Intro to the Dunkin’ Donuts Franchise
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, the Dunkin’ Donuts franchise has many franchise locations, all of which were sold to various franchisees across the country. Once the Dunkin’ Donuts franchise selects a franchisee, 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 Dunkin’ Donuts Franchise
The Dunkin’ Donuts franchise dates back to a small doughnut and coffee shop in 1948 Massachusetts called “Open Kettle.” Open Kettle was founded by William Rosenberg who served his doughnuts for five cents, accompanied by ten cent cups of premium coffee. His little shop grew largely popular, inspiring Rosenberg to rename the shop to Dunkin’ Donuts in 1950. Rosenberg set up his goals for his business, aiming to: “make and serve the freshest, most delicious coffee and donuts quickly and courteously in modern, well-merchandised stores.” The Dunkin’ Donuts franchise still holds this philosophy among its business standards.
By 1955, the first Dunkin’ Donuts franchise location opened. Experiencing much of the same popularity the company had before, the franchise expanded to over 100 locations in just ten years. After reaching this milestone in 1972, the Dunkin’ Donuts franchise introduced a new product: Munchkins® donut hole treats. Today, the product has become largely popular with customers, prompting the franchise to release different seasonal flavors throughout the year. In addition to its Munchkins® donut treats, the Dunkin’ Donuts franchise has released a variety of food and coffee products to keep guests interested.
Alongside the company’s focus on quality doughnuts, Dunkin’ also began to invest resources into improving its coffee beverages. Today, the business has classic flavors like Hazelnut and French Vanilla but also releases seasonal flavors, like the popular Pumpkin Spice. More recently, the Dunkin’ Donuts franchise has begun to introduce and develop various forms of coffee including Nitro Brew and Cold Brew.
The Dunkin’ Donuts franchise largely prioritizes speed and service. The company introduced the Dunkin’ Mobile® App, which allows customers to browse the menu and order their food on their phone. When the customer arrives at their selected Dunkin’ location, their order is already waiting for them. The app also provides DD Perks®, which are mobile coupons and offers guests may redeem.
In September 2018, the Dunkin’ Donuts franchise decided to rebrand and rename their franchise to “Dunkin’.” After testing the rebrand at several Massachusetts locations, the company decided to change their title in order to take a more casual approach. The Dunkin’ Donuts franchise now has more than 12,000 locations worldwide in 45 different countries.
Dunkin’ Donuts Franchise FDD Summary
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
The Dunkin’ Donuts franchise 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 the Dunkin’ Donuts franchise 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|