In this FDD Talk 2017 post, you’ll learn the following:
- Section I – Background information on the Dunn Brothers Coffee franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Dunn Brothers Coffee franchise, based on Item 7 of the company’s 2017 FDD
- Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Dunn Brothers Coffee franchise, based on Items 5 and 6 of the company’s 2017 FDD
- Section IV – Presentation and analysis of Dunn Brothers Coffee’s financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:
- 2016 average, median, high, and low gross revenue for the 31 franchised and 2 affiliate-owned (separately stated) Dunn Brothers Coffee Shops in operation during the entire 12-month period ended December 31, 2016 and that offered Dunn Brothers Coffee’s full menu of food Products
- 2016 average, median, high, and low gross margin percentage and labor cost percentage for the 15 franchised and 2 affiliate-owned (separately stated) Dunn Brothers Coffee Shops in operation during the entire 12-month period ended December 31, 2016, offered Dunn Brothers Coffee’s full menu of food Products, and submitted financial statements for the year ended December 31, 2016 to Dunn Brothers Coffee by April 19, 2017
Section I – Background Information
12 Things You Need to Know About the Dunn Brothers Coffee Franchise
New and Returning Summer Drinks
1. To kick off the summer season, Dunn Brothers Coffee launched a few limited-time menu items, including White Chocolate Pistachio Nirvana and Tiramisu Latte.
2. The White Chocolate Pistachio Nirvana is an iced beverage featuring Dunn Brothers’ Infinite Black cold-pressed coffee, half and half, a shot of pistachio flavor, and white chocolate sauce. It is also available as a steamed Nirvana and a frappe. The flavor was first introduced in 2015 and is back this summer by popular demand.
3. The new Tiramisu Latte brings the flavors of the classic Italian dessert to Dunn Brothers’ summer line up and is available as an iced latte, hot latte, or frappe.
4. Dunn Brothers Coffee stands out from the competition by only using sustainably-grown coffee. According to Dunn Brothers Coffee, the company believes in “offering [its] customers exceptional coffees while rewarding the farmer, protecting the environment, and bettering our communities.”
5. In order to deliver on the company’s promises, Dunn Brothers Coffee partners with respected certifiers of sustainably-grown coffee, including Fair Trade USA and Rainforest Alliance. The company also visits many of the farms where it purchases coffee to verify first hand that farmers are adhering to sustainable farming practices.
6. Dunn Brothers’ goal is to offer 100% certified or independently-verified sustainably-produced coffee. The coffee shop franchise has also partnered with World Coffee Research, “a collaborative research and
development program of the global coffee industry, committed to the mission of growing, protecting and enhancing the supplies of quality coffee, while improving the livelihoods of the families who produce it.”
Trendy Cold Brew Coffee
7. In recent years, cold-press coffee (or “cold brew”), which is coffee that is steeped in cold water for long periods of time to provide a less acidic flavor than hot brew coffee, has gained in popularity. Dunn Brothers Coffee has been on top of the latest coffee trend since 2012 when it introduced its signature Infinite Black cold-press coffee, which is steeped in cold water for 24 hours.
8. Dunn Brothers uses its Infinite Black coffee in several of its drinks and also offers Infinite Black in a 64 oz. take-home jug, called a growler. In order to boost the popularity of its Infinite Black, Dunn Brothers now offers hot beverages, such as its Nirvanas, that use the cold brew coffee.
9. At some of Dunn Brothers’ coffee shops, nitrogen options are now available, which make the cold brew creamier and smoother. According to Rob Brecher, a spokesman for Dunn Brothers Coffee, “Cold-press coffee has been on the rise in popularity. Nitro cold brew is on the same track.”
10. Dunn Brothers Coffee was founded in 1987 by brothers Ed and Dan Dunn in St. Paul, Minnesota. A second location opened in 1991 in Uptown Minneapolis and for a while, this was the only Dunn Brothers Coffee location as the original store was rebuilt following a fire earlier that year.
11. In 1994, Skip Fay and Chris Eilers became the first franchisees of Dunn Brothers Coffee and in 1998, Eilers and Fay purchased the franchise rights for the brand. The company’s growth has remained moderate; there are just over 80 Dunn Brothers Coffee shops in the U.S.
Entrepreneur’s Franchise 500
12. Dunn Brothers Coffee has not appeared on Entrepreneur’s annual Franchise 500 list since 2013. The company’s highest rank was No. 216 in 2008, while its lowest rank was No. 449 in 2013.
Section II – Estimated Costs
- Please click here for detailed estimates of Dunn Brothers Coffee franchise costs, based on Item 7 of the company’s 2017 FDD (updated).
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Dunn Brothers Coffee’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.
Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis
Key Item 19 Terms Defined
- Gross Revenues – Total actual receipts for all products and services sold by the Shop, whether or not identified by the Trademarks, whether at wholesale or retail, for cash or credit or in any other way, but excluding federal, state, municipal, or other sales, value added, or retailer’s excise taxes collected from customers and paid to the appropriate taxing authority, and before any sales discounts.
- Dunn Brothers Coffee collected Gross Revenues data from the Shops’ POS Systems and have not independently verified the information.
- Gross Margin – Gross Revenues less the cost of goods sold, including amounts for coffee beans, dairy, food items, syrups, tea, cups, lids, paper products, freight, and other direct products associated with serving food and beverage products.
- Dunn Brothers Coffee obtained the cost of goods sold data from the financial statements the Shops submitted to it and it has not independently verified the information.
- Gross Margin Percentage – Gross Margin divided by Gross Revenues.
- Labor Costs – Includes wages for in-store employees including payroll taxes. Affiliate-owned Shops’ labor costs also include a manager’s salary and related payroll taxes. Some franchised Shops include a manager’s salary as part of Labor Costs while other franchised Shops do not include a manager’s salary because the franchisee acts as the manager and does not take a salary.
- Dunn Brothers Coffee obtained the Labor Costs data from the financial statements for the Shops and have not independently verified the information.
- Labor Costs Percentage – Labor Costs divided by Gross Revenues.
Part 1 – 2016 Annual Average Gross Revenue
- The table below presents the 2016 annual average Gross Revenue for franchised and affiliate-owned Dunn Brothers Coffee Shops in operation during the entire 12-month period ended December 31, 2016 and that offered Dunn Brothers Coffee’s full menu of food Products.
- There were 70 franchised and 4 affiliate-owned Shops in operation during the entire 12-month period in 2016. The table below includes 31 out of those 70 franchised Shops and 2 of the 4 affiliate-owned Shops that offered Dunn Brothers Coffee’s full menu of food Products (“Qualifying Shops”).
- The remaining 41 Shops were not included because: the Shops did not offer the full menu of food Products and only offered fresh-baked breakfast and bakery food (26 Shops), the Shops were located in non-traditional sites (such as airports, convention centers, libraries, colleges, or in a medical campus) (9 Shops); or the Shops are co-branded locations (6 Shops).
- All new franchisees must offer the full menu of food Products.