In this FDD Talk 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 2019 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 2019 FDD

• Section IV – Number of franchised and company-owned Dunn Brothers Coffee outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of Dunn Brothers Coffee’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018 average, median, high, and low gross revenue for the 33 franchised Dunn Brothers Coffee Shops in operation during the entire 12-month period ended December 31, 2018 and that offered Dunn Brothers Coffee’s full menu of food Products

• 2018 average, median, high, and low gross margin percentage and labor cost percentage for the 10 franchised Dunn Brothers Coffee Shops in operation during the entire 12-month period ended December 31, 2018, offered Dunn Brothers Coffee’s full menu of food Products, and submitted financial statements for the year ended December 31, 2018 to Dunn Brothers Coffee by April 1, 2019

Section I – Background Information

12 Things You Need to Know About the Dunn Brothers Coffee Franchise

Chooses Qu as Next Generation POS Platform

1.  Near the end of October 2018, Qu, the company that is reimagining the role of Point of Sale (POS), announced its partnership with Dunn Brothers Coffee. Qu will replace Dunn Brothers Coffee’s current POS system at all locations.

2.  This partnership reflects Qu’s continued expansion in the enterprise coffee segment, validating its ability to handle very high volumes of transactions at peak hours. Qu’s API-first architecture enables an easy transition away from legacy POS systems and meets the growing need for a modern solution offering the flexibility to better accommodate ever-changing guest preferences and restaurant technology.

3.  Kim Plahn, president of Dunn Brothers Coffee, said, “Qu is the platform we believe will future-proof our brand from a technology perspective. We were attracted to its ease of use and its ability to unlock deeper integrations with our existing partners and potential future partners. Best of all, Qu’s exclusive focus on enterprise restaurant chains gives us confidence it can scale up as we grow.”

4.  In addition to its API-first architecture, Qu delivers an omni-channel ordering solution that enables order taking anywhere, anytime; a modern, gesture-based, conversational ordering design that delights staff and increases order accuracy; a cloud-deployed, but not cloud-dependent, architecture that keeps working even when the internet or cloud goes down; a rugged hardware platform that has been restaurant-proven for decades; a virtual store-grouping model that eases enterprise management; and the ability for clients to choose their payment processor.

5.  Dunn Brothers Coffee has had success leveraging best-in-class partners for loyalty, web ordering, and other restaurant operations to deliver a modern guest experience. To complement its existing partner base, Dunn Brothers Coffee was seeking a point-of-sale platform that is faster, nimbler, and more flexible than its current legacy system.

6.  Amir Huda, CEO of Qu, added, “Dunn Brothers Coffee is a leading brand with a loyal customer base spanning the mid-west. We are excited that they chose Qu’s POS platform to help power their ongoing success. We look forward to working with their team of innovative professionals who have a mindset toward the future, and who recognize that Qu’s API-first architecture will enable them to work more efficiently with their partner ecosystem – today and beyond.”

Majority of Locations Affected by Data Breach

7.  In late February 2019, it was revealed that a data breach that occurred in January may have exposed debit and credit card information for customers at more than 65 Dunn Brothers in Minnesota and seven other states, as well as a number of other popular restaurants around the Twin Cities. The breach occurred between January 3 and January 24 through a networked point-of-sale system hosted by Bemidji-based North Country Business Products, which sent out a public alert on February 15.

8.  North Country said it discovered suspicious activity on certain client networks on January 4 that potentially accessed cardholders’ names, credit card numbers, expiration dates, and the three- or four-digit security numbers. The majority of Dunn Brothers affected by the breach were in Minnesota. But payment information on the coffee shops’ customers in Wisconsin, Iowa, North and South Dakota, Texas, Missouri, and Tennessee also may have been accessed.

9.  In a statement, North Country said it had fixed the issue and strengthened its systems. Consumers were advised to review bank and credit card account statements regularly, to monitor credit reports, and report suspicious activity immediately.

Company History

10.  Dunn Brothers Coffee was established in 1987 by brothers Ed and Dan Dunn when they moved to St. Paul, Minnesota. The Dunns were originally from Portland and used their coffee roastery experience to bring high-quality coffee to the Twin Cities. When they began, the Dunn Brothers had a mission: to roast in small batches; serve the freshest coffee possible; provide a warming coffee experience; and put community at the core of the business.

11.  A few years after opening the first Dunn Brothers Coffee shop, the Dunns opened a second location in Uptown Minneapolis in 1991. Franchising of the Dunn Brothers Coffee concept began a few years later in 1994 and the company now has shops primarily in the Midwest. However, in recent years, Dunn Brothers Coffee has expanded across the United States and there are now stores in Texas, Tennessee, Kansas, Nebraska, North Dakota, South Dakota, Wisconsin, Missouri, and Iowa.

Entrepreneur’s Franchise 500

12.  Dunn Brothers Coffee did not rank on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Dunn Brothers Coffee franchise costs, based on Item 7 of the company’s 2019 FDD.

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 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  80
• Outlets at the End of the Year:  78
• Net Change:  -2

2017

• Outlets at the Start of the Year:  78
• Outlets at the End of the Year:  72
• Net Change:  -6

2018

• Outlets at the Start of the Year:  72
• Outlets at the End of the Year:  74
• Net Change:  +2

Company-Owned

2016

• Outlets at the Start of the Year:  5
• Outlets at the End of the Year:  4
• Net Change:  -1

2017

• Outlets at the Start of the Year:  4
• Outlets at the End of the Year:  5
• Net Change:  +1

2018

• Outlets at the Start of the Year:  5
• Outlets at the End of the Year:  4
• Net Change:  -1

Section V – Financial Performance Representations (Item 19, 2019 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 may 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 has not independently verified the information.

• Labor Costs Percentage – Labor Costs divided by Gross Revenues.

Part 1 – 2018 Annual Average Gross Revenue

• The table below presents the 2018 annual average Gross Revenue for franchised Dunn Brothers Coffee Shops in operation during the entire 12-month period ended December 31, 2018 and that offered Dunn Brothers Coffee’s full menu of food Products.

• There were 68 franchised Shops in operation during the entire 12-month period in 2018. The table below includes 33 out of those 68 franchised Shops that offered Dunn Brothers Coffee’s full menu of food Products (“Qualifying Shops”).

• The remaining 35 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 (22 Shops), the Shops were located in non-traditional sites (such as convention centers, libraries, or colleges) (7 Shops); or the Shops are co-branded locations (6 Shops).

• All new franchisees must offer the full menu of food Products.

Franchised Qualifying Shops