FDD Talk 2021: Dunkin’ Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Dunkin’ franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Dunkin’ franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Dunkin’ franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Dunkin’ outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Dunkin’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• average gross sales by geographic region for continental U.S. freestanding Dunkin’  Restaurants (and separately, for Dunkin’/Baskin-Robbins Combo Restaurants) that have been open for business to the public for at least one year during a one-year measuring period from October 26, 2019 to October 24, 2020

• average gross sales by geographic region for continental U.S. shopping center/storefront Dunkin’ Restaurants (and separately, for Dunkin’/Baskin-Robbins Combo Restaurants) that have been open for business to the public for at least one year during a one-year measuring period from October 26, 2019 to October 24, 2020

• average gross sales by geographic region for continental U.S. gas & convenience Dunkin’ Restaurants that have been open for business to the public for at least one year during a one-year measuring period from October 26, 2019 to October 24, 2020

• average gross sales by geographic region for continental U.S. drive-thru only Dunkin’ Restaurants that have been open for business to the public for at least one year during a one-year measuring period from October 26, 2019 to October 24, 2020

• average cost of goods sold and labor costs by geographic region for continental U.S. Dunkin’ Restaurants (and separately, for Dunkin’/Baskin-Robbins Combo Restaurants) for the period from November 1, 2019 to October 31, 2020

Section I – Background Information

20 Things You Need to Know About the Dunkin’ Franchise

Acquired by Inspire Brands

1.  In mid-December 2020, Inspire Brands announced the completion of its $11.3 billion acquisition of Dunkin’ Brands Group, Inc. With the addition of Dunkin’ and Baskin-Robbins, Inspire now encompasses nearly 32,000 restaurants across more than 60 countries, generating $26 billion in annual system sales, making it the second-largest restaurant company in the U.S. by both system sales and locations. Inspire’s family of brands includes Arby’s, Baskin-Robbins, Buffalo Wild Wings, Dunkin’, Jimmy John’s, Rusty Taco, and SONIC Drive-In.

2.  Paul Brown, co-founder and chief executive officer of Inspire, said, “We are very excited to welcome the Dunkin’ and Baskin-Robbins brands into the Inspire family. Dunkin’ and Baskin-Robbins are category leaders and two of the most iconic restaurant brands in the world. This is an incredible moment in our journey as a company. I want to thank all our team members, franchisees and suppliers whose hard work helped make this possible.”

3.  The acquisition of Dunkin’ Brands furthers Inspire’s goal of bringing together a family of highly differentiated and complementary brands. Both Dunkin’ and Baskin-Robbins will benefit by leveraging the capabilities and best practices of Inspire’s shared services platform. Additionally, both brands will also benefit Inspire by adding a highly talented team, strong franchise network, large and loyal customer base, scaled international platform, as well as a robust consumer packaged goods licensing capability.

4.  Dave Hoffmann, formerly CEO of Dunkin’ Brands, will report to Paul Brown as senior advisor and will help navigate the integration into Inspire. Scott Murphy will assume the roles of head of the Inspire beverage-snack category and president of Dunkin’, reporting directly to Paul Brown. Jason Maceda will assume the role of president of Baskin-Robbins, reporting to Scott Murphy. Both will join the Inspire executive team.

5.  Hoffmann added, “We are excited to reach this important milestone together with our incredible franchisees, licensees, employees, and suppliers. Over the past few years, we have accomplished much to be proud of including the execution of our strategic plans that led to the transformation of our two beloved, iconic brands. We are confident that Inspire’s proven stewardship of franchised restaurant concepts and best-in-class capabilities will drive further growth for both Dunkin’ and Baskin-Robbins around the world.”

Creates New Role of Chief Digital and Strategy Officer

6.  At the end of July 2020, Dunkin’ Brands Group announced that Philip Auerbach will join the company in the newly-created role of chief digital and strategy officer. Auerbach will oversee a new Dunkin’ U.S. digital engagement team that includes consumer and business insights, digital marketing, media, and customer care. Auerbach will also lead Dunkin’ Brands’ global strategy and information technology (IT).

7.  As key members of the new digital strategy team, Stephanie Meltzer-Paul and Santhosh Kumar have been promoted to senior vice president, Dunkin’ U.S. digital marketing, and senior vice president, global information technology, respectively.

8.  Dave Hoffmann, then-CEO of Dunkin’ Brands, said, “Dunkin’ is doubling down on our digital platform and the relationship we have with our guests. Providing a more seamless, best-in-class restaurant experience enabled by technology is a cornerstone of the Dunkin’ U.S. Blueprint for Growth strategy. Phil is a transformational leader who has led the evolution of consumer and hospitality brands and will take our growing digital platform to the next level. He will be supported by a top-tier team that includes two leaders who have already played significant roles in our digital innovation: Stephanie Meltzer-Paul, head of digital and loyalty marketing for Dunkin’ U.S., and Santhosh Kumar, head of Global IT. Both are being promoted to Senior Vice President in recognition of their many contributions to the Company.”

9.  Auerbach added, “Dunkin’ has long been at the forefront of using digital technology to enhance the customer experience – whether through its world-class app; its advanced one-to-one marketing capabilities; or its DD Perks platform, one of the first and fastest growing loyalty programs in the quick service industry. I am delighted to join Dunkin’ Brands and excited to build a digital ecosystem that will deliver an even more personalized, frictionless experience across all channels.”

10.  Auerbach joined Dunkin’ Brands from Lindblad Expeditions, the global leader in ship-based expedition travel, where he most recently served as chief commercial officer. In that position, he was responsible for marketing, sales, distribution, and strategic partnerships.

11.  Prior to Lindblad, Auerbach was senior vice president and regional chief marketing officer for Las Vegas at Caesars Entertainment, the world’s largest casino entertainment company and the industry’s technology leader. At Caesars, Auerbach oversaw marketing for the company’s Las Vegas portfolio and had enterprise-wide responsibilities for digital product development, third-party distribution, and strategic partnerships, as well as international marketing initiatives.

Launches Extra Charged Coffee

12.  At the end of December 2020, Dunkin’ announced the addition of Extra Charged Coffee to its menu, packing 20% more caffeine than Dunkin’s classic Hot and Iced Coffee, while delivering the same great taste. Dunkin’s coffee innovation doesn’t stop there, as the brand is serving up the most robust lineup of coffee options in its history with the introduction of two bold and exciting new hot coffees, Dunkin’ Midnight and Explorer Batch, to kick off 2021.

13.  Available at participating Dunkin’ restaurants nationwide beginning December 30, Extra Charged Coffee, served hot or iced, features green coffee extract that gives coffee drinkers an extra boost with 20% more caffeine. For an extra incentive to try the brand’s buzziest new beverage, Dunkin’ offered Medium Extra Charged Coffee for $2 through January 26.

14.  According to Jill Nelson, vice president, marketing and culinary at Dunkin’, “Since opening our doors more than 70 years ago, Dunkin’ has served a superior cup of coffee. Now, for the first time in our history, we’re offering the boldest and most diverse assortment of blends and customization options to fuel a new era of coffee at Dunkin’. From the darkest roast in our portfolio to the most caffeinated hot and iced coffee varieties, we are more committed than ever to keeping Americans running on Dunkin’ in 2021.”

15.  In addition to the Extra Charged Coffee, Dunkin’ released two new drinks:

• Dunkin’ Midnight: New Dunkin’ Midnight is the brand’s darkest roast ever, featuring a rich, smooth, full-bodied flavor, rounded out with notes of decadent cocoa and an intensely dark finish. Dunkin’ Midnight joins the brand’s core menu of coffee offerings alongside the beloved Original Blend and Dunkin’ Decaf.

• Explorer Batch: The first coffee blend to be introduced as part of Dunkin’s new Limited Batch Series, Explorer Batch is a medium roast featuring dark berry notes, rounded out with a smoky finish. To craft its unique Explorer Batch, Dunkin’ sourced beans from four highly regarded coffee regions: Colombia, Ethiopia, Guatemala, and Sumatra. Explorer Batch was available for a limited time, with new Limited Batch Series coffees to be introduced throughout the year.

Company History

16.  Dunkin’ (formerly Dunkin’ Donuts) was founded in 1947 as Open Kettle by Bill William Rosenberg in Quincy, Massachusetts. Rosenberg wanted to start a restaurant that focused on selling donuts and coffee after noticing they were the two most popular items out of the food he sold in factories and at construction sites. The concept was a success and two years later, Rosenberg changed the restaurant’s name to Dunkin’ Donuts.

17.  Franchising started in 1955 and by the end of the next decade, there were over 100 shops opened around the United States. Over the next few decades, Dunkin’ continued to grow. In 1972, the brand added its now iconic Munchkin donut holes. Other menu items, including breakfast sandwiches, were later added to the Dunkin’ menu.

18.  In 1990, Dunkin’ was acquired by Baskin-Robbins owner Allied Lyons (now Allied Domecq). During the 1990s, Dunkin’ expanded its portfolio by buying rival chains Mister Donut and Dawn Donuts. After more growth, in 2005, Dunkin’ and Baskin-Robbins (operating under the name Dunkin’ Brands) were sold to a private equity consortium of Bain Capital, Carlyle Group, and Thomas H. Lee Partners for $2.4 billion.

19.  In late 2020, Dunkin’ Brands, including all of its assets, was acquired by Inspire Brands. Today, there are Dunkin’ locations all around the United States and international stores in South Korea, China, Colombia, England, Sweden, Denmark, Poland, South Africa, Spain, and Lebanon.

Entrepreneur’s Franchise 500

20.  Dunkin’ ranked No. 2 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Dunkin’ franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Dunkin’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  7,839
• Outlets at the End of the Year:  8,091
• Net Change:  +252

2019

• Outlets at the Start of the Year:  8,091
• Outlets at the End of the Year:  8,282
• Net Change:  +191

2020

• Outlets at the Start of the Year:  8,282
• Outlets at the End of the Year:  7,790
• Net Change:  -492

Company-Owned

2018

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2019

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2020

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• Tables 1 though 4 and notes provide financial performance representations that are historical, and that are based on information from existing Dunkin’ Restaurants (exclusive of Combo Restaurants and Special Development Opportunity Restaurants) that have been open for business to the public for at least one year during a one-year measuring period from October 26, 2019 to October 24, 2020.

• The site types listed in the following tables are defined as follows:

• Freestanding: A Restaurant, either newly constructed or an existing structure (to be retrofit), that does not share any common walls with any third party.

• Shopping Center/Storefront: A Restaurant that shares a common wall (or walls) with third parties. The Restaurant could be an anchor (endcap) or inline tenant space in a strip center, or it could be a location in a high density, multiple level construction (typically urban/downtown office building setting), sharing common wall and ceiling/floor construction with any third party.

• Gas & Convenience Restaurants: A Restaurant that is a sub- or shared tenancy within a Gas & Convenience host environment.

• Drive-Thru Only: A Restaurant that does not have any indoor seating, but allows customers to drive up to the structure to place orders. In some cases, there may be a walk up window or front counter. Restaurants may be Freestanding, Shopping Center/Storefront, or Gas & Convenience but are typically smaller than their counterparts with indoor seating.

• Tables 6 and 7 and notes provide financial performance representations that are historical, and that are based on information from existing Combo Restaurants that have been open for business to the public for at least one year during a one-year measuring period from October 26, 2019 to October 24, 2020.

Part 1 – Sales Data (Tables 1, 2, 3, 4, 6, and 7)

• The sales figures are compiled by using historical sales that are reported to Dunkin’ by franchisees. Dunkin’ has not audited or verified the reports.

• This sales data does not include sales tax.

• Regions with a higher concentration of Restaurants that have been in operation for a substantial period of time tend to have higher sales than regions with a lower concentration of Restaurants that have been in operation for a lesser time period.

• Many of the Restaurants included in this data have been open and operating for several years. These franchisees have achieved their level of sales after spending many years building customer goodwill at a particular location.

• Your sales will be affected by your own operational ability, which may include your experience with managing a business, your capital and financing (including working capital), continual training of you and your employees, customer service orientation, product quality, your business plan, and the use of experts (for example, an accountant) to assist in your business plan.

• Your sales may also be negatively affected if you do not adhere to Dunkin’s standards and system, including proper equipment layout, design and construction criteria, customer queuing and flow, and local Restaurant marketing.

• Your sales may be affected by Restaurant location and site criteria, including traffic count and which side of the street your Restaurant is located on, local household income, residential and/or daytime populations, ease of ingress and egress, seating, parking, the physical condition of your Restaurant, the size of your site, and the visibility of your exterior sign(s).

• Additionally, many of the Restaurants included in the sales figures are freestanding Restaurants or located at the end of a strip center, and if your Restaurant is not, your sales could be substantially lower than the figures in the chart.

• Individual locations may have layouts and seating capacities that vary from the typical location.

• Other factors that could have an effect upon your sales may include consumer preferences, competition (national and local), inflation, local construction and its impact on traffic patterns, and reports on the health effects of consuming food similar to that served in the Restaurants, as well as the impact of federal, state, and local government regulations.

• Your sales may be affected by consumer preferences for certain menu items over others, changes in the menu, and regional differences in products or product demand, including whether there are products not available to you or your region but sold in other regions. Menus are continually being revised, both adding and discontinuing products and product line extensions.

• Sales may be affected by fluctuations due to seasonality (particularly in colder climates), weather, and periodic marketing and advertising programs. Inclement weather may cause temporary Restaurant closings in some areas.

• The data below reflects historical sales. There is no assurance future sales will correspond to historical sales.

• If you own a Combo Restaurant, you should be aware that many Baskin-Robbins franchisees actively pursue cake sales opportunities. If you do not, your sales may be negatively affected. Additionally, seasonality and weather may significantly affect sales of ice cream and related products.

• Some individual Restaurants’ sales may include wholesale accounts and other distribution outlets, which may not be available to you. Not all of these opportunities have been successful for all participating franchisees.

Table 1 – Continental U.S. Dunkin’ Single Branded Restaurants, Average Restaurant Sales (for the Period October 26, 2019 to October 24, 2020) – Freestanding Site Type

Northeast – Drive-Thru Restaurants