agree to meet before being approved. Furthermore, the franchisor reserves the right to refuse any supplier. Franchisees are not provided with the Dunkin’ Donuts criteria for approving new suppliers. A request may be submitted in writing however, testing the new supplier can result in a fee ranging from $1,000 to $10,000.
Item 9 of the Dunkin’ Donuts Franchise Disclosure Document lays out the obligations the franchisee must follow. Several primary obligations include:
- Site selection and acquisition
- Pre-opening purchases and leases for the location
- Completion of initial and ongoing training programs
- Timely payment of all fees
- Franchisee compliance with standards and policies outlined in operating manual
- Maintenance of appearance of location
Dunkin’ Donuts had a total of 5,678 franchised outlets at the end of 2010. At the end of the same year, the franchise had a total of 21 company-owned locations.
Initial Investment and Costs
|Name of Fee||Low||High|
|Initial Franchise Fee||$40,000||$80,000|
|Additional Development Costs||$22,000||$75,000|
|Equipment, Fixtures, and Signs||$300,000||$450,000|
|Electronic Cash Register/Retail Information System||$16,050||$23,550|
|Miscellaneous Opening Costs||$16,800||$68,100|
|Licenses, Permits, Fees, and Deposits||$3,500||$5,500|
|Travel and Living Expenses While Training||$2,000||$4,500|
|Marketing Start-Up Fee||$5,000||$7,500|
|Additional Funds for First 3 Months Operation||$81,000||$184,000|
|Travel/Lodging/Meals for Training||$500||$3,500|
The above information was derived from the FDD of Planet Fitness issued in 2014. This data may not be the most current information available. Please consult with other company sources to learn more.