FDD Talk 2019: 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 2019 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 2019 FDD

• Section IV – Number of franchised and company-owned Dunkin’ 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 Dunkin’s financial performance representations, based on Item 19 of the company’s 2019 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 29, 2017 to October 27, 2018

• 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 29, 2017 to October 27, 2018

• 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 29, 2017 to October 27, 2018

• 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 29, 2017 to October 27, 2018

• 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, 2017 to October 31, 2018

Section I – Background Information

24 Things You Need to Know About the Dunkin’ Franchise

Started New Year with New Look and New Menu Items

1.  At the start of 2019, Dunkin’ revamped its product packaging and welcomed both new and returning favorite menu items, to give the brand an energizing start to the new year. As part of its rebranding efforts – which started last September 2018 – Dunkin’ introduced bright and bold new product packaging that brings to life the energy and excitement of Dunkin’s new brand identity.

2.  The colorful cups, donut boxes, Munchkins donut hole treat boxes, Box O’ Joe, napkins, and more began appearing in Dunkin’ restaurants at the beginning of January 2019. The new product packaging was in all U.S. stores by the end of that month.

3.  According to Tony Weisman, chief marketing officer of Dunkin’ U.S., “Our new look represents both our heritage and our evolution as the brand that fuels optimism and keeps America running with great coffee, donuts and more. What better time than the start of a new year to bring our new look to our coffee cups and packaging, and introduce a new energy to our restaurants and our fans.”

4.  In addition to the new packaging, Dunkin’ also added two new menu items in January. The new items were created to give people living an on-the-go lifestyle new choices for the energy they need to start the morning right and keep running throughout the day:

• New Power Breakfast Sandwich: Available for a limited time, this new, better-for-you sandwich features a veggie egg white omelet with spinach, peppers and onions, turkey sausage, and American cheese on a new multigrain sandwich bread topped with seeds and rolled oats. At 370 calories, the Power Breakfast Sandwich has 20 grams of whole grains, 24 grams of protein, and has no artificial flavors or dyes and no high fructose corn syrup.

• New Energy Cold Brew: Dunkin’s signature cold brew coffee with a shot of its freshly-brewed espresso brings coffee lovers a new source of power in their cup.

5.  Dunkin’ also brought back two favorites that were first introduced in 2018. The Brown Sugar Chipotle Bacon Breakfast Sandwich offers a double portion of caramelized brown sugar chipotle bacon – made with real brown sugar and chipotle seasonings – along with egg and cheese served on a buttery, flaky croissant.

6.  Meanwhile, for a treat for donut lovers, the Caramel Chocoholic Donut features a classic chocolate donut frosted with caramel icing, sprinkled with semi-sweet chocolate curls, and finished with a drizzle of caramel icing.

Pilots Multi-Tender Participation for DD Perks Rewards Program

7.  In mid-April 2019, Dunkin’ announced a pilot of multi-tender participation in its DD Perks Rewards Program at more than 1,000 locations across the country, giving customers the opportunity for the first time to earn DD Perks points regardless of how they pay. Whereas previously, DD Perks members could only earn points towards free beverages by paying via an enrolled Dunkin’ gift card, at the pilot locations they can now earn points whether they pay by cash, credit, debit, or a Dunkin’ gift card.

8.  Customers at the participating locations can accumulate points with every purchase by scanning their DD Perks loyalty ID QR code in the Dunkin’ mobile app or a new physical loyalty card, now available at participating Dunkin’ restaurants, before payment. The points earned on their purchase as well as their points balance will be included on their printed receipt.

9.  The brand first tested multi-tender participation for DD Perks members at select Dunkin’ locations in California and Pennsylvania earlier in 2019, and will now pilot the program at more than 1,000 of its restaurants across the U.S, including locations in Hartford and New Haven, Connecticut; Miami and Fort Lauderdale, Florida; and Syracuse and Springfield, Massachusetts.

10.  Dunkin’ will evaluate plans for a possible expansion of the program based on feedback from both its guests and franchisees. An interactive map of stores participating in the pilot program is available on Dunkin’s blog.

11.  According to Stephanie Meltzer-Paul, vice president of digital and loyalty marketing for Dunkin’ U.S., “Since launching DD Perks five years ago, we have consistently enhanced our members’ experience and worked to meet their needs through innovative new features, like On-the-Go Mobile Ordering, driving it to become one of the fastest-growing loyalty programs in the industry. With this pilot, we have the opportunity to bring more guests than ever into DD Perks by opening new options to translate any purchase into points.”

Partners with Saucony to Release Second Collaboration Running Shoe

12.  In late March 2019, Dunkin’ announced that it had teamed up with Boston-based shoe brand Saucony to release an all-new collaboration for the Boston Marathon. The two brands had first collaborated the prior spring and that limited edition shoe sold out in record time.

13.  This year’s shoe, the Saucony x Dunkin’ Kinvara 10, takes the long-distance cult favorite Kinvara 10 silhouette with its innovative EVERUN™ cushioning, and updates it with a bold graphic inspired by Dunkin’s bright new product packaging introduced earlier in 2019 as part of the company’s recent rebranding.

14.  The design also features strawberry-frosted donut medallions, Dunkin’ coffee cups, and the word “Boston” emblazoned on a reflective strip – all packaged in a custom shoebox resembling Dunkin’s iconic donut box.

15.  The Saucony x Dunkin’ Kinvara 10 was available at saucony.com beginning March 21, and at the following Marathon Sports stores: Boston, Brookline, Cambridge, Wellesley, and marathonsports.com for $120. The sneaker was produced in men’s sizes 7-15, and women’s sizes 5-12.

16.  And, for this year, Dunkin’ and Saucony also released a kids’ edition, available in Big Kids’ sizes 10.5-6 for $65 (suggested retail). The kids’ shoe was available on Saucony’s website.

17.  For marathon runners, both the adult and kids’ editions were available at the John Hancock Sports & Fitness Expo at the John B. Hynes Veterans Memorial Convention Center at 900 Boylston Street, Boston, April 12-14.

18.  Justin Unger, director of strategic partnerships for Dunkin’ Brands, said, “The new Saucony x Dunkin’ Kinvara 10 represents the speed for which our brand is recognized and the deep Boston heritage and support for marathoners that we share with Saucony. We are proud to once again collaborate with Saucony to celebrate the love of Dunkin’ and literally keep people running throughout marathon season and all year-round.”

Company History

19.  Dunkin’, formerly Dunkin’ Donuts, was founded in 1948 by Bill Rosenberg as Open Kettle in Quincy, Massachusetts. Rosenberg came up with the idea for a restaurant that focused on selling donuts and coffee after his experiences selling food in factories and at construction sites, where donuts and coffee were the two most popular items. In 1950, after brainstorming with executives, Rosenberg renamed the company Dunkin’ Donuts and a few years later began franchising the concept.

20.  In 1963, Rosenberg’s son, Robert, became the CEO of Dunkin’ Donuts at the age of 25. That same year, the company opened its 100th franchised location. During this time, Dunkin’ Donuts was a subsidiary of Universal Food Systems, a conglomerate of 10 small food-service businesses.

21.  Although the stores were franchises, Dunkin’ Donuts’ menu varied by location with some stores selling full breakfasts and others just selling donuts and coffee. In the 1970s, the menu and shop format were standardized and new items were introduced, including the brand’s iconic Munchkins.

22.  Dunkin’ Donuts continued to grow over the next few decades and in 1990, the company was acquired by Baskin-Robbins owner, Allied Lyons. In 2005, Dunkin’ Donuts and Baskin-Robbins (Dunkin’ Brands) were sold to a private equity consortium of Bain Capital, Carlyle Group, and Thomas H. Lee Partners for $2.4 billion.

23.  By 2010, Dunkin’ Donuts’ global sales had reached $6 billion. In 2018, the company launched a rebranding effort and changed its name to just Dunkin’ to emphasize that the chain sold a wide variety of items beyond donuts. Today, there are Dunkin’ stores around the world.

Entrepreneur’s Franchise 500

24.  Dunkin’ ranked No. 2 on Entrepreneur’s 2019 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 2019 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 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  7,161
• Outlets at the End of the Year:  7,563
• Net Change:  +402

2017

• Outlets at the Start of the Year:  7,563
• Outlets at the End of the Year:  7,839
• Net Change:  +276

2018

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

Company-Owned

2016

• Outlets at the Start of the Year:  29
• Outlets at the End of the Year:  0
• Net Change:  -29

2017

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

2018

• 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, 2019 FDD) and Analysis

• Tables 1 through 4 and notes provide financial performance representations that are historical, and that are based on information from existing Dunkin’ Restaurants (exclusive of Combo and Special Distribution Opportunity Restaurants) that have been open for business to the public for at least one year during a one-year measuring period from October 29, 2017 to October 27, 2018.

• 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 with a Gas/Convenience host environment.

• Drive-Thru Only: A Restaurant that does not have any indoor seating, but allows for 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 29, 2017 to October 27, 2018.

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.

• Sales in 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 staff, 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 be affected by Restaurant location and site criteria, including traffic count and which side of the street your Restaurant is located, 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, the following may be applicable to you: 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 29, 2017 to October 27, 2018) – Freestanding Site Type

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