Dunkin Donuts Franchise - Report Example

ENTREPRENEURSHIP Dunkin Donuts was founded in 1950 by an Entrepreneur called William Rosenberg. It was founded in Massachusetts. The company licensed its first franchise in 1955 and now has over 7,000 franchises worldwide. The company was initially started as a small store specializing in Donuts and it rapidly grew to become a large seller of confections and soon the American public fell in love with the concept of donuts made by Dunkin so much so that the name has become synonymous with Donuts. 2) When the company first started, it was making products by itself. It soon realized that it is much more economical to setup franchises instead of marketing its products directly. Franchising offers the parent company a convenient way to reduce overheads and does away with the distribution and supply chain and it can concentrate on its core business of making the base product that goes into a donut. Dunkin Donuts offers some of the best solutions for franchisees in the Business. It is regarded as a world class leader in setting up franchises and the business model is deep and well tested. 3) The advantage of a parent company franchising its business is that it can free up itself from the business of everyday selling and concentrate on making the product that goes into making the donuts. Further, it can concentrate on the marketing and branding part of the business without bothering too much about sales and distribution. The disadvantage of this approach is that it may be constrained by the business practices of its franchisees leading to lawsuits and the like. To give an example, the parent company was involved in more than 150 lawsuits since 2006. MARKETING/ADVERTISING 1) Marketing and Brand promotion play an important part in Marketing of the Franchise. For starters, one would take a franchise only if the brand is known all over the world and there is sufficient demand in the market for the brand. And the franchisee takes on the membership in the hope that the parent company would do the brand promotion and thus the Franchise can cash in on the demand. 2) The product is marketed at 6,200 stores globally and hence it can be said that the product is marketed on a global scale. The name Dunkin Donuts has a top of the mind recall among customers worldwide and the brand is well known. Since the brand is marketed globally, the parent company spends a considerable amount of money on promoting the brand. Going by the various figures of sales, it appears as though that this is paying off. 3) The franchise’s payments are covered in the annual fees and the royalties and hence there is no separate payment for the marketing expenses. Given the fact that the initial license fees and the royalties are among the highest in the franchisee industry, there is not much expectation from the parent company for the franchisee to pay for its branding and marketing effort. 4) There are coupons for Dunkin Donuts available on a national scale as part of their promotional activities and the franchisees have to honor these coupons when they are presented at the counter. Further, there are membership schemes available that get the member a discount when he or she walks into a Dunkin Donut store. OPERATION MANAGEMENT/ PROCUREMENT 1) The materials are sourced from the parent company and it gives all the supplies that are needed for running a franchise. This is because the company, like many others believes that a Donut must taste the same wherever it is bought and hence all the franchisees have to have the same taste of the donut. This is what is known as standardization of the sort that happens for Coke and others in the similar business. 2) The advantages of centralized procurement are that all the franchisees get the same materials and hence there is no question of discrimination or any sort of favors for one franchise over the other. Thus there is uniformity and standardization in the procurement of raw materials. However, the disadvantage is that the franchisees cannot get materials at lower prices even if they want to. They cannot source from other suppliers and hence have to make do with the supplies handed to them by the parent company. COSTS/CREATING A FRANCHISE 1) Dunkin Donuts asks its potential franchisees to do a series of steps to assess their creditworthiness and their ability to run the franchise. First, you need to go through a background check and credit check. After that, you have to identify a possible location for your franchise. The parent company helps you out here. Then you have to pay the license fees (which is quite a sum!) of around half a million plus a few hundred thousand to cover the other costs. Above everything, the franchisees are expected to remain committed to the core business of providing good confections to the clients and in this way uphold the brand image of the parent company. 2) In order to setup a Franchise, the franchisee has to pay the following costs Total Investment: $255,700-$1,100,000. Initial Franchise Fee: $40,000-$80,000 Royalty Fee: 5.9%. You would get a 5010% commission on sales and the breakeven point would be around a hundred thousand donuts (roughly) sold. The commission on sales is determined after several variables like location, size and scale are factored in and then the base commission is calculated. HUMAN RESOURCES MANAGEMENT 1) The Company’s training and support teams deliver the tools and information franchisees need with a level of support that is “among the best in the Quick Service Restaurant (QSR) industry.” Dunkin Donuts provides the tools and guidance you would expect from a multi-national conglomerate, and they do it well. Dunkin Donuts Technology is state-of-the-art, and helps franchisees “operate more efficiently and cost effectively.” The company trains the representatives of its franchisees at a central location and it is expected that the franchisees train their personnel according to these policies. Once in a while, the company conducts training sessions for the employees who have newly joined them or the franchisee. 2) Corporate training ensures a centralized form of training where the franchisees and their staff can be briefed on the business that they are in and the kind of customer service that is expected of them. Further, the way of making the dough into Donuts and the patented processes need to be explained in such a way that the process and the formula is known only to the parent company. Thus, the disadvantage would be that the franchisees may come out of training feeling that they did not get the complete “low down”. However, centralized training ensures that no matter which store you go for your Donuts, you would get the same kind of taste and the stores have the same look and feel about them. STAFFING/MANAGEMENT 1) The minimum wage requirements are that the employees are to be paid according to the standards set by the US labor bureau. Apart from that, there is no other concept of a minimum wage and the franchisees can decide on what to pay on top of the minimum wage. The wages are determined by the franchisees after the standards setup by the parent company are reviewed. EXIT STRATEGY The Exit strategy is the trickier part as the parent company returns only a portion of the money that has been paid upfront. This is done after deducting the expenses calculated according to a formula. Thus, any franchisee intending to close down the franchise cannot really rely on the parent company to prop up its business. It has to look for its own sources of funding. The company has to cover some distance before it can formulate an effective exit strategy. This is borne out by the unusually high number of lawsuits that the company has with its franchisees and hence it is in the interest of everyone that the company formulates an effective strategy for this. In conclusion, Dunkin Donuts is a company that is a legend in the business of providing good confections. Thus, it would be a fair bet for anyone who wants to open a franchise in its name. The positives are many and the negatives are few. However, it would be advisable for potential franchisees to do their due diligence before committing themselves to the company. Sources Daszkowski, Don. Dunkin Donut’s Franchise Review. About.com. Retrieved Feb 08 2009 from: http://franchises.about.com/od/coffeefranchises/fr/dunkin-donuts.htm Daszkowski, Don. Dunkin Donut’s Franchise: Good or Bad Investment. About.com. Retrieved Feb 08 2009 from: http://franchises.about.com/b/2008/05/06/dunkin-donuts-franchise-a-good-or-bad-investment.htm Dunkin Donuts. Entrepreneur.Com. Retrieved Feb 08 2009 from: http://www.entrepreneur.com/franchises/dunkindonuts/282304-0.html Dunkin Donuts. The Franchise Mall.com. Retrieved Feb 08 2009 from: http://www.thefranchisemall.com/franchises/details/10457-0-Dunkin_Donuts.htm DunkinDonuts.com Website http://dunkindonuts.com Read More