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Is Dunkin’ Donuts One of the Most Profitable Franchise Opportunities Out There?

by Franchise Chatter on April 20, 2011

in Franchise Reviews, Multi-Unit Franchise

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Late last year, CNBC, the cable business channel, produced and aired a documentary called “Behind the Counter: The Untold Story of Franchising” hosted by Darren Rovell.  The documentary attempted to show the different sides of franchising: the good, the bad, and the ugly.  But what stood out to me was the final segment which featured Dunkin’ Donuts franchisees.

The segment was basically a case study highlighting how immigrants from India, Pakistan and other parts of South Asia have thrived under the Dunkin’ Donuts franchising system.  The documentary featured a family that started off with just one store.   As the children assumed a greater role in running the business, they were able to professionalize their operations and grow their collection of stores to 23, and counting.

Seeing immigrants succeed in America is always inspiring to watch.  But for me, it was more than just an immigrant success story.  It showed how it’s possible to find great success as a franchisee through hard work, dedication and business savvy.

I was so inspired by this segment of the documentary that I decided to look into franchise opportunities again.  And it was also the seed that brought this blog to life.

So I decided to dedicate one blog post to the Dunkin’ Donuts franchise opportunity.   But, unfortunately, the franchising company does not reveal a lot of information on their website to prospective franchisees.  Only those who pass their initial screening have access to more relevant information.

Based on the little information I have, here are my impressions on what makes the Dunkin’ Donuts franchise so successful.

1.  Franchisor Has Extensive Site Selection Expertise

The Dunkin’ Donuts website describes a very rigorous site selection process, with far more specific requirements than any other franchise opportunity I’ve studied.  This suggests to me that they take site selection very seriously and they will not open new stores just for the sake of growing the franchise, unlike other less scrupulous franchising companies.   This emphasis on choosing the right location is probably one of the reasons why Dunkin’ Donuts franchisees are so successful.

2.  90% of New Stores are Opened by Current Franchisees

This staggering statistic suggests to me a consistently profitable business model and a high level of satisfaction among current owners.  Otherwise, current franchisees will not be as eager to open new locations.  This also shows the commitment of the franchisor to the success of existing franchisees by giving them priority in expanding the business.  Based on my experience, this is not true of all franchisors, who often put their own growth targets over their franchisees’ needs.

3.  Growth of the Chain is Measured and Strategic

The chain has most of its stores in the East Coast, where further expansion is reserved for existing franchisees.  They’ve expanded strategically to neighboring states and they’re slowly opening up new territories in the Central Region.  The Western Region is still not open for franchising, except for Arizona and Nevada where there are already existing franchisees and further expansion is reserved for them.

This means that the chain has a lot of room to grow, particularly in the West Coast.  But growth will happen on the company’s own timetable and future franchisees will have to wait patiently until their local markets are eventually opened up for franchising.

Measured growth seems to be working for Dunkin’ Donuts because they’ve consistently grown their store numbers every year, even during the recession.  They had 5,451 stores in 2007, 5,863 stores in 2008, 6,475 stores  in 2009, and 6,566 stores in 2010.

4.  Prospective Owners Can Purchase Existing Stores But Only a Few are Available for Sale

The Dunkin’ Donuts website lists all the existing stores available for sale, with the contact information of their current owners.  The last time I checked, they listed about 20 Dunkin’ Donuts stores for sale (some of them are co-branded Dunkin Donuts and Baskin-Robbins locations).  This represents less than 1% of all existing stores in the chain.  This is an extremely small number and is further proof  of how sought after this franchise opportunity really is.

5.  Amount of Initial Investment Depends on Format But Generally on the High End

The total initial investment required to open a new Dunkin’ Donuts store ranges from $358,200 to $1,980,300, while the initial franchise fee varies from $40,000 to $80,000.

The wide range of these numbers is due to the multiple formats of Dunkin’ Donuts stores:  from standalone and strip mall locations, with or without drive-thrus, to non-traditional locations like those found in universities, hotels, stadiums, hospitals, among others.

But regardless of the format, this franchise requires substantial investments in kitchen equipment and build-out.  And the franchise fee is one of the highest I’ve seen.  The royalty fee, however, is a reasonable 5.9% of gross sales.

The Dunkin’ Donuts franchise appears to be a very profitable business opportunity but only a lucky few are able to join the system.  Since the franchisor emphasizes growth from existing owners, the company can afford to be very selective.  But those who do become franchisees are treated as true partners in growing the business.

Are you a current franchisee of Dunkin’ Donuts?  Is your Dunkin’ Donuts franchise profitable?  Do you work for the Dunkin’ Donuts franchise organization?  Can you share anything about the profit potential of the Dunkin’ Donuts franchise?

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