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 2020 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 2020 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 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Dunn Brothers Coffee’s financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2019 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, 2019 and that offered Dunn Brothers Coffee’s full menu of food Products

• 2019 average, median, high, and low gross margin percentage and labor cost percentage for the 11 franchised Dunn Brothers Coffee Shops in operation during the entire 12-month period ended December 31, 2019, offered Dunn Brothers Coffee’s full menu of food Products, and submitted financial statements for the year ended December 31, 2019 to Dunn Brothers Coffee by April 1, 2020

Section I – Background Information

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

Franchisee Says Hard Work and Drive-Thru Are Keys to Surviving Pandemic

1.  In early June 2020, the owners of Dunn Brothers Coffee in Coralville, Iowa were interviewed by local news because their location was thriving despite the ongoing COVID-19 pandemic. The owners of the location said that the drive-thru window has saved the business.

2.  DeAngelo Seay and his wife Alexandra own the shop, along with two others. The Seays are used to people stopping in for their brewed beverages, making their shop a part of a daily routine for many. The owners admitted, however, that due to the novel coronavirus pandemic, things changed when they were forced to close the door to customers in March.

3.  “Sales were okay that day, then the next day they just plummeted,” Alexandra said. “And it was so unfortunate I actually cried. We had to lay off all our staff and it was just my husband and I working day in, day out, so our staff had a place to come back to.”

4.  For two months, the Seays worked side by side, for a total of more than 70 hours a week. And with no other option outside of their drive-thru, the entire business was forced to rely on a sliding glass window. “It was tough,” DeAngelo said. “But at the same time, I think what helped me was the conversations we had in the window.”

5.  At a time when all businesses are under pressure, it means a little more to the Seays. “I had a baby literally two months before, so I was supposed to be on maternity leave,” Alexandra said. “It was just a crazy time for us and our family.” But the Seays credit their survival to hard work, a loudspeaker, and a short trip around the corner to their sliding glass window. “Usually in a drive-thru, it’s fast-paced, you’re moving,” DeAngelo said. “This gave us a chance to slow down with each customer and talk with the customer.”

6.  To the Seays, it brought time to reflect. “Even if there were times at the beginning where it was a little struggle, I didn’t show it. Well, I don’t think I showed it anyways, but just be a leader for my family,” DeAngelo said. “And it doesn’t matter what comes against us, that if we stay positive and stay focused, we’ll get through it.”

Releases COVID-19 Update

7.  The Dunn Brothers Coffee website currently features a COVID-19 update outlining the ways the brand is keeping operations safe for customers and employees as the pandemic rages on. According to the update, “At Dunn Brothers, we work hard every day to provide a rare blend of coffee, food and community. That means thoughtfully-sourced coffee roasted in house; fresh, made to order food; and, most importantly, the sense of community we create together. We remain dedicated to that promise despite the impact we are all experiencing with the COVID-19 outbreak.”

8.  “There is no greater priority for us than the health and well-being of our guests, team members and the communities in which we live and operate. We are working very hard during this difficult and unprecedented time to ensure we can continue to deliver the Dunn Brothers experience that you love while also protecting your health and safety,” Dunn Brothers Coffee added.

9.  Following public health guidelines, Dunn Brothers Coffee will be limiting public access to take-out and/or drive-thru only and closing in-store seating areas at most locations. The brand also advised customers to place orders in the following way:

• Many of Dunn Brothers’ locations offer a drive-thru that will remain open. Customers can visit https://locations.dunnbrothers.com/ to see if their local Dunn Brothers has a drive-thru.
• Order inside and take order to-go, following social distancing guidelines.
• Some stores have relationships with third-party delivery partners for quick ordering and contactless delivery.

10. Dunn Brothers Coffee concluded the update by stating, “This is an ongoing, evolving situation and we will continue to monitor the situation closely, following all guidance and recommended safety measures issued by the World Health Organization, the national Centers for Disease Control and Prevention and state and local health authorities for restrictions that may further impact our operations.”

Things to Know Before Opening a Dunn Brothers Coffee Shop

11.  Dunn Brothers coffee is roasted fresh in-store daily. The brand does this in front of customers so they can see how their perfect cups of coffee come to be. Dunn Brothers’ coffee beans are single-origin, meaning they come from a single place. When franchisees buy a Dunn Brothers Coffee shop, they’ll not only learn how to roast coffee, they will also have an opportunity to visit and meet with the farmers in the countries from which Dunn Brothers buys its beans.

12.  Each coffee shop is intended to be reflective of the community in which it’s located. That means local artwork on the walls, hosting community events, or partnering with local businesses. Dunn Brothers encourages franchisees to support their local communities as it is a primary focus of the brand.

13.  In addition to fresh coffee, Dunn Brothers has fresh pastries that are baked in-store, not delivered or pre-made. Dunn Brothers also offers a mix of made-to-order signature sandwiches and freshly-made salads.

14.  Dunn Brothers requires franchise owners to have $100,000 in liquid assets and $500,000 net worth. The company considers exceptions to the financial requirements if applicants have specialty coffee management experience. The cost of ownership of a Dunn Brothers Coffee shop ranges from $396,000 to $590,393. This includes construction, equipment, other start-up costs, and the initial license fee of $37,500.

15.  Dunn Brothers helps franchisees create a comprehensive business plan and support for getting the proper funding. The company has relationships with third-party lenders who are already familiar with the Dunn Brothers Coffee business and will be able to give franchisees targeted information and clear guidance. Qualified applicants may be required to put 30% cash down of the total initial investment, and apply for a loan term of up to ten years. Dunn Brothers’ goal is to guide applicants through the process of understanding store-level economics so they can determine if this is the right business investment for them.

16.  Great coffee shop real estate varies, but many of Dunn Brothers’ stores are located in traditional endcap locations that range in size from 1,600 to 1,900 square feet. Having a drive-thru is a necessity for most locations unless the store is in an urban setting, skyway, or captive destination location.

Company History

17.  Dunn Brothers Coffee was founded in 1987 by brothers Ed and Dan Dunn in St. Paul, Minnesota. In college, Ed Dunn noticed that coffeehouses were successful, so he obtained coffee-related work in Portland, Oregon while he was in school to gain experience.

18.  Using his coffee knowledge, Ed moved with Dan to St. Paul and they opened their first coffee shop. From the beginning, the Dunns wanted the brand to stand out for its small-batch coffee that was roasted on-site. This is something that each location still does.

19.  In 1991, the Dunns opened a second coffee shop in Uptown Minneapolis. Franchising started in 1994 and more locations were opened primarily around the Midwestern United States. In more recent years, Dunn Brothers Coffee has expanded beyond the Midwest and now has locations in Texas, Tennessee, Kansas, Nebraska, North Dakota, South Dakota, Wisconsin, Missouri, and Iowa.

Entrepreneur’s Franchise 500

20.  Dunn Brothers Coffee did not rank on Entrepreneur’s 2020 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 2020 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 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2019

• Outlets at the Start of the Year:  74
• Outlets at the End of the Year:  67
• Net Change:  -7

Company-Owned

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

2019

• Outlets at the Start of the Year:  4
• Outlets at the End of the Year:  6
• Net Change:  +2

Section V – Financial Performance Representations (Item 19, 2020 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 – 2019 Annual Average Gross Revenue

• The table below presents the 2019 annual average Gross Revenue for franchised Dunn Brothers Coffee Shops in operation during the entire 12-month period ended December 31, 2019 and that offered Dunn Brothers Coffee’s full menu of food Products.

• There were 66 franchised Shops in operation during the entire 12-month period in 2019. The table below includes 33 out of those 66 franchised Shops that offered Dunn Brothers Coffee’s full menu of food Products (“Qualifying Shops”).

• The remaining 33 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) (5 Shops); or the Shops are co-branded locations (6 Shops).

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

Franchised Qualifying Shops