FDD Talk 2020: 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 2020 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 2020 FDD

• Section IV – Number of franchised and company-owned Dunkin’ 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 Dunkin’s financial performance representations, based on Item 19 of the company’s 2020 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 28, 2018 to October 26, 2019

• 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 28, 2018 to October 26, 2019

• 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 28, 2018 to October 26, 2019

• 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 28, 2018 to October 26, 2019

• 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, 2018 to October 31, 2019

Section I – Background Information

18 Things You Need to Know About the Dunkin’ Franchise

Appoints New President

1.  In mid-December 2019, Dunkin’ announced that Scott Murphy, formerly chief operating officer of Dunkin’ U.S., had been promoted to president, Dunkin’ Americas. Murphy assumes the role from Dave Hoffmann, who continues to serve as CEO of Dunkin’ Brands.

2.  Murphy, a 15-year veteran with the company, will have responsibility in his new role for all aspects of operations, restaurant development, franchising, field marketing, supply chain, and consumer packaged goods (CPG) for the approximately 10,000 Dunkin’ restaurants in North and South America.

3.  Dave Hoffmann, CEO of Dunkin’ Brands, said, “Scott is a rare leader who is both strategic and impactful. He inspires all who work with him through his vision, attention to detail, and ability to implement change. During his tenure with the company, Scott has earned the respect of his peers, forged strong relationships with franchisees and suppliers, and contributed significantly to the company’s success with a strong focus on franchisee profitability.”

4.  Hoffman added, “He has also been a key leader in implementing the Blueprint for Growth, our five-year strategic plan for Dunkin’ U.S. His most recent accomplishments include the rollout of menu simplification, our highly successful espresso relaunch, operational improvements, and the expansion of our NextGen restaurants. I am confident that under Scott’s leadership, we will continue to build on our legacy of strong franchisee relations and drive customer noticeable change at Dunkin’.”

5.  Murphy joined Dunkin’ Brands in 2004 as director, international supply chain and became the vice president of strategic supply later that same year. In 2013, he was named chief supply officer and SVP international operations, and was promoted to senior vice president of operations, Dunkin’ U.S. and Canada in 2015. He was named chief operating officer of Dunkin’ U.S. in 2018.

6.  Prior to Dunkin’, Murphy was with A.T. Kearney, a global management consulting firm. He graduated from Georgetown University with a Bachelor’s degree in marketing and international business. He earned his MBA from the MIT Sloan School of Management.

Announces Partnership with Shell

7.  In early February 2020, Shell Oil Company (Shell), the largest fuel network in the United States, and Dunkin’ announced a national expansion of their partnership with the Fuel Rewards program. The “Sip Dunkin’, Save at Shell” partnership allows Fuel Rewards members with Gold Status and DD Perks Rewards Program members to save 10 cents per gallon every time they purchase five beverages at a Dunkin’ location.

8.  The “Sip Dunkin’, Save at Shell” promotion is planned to run through the end of 2020, giving members the chance to save at the pump all year long. Below is a breakdown of how all consumers can sign up to participate and maximize benefits:

• New members sign up for a DD Perks and a Fuel Rewards account, or existing members log in to accounts at DDPerks.com/Shell;
• Link DD Perks and Fuel Rewards accounts. A bonus, one-time linking offer of 25 cents per gallon was available through April 30, 2020;
• Buy five beverages at participating Dunkin’ locations at any time, scanning DD Perks loyalty ID or an enrolled DD Card code located in the Dunkin’ App;
• Automatically save 10 cents per gallon on next fill-up at Shell by using Fuel Rewards card or ALT ID;
• The promotion is valid throughout the year. Linked DD Perks and Fuel Rewards members may repeatedly purchase five beverages and save 10 cents per gallon with their Gold Status discount as many times as they like through December 31, 2020. Members may also make the five beverage purchases individually or in fewer than five transactions (for example, one transaction).

9.  “Since launching six years ago, DD Perks has become one of the fastest-growing loyalty programs in our industry for quickly and conveniently delivering rich rewards and experiences for our members,” said Stephanie Meltzer-Paul, vice president, digital and loyalty marketing for Dunkin’. “Allowing our loyal members to link their DD Perks and Fuel Rewards accounts and save with each visit to the pump is yet another innovative way Dunkin’ is delivering meaningful value and fueling our on-the-go guests’ daily routines.”

Completes Global Transition to Paper Cups

10.  In mid-May 2020, as Dunkin’ continues to navigate the COVID-19 health crisis, the brand has simultaneously continued to advance key sustainability initiatives to serve both people and the planet responsibly. Dunkin’ announced that 100% of its restaurants globally have transitioned from polystyrene foam cups to paper cups, meeting the timetable established by the brand two years ago.

11.  In Dunkin’ U.S. restaurants, the foam cups have been replaced by double-walled paper cups. Dunkin’ is also on track to fully transition to new, recyclable hot coffee cup lids in all of its U.S. restaurants by the end of the summer, and is committing to doubling its number of DD Green Achievement restaurants within five years.

12.  The new, double-walled paper cups, made with paperboard certified to the Sustainable Forestry Initiative (SFI) Standard, are currently used to serve all Dunkin’ hot beverages, including coffee, espresso drinks, tea, and hot chocolate in the U.S. To meet guests’ expectations and preferences, the cups maintain heat retention properties comparable to the prior foam cups, keeping beverages hot while keeping hands cool, without the need for a sleeve. Dunkin’s transition to paper cups will remove approximately one billion foam cups from the waste stream annually.

13.  Dunkin’ launched its DD Green Achievement program in 2014 to help its franchisees build more sustainable and energy-efficient restaurants. In 2016, the brand announced a goal of opening 500 DD Green Achievement restaurants by the end of 2020. The company has met that milestone early, and is setting a new goal of opening its 1,000th DD Green Achievement restaurant by the end of 2025.

14.  DD Green Achievement restaurants are built with sustainable and efficient elements including LED lighting, high-efficiency mechanical equipment, low-flow faucets, and more sustainable features. DD Green Achievement restaurants, which were designed to save between 15 to 20% of energy use as compared to traditional Dunkin’ restaurants, have proven to save approximately 33% of energy use, on average, when compared to conventional Dunkin’ locations, outperforming design anticipations.

Company History

15.  Dunkin’, formerly Dunkin’ Donuts, was founded in 1948 by Bill Rosenberg in Quincy, Massachusetts. Initially, Rosenberg called his little shop Open Kettle and served donuts for five cents and premium cups of coffee for 10 cents. Rosenberg, who had previously sold food in factories and at construction sites, chose to only sell donuts and coffee after realizing that they were the two most popular items. The concept was an immediate success and two years later, Rosenberg changed the company’s name to Dunkin’ Donuts.

16.  After a few more years, Rosenberg started franchising Dunkin’ Donuts in 1955. Over the next few years, Dunkin’ Donuts grew quickly around the United States. In 1963, Rosenberg’s son Robert became CEO of the company at age 25, and Dunkin’ Donuts opened its hundredth location that year. Dunkin’s expansion and success continued over the next few decades and by the end of the 1990s, the brand had grown to 2,500 locations worldwide with $2 billion in annual sales.

17.  In 2018, Dunkin’ launched a massive rebrand, including an updated restaurant concept and dropping the “Donuts” part of its name to reflect that the brand offers much more than just donuts and coffee. Today, there are Dunkin’ stores in over 46 countries.

Entrepreneur’s Franchise 500

18.  Dunkin’ ranked No. 1 on Entrepreneur’s 2020 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 2020 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 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2019

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

Company-Owned

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

2019

• 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, 2020 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 28, 2018 to October 26, 2019.

• 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 28, 2018 to October 26, 2019.

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 28, 2018 to October 26, 2019) – Freestanding Site Type

Northeast – Drive-Thru Restaurants

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