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Earnings Claims of Top Franchises Revealed

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FDD Talk 2014: Our Latest Views on Dunkin’ Donuts’ Average Cost of Goods Sold and Labor Cost

by Franchise Chatter on August 16, 2014

in Coffee Franchise, Donuts Franchise, Franchise Earnings

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Dunkin' Donuts Photo by agennari

Highlights of Dunkin’ Donuts’ Item 19 Financial Performance Representations (2014 FDD) – Part 2

Notes Regarding COGS and Labor Data

  • “COGS” means the cost of goods sold, including food, beverages, and items served or associated with the food or beverage, such as cups, napkins, straws, bags, plastic utensils, and wrapping paper.
  • “Labor” means crew, management, training, payroll tax, and workers’ compensation.
  • COGS and Labor are stated as a percentage of gross sales (excluding sales tax and discounts). The vast majority of Restaurants that comprise this data are franchised, although Dunkin’ Donuts affiliates may own and operate a small number of Restaurants at any given time.
  • The cost figures from franchised Restaurants are compiled from individual Restaurants by using cost data that are reported to Dunkin’ Donuts by franchisees. Dunkin’ Donuts has not audited or verified the reports, nor have franchisees confirmed that the reports are prepared in accordance with generally accepted accounting principles or in accordance with Dunkin Donuts’ definition of COGS and Labor.
  • Your costs will be affected by your own operational ability, which may include your experience with managing quick service restaurant operations, your experience building and managing an organization, continual training of you and your staff, your business plan, and using experts (e.g. an accountant) to assist in your business plan. Your costs may be negatively affected by not adhering to Dunkin Donuts’ standards and system.
  • Many of the Restaurants included in this data have been open and operating for several years. Those franchises may have lower cost percentages due to years of experience managing costs. For new franchisees, COGS and Labor cost percentages may initially exceed those of experienced operators.
  • There is no assurance that future costs will correspond to historical costs because of factors such as inflation, changes in menu, and other variables.
  • Factors affecting your COGS include, but are not limited to, the price of raw materials; your ability to manage and implement proper controls of waste, ruin, loss, theft, and the portion sizes served to the public; regional differences; temporary shortages; seasonal and weather fluctuations; and fluctuations due to periodic marketing and advertising programs. Additionally, freight charges may be higher in some areas. If the cost of gasoline increases in the U.S., the cost of freight will rise as well.
  • The COGS data below reflects average Restaurant aggregate costs. Different food and beverage items have different cost percentages. Customer demand for products varies among Restaurants and regions and if your Restaurant sells a high percentage of high cost items, your food cost percentage will be higher than if you have a lower percentage of higher cost items.
  • Factors affecting your Labor include, among other things, the local labor market and any applicable federal or state minimum wage law; pending healthcare legislation, employee turnover, and your operational abilities, including your ability to train and retain employees; your compensation that may be included in labor, which varies among franchisees; menu, product mix, Restaurant layout, your salary and benefits programs, and scheduling. Restaurants must be staffed in accordance with Dunkin’ Donuts’ standards.
  • Some franchisees purchase finished products manufactured at another location. The cost of this finished product will vary depending upon the number of Restaurants being serviced by the manufacturing location and other factors. These franchisees may pay more for food costs but may pay less for other items such as labor, equipment, distribution, and rent.
  • COGS may be particularly affected by the fluctuations in the price of coffee and other items and ingredients.
  • Restaurants with lower sales may have higher COGS and Labor cost percentages because of less efficiencies and economies of scale, and more waste.
  • The retail sales price that you establish will also affect the COGS and Labor cost percentages.
  • If you are in a geographic area with fewer Restaurants, you may have higher COGS as a percentage of sales due to less distribution efficiencies.
  • The “Total Number of Restaurants/Combo Restaurants in Sample” in Tables 4 and 7 is a subset of the “Total Number of Restaurants/Combo Restaurants in Sample” in Tables 1, 2, 3, 5, and 6 because not all Restaurants or Combo Restaurants reported COGS and Labor data for the twelve month reporting period.
  • All of the Restaurants or Combo Restaurants in Tables 4 and 7 reported at least one month of COGS and Labor data for the twelve month reporting period.

Table 4 – Continental U.S. Dunkin’ Donuts Single Branded Restaurants, Average Cost of Goods Sold and Average Labor Cost Stated as a Percentage of Total Sales (f0r the Period November 1, 2012 to October 31, 2013)

Mid Atlantic

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