TROUBLE IS BREWING AT DUNKIN’ DONUTS
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Dunkin’ Donuts, the ubiquitous coffee-and-doughnut chain, is at odds with dissatisfied shop owners who complain the company is watering down the iconic brand.
Specifically, the franchise owners oppose several deals that Dunkin’ Donuts has struck with other companies to expand distribution for the coffee, arguing it cuts into their profits and hurts the brand.
The pacts allow Procter & Gamble to sell discounted coffee beans in thousands of stores; Sara Lee Foods to serve coffee in office buildings, cafeterias and break rooms; and Hess to dispense coffee and pastries at its gas stations.
A survey by the Dunkin’ Donuts Independent Franchise Owners, which represent store owners in a dozen states, found that 98 percent oppose the Sara Lee partnership and 97 percent are against the Hess deal.
Almost all of the survey respondents, who own about 1,000 stores in New York and New England, said their cash flow has been declining “for some time” and that they saw no signs of improvement any time soon.
After a trio of private-equity firms bought the company in 2006, Dunkin’ Donuts embarked on an aggressive growth strategy to turn the pink-and-orange franchise into a national chain by opening stores outside its Northeastern base.
More recently, Dunkin’ Donuts launched a campaign to branch out beyond breakfast by adding personal pizzas and flat-bread sandwiches in an attempt to attract more customers throughout the day.
Bain Capital, the Carlyle Group and THL Partners bought Dunkin’ Brands, which also owns the Baskin-Robbins ice cream franchise, from Allied Domecq Plc in March 2006 for $2.4 billion in cash.
Some Dunkin’ Donuts franchise owners believe the private equity buyers are pursuing profits and an initial public offering through distribution deals that bypass their stores and hurt their bottom line.
“It was previously stated in the press that their intention is to grow the brand and do an IPO in the not-too-distant future,” said Mark Dubinksy, president of the franchise group.
“Some of those things like the brand extension deals do not necessarily benefit the franchisees.”
The discontent is also brewing during a serious coffee war with McDonald’s and Starbucks.
“Our goal is to increase franchisee profitability by responding to ‘on-the-move’ consumers’ desire for their brand of coffee wherever they go,” said Stephen Caldeira, chief communications officer for Dunkin’ Donuts.
“We’re confident that these partnerships will achieve this goal – quite simply, if our franchisees do not do well, then we do not do well.”
Dubinksy said the purpose of the survey isn’t to embarrass the corporate bosses but rather to draw their attention to some of the issues confronting the franchise owners.