Franchising: Study of A Success and A Failure

Group #4

Christina Lehmann

Neelotpal Shukla

Nijansh Verma

IMEN301: Technology Management & Strategy | Homework #3

Ref: http://www.investopedia.com/terms/f/franchise.asp

Ref: http://www.investopedia.com/terms/f/franchise.asp

Ref: http://en.wikipedia.org/wiki/Franchising

SUCCESSFUL FRANCHISE ANALYSIS

COMPANY SNAPSHOT

Reference: Dunkin Donuts Official Website

Founded in 1950 by WILLIAM ROSENBERG in QUINCY, MASSACHUSSETTS.

First Franchise: 1955

It is now the world's leading baked goods and coffee chain owned by DUNKIN' BRANDS, INC

COMPANY SNAPSHOT


More than 3 MILLION customers per day

52 VARIETIES OF DONUTS More than a dozen coffee beverages as well as an array of bagels, breakfast sandwiches and other baked goods.

At the end of 2011, there were

10,083 DUNKIN' DONUTS STORES worldwide, including

7,015 FRANCHISED RESTAURANTS in 36 United States and 3,068 international shops in 32 countries.

THEIR FRANCHISE MODEL

START-UP COSTS


Total Investment: $ 294,000 - $ 1,523,100

Franchise Fee: $40,000 - $90,000

Ongoing Royalty Fee: 5.9% OF GROSS SALES

Term of Franchise Agreement: NOT RENEWABLE

CANDIDATE REQUIREMENTS


AVAILABLE MARKET Should be in a country which is open for development (in Pink)



EXPERIENCE • In food service, retail or multi-unit management.

• Understanding of local store marketing and community involvement.

• Knowledge of real estate development process

PASSION • Dedication for operational excellence.

• Demonstrated ability to build a high performance team and organization.



RESOURCES: FINANCIAL

Net Worth: $ 250, 000

Liquid Cash Available: $125, 000



RESOURCES: REAL ESTATE (PREFERRED) • Site Size: 1/4 - 2 acres Building Size:

1,200 to 2,600 square feet

• Morning drive side

• Drive-thru

• Freestanding, shared pad or end-cap

located in mixed use "major tenant"

community shopping center with

national or regional tenants

• Option for 24 hour operations



RESOURCES: REAL ESTATE (PREFERRED)

• High visibility from major arteries

• Easy ingress and egress (no more than 2

turns in or out)

• Minimum of one (1) parking space for every

three (3) seats

• Signage:

i. Building: maximize square feet, (use

prototypical colors and materials)

ii. Pylon and/or monument: maximize square

feet, use prototypical colors and materials

WHY WERE THEY SUCCESSFUL?

Reference: http://www.entrepreneur.com/franchises/dunkindonuts/282304-0.html

1. STRONG FRANCHISE REPUTATION

Ranking 2013 2012 2011 2010 2009

Franchise 500®:

13 10 15 7 36

Fastest-Growing:

9 6 29 4 6

America's Top Global:

12 9 13 6 31

Dunkin Donuts had maintained a good image as a franchise as can be seen in the franchise rankings done by various organizations. This attracted potential franchisees and led to a larger network.

2. PROVIDED STRONG SUPPORT


FRANCHISE TEAM AND

ADVISORY COUNCIL Newsletter, Meetings, Toll-free phone line, Grand opening, Security/safety procedures, Field operations/evaluations. All franchisees participate at the District Advisory Councils, and elected franchisee representatives participate at the Regional and Brand Advisory Councils. Together with the Dunkin' Team, the advisory councils focus on issues that impact franchisees and the brand.


BRANDING AND MARKETING Regional Marketing and Free Access to Marketing Tools Dunkin' Brands owns and operates LSMnow.com, a one-stop shop for local store marketing needs. Franchisees get free downloads of brand-approved, customizable creative, local store marketing programs, and other valuable resources.



TRAINING PROGRAM

Dunkin Donuts conducts a our six-week course, where the candidates will have the tools so they can learn all about the brand and the ins and outs of restaurant management.



TECHNOLOGICAL SUPPORT

Dunkin' Mobile, the mobile app, lets guests send virtual gift cards, load & reload their DD card, locate nearby Dunkin’ stores and view menu items.


F A I L E D F R A N C H I S E A N A L Y S I S

Reference: Krispy Kreme Official Website

Founded on July 13, 1937 by Vernon Rudolphin. Headquartered in Winston-Salem, North Carolina, United States

First Franchise: 1982

Has 2.1% of the U.S. coffee and snack shop market (Starbucks:36%, Dunkin Donuts: 25%)

C O M P A N Y S N A P S H O T

Reference: Krispy Kreme Official Website

20 different Donuts,

Sale of Donuts: 88% of total retail sale

141 Domestic Franchise Stores in 29 states,

358 International Franchise Stores in 18 countries

83 Company stores in 18 states and

the District of Columbia

C O M P A N Y S N A P S H O T

T H E F R A N C H I S E M O D E L


Royalty fee: 4.5% of their total sales

plus

2% to for brand development and public relations

costs

Start-up cost: $25,000 – $50,000

Total investment: $933,000 – $1,888,250

S T A R T - U P C O S T S

Reference: http://smallbusiness.chron.com/open-krispy-kreme-doughnut-business-10206.html

Available Market

USA: Chicago, Buffalo/Rochester, Harrisburg, Lancaster, York,

Houston

ASIA: India, China, Taiwan, Singapore

EUROPE: Russia, Poland, Hungary, Czech Republic, Bulgaria,

Romania, Spain, Portugal, France, Germany, Belgium, Norway,

Holland, Sweden, Finland, Greece, Italy

Canada, Mexico, Puerto Rico, Australia

C A N D I D A T E R E Q U I R E M E N T S

Core Requirements

Passionate about the Krispy Kreme brand and products

proven track record of running a successful business

(retail/ restaurant industries)

Highly committed to providing great customer service

Strong Understanding of the local culture



Resources: Financial

Liquid Capital Required: $1,000,000

(initial investments range from $928,000

to $1,883,250)

Minimum Net Worth : $5 million



Resources: Real Estate

Hotlight stores: extend to 3,600 sq ft (approx.)

generally located on retail parks/leisure parks/busy arterial

routes in major cities

Fresh shops: comprise of 300 sq ft kiosks or 1,000 sq ft

in-line retail units.

Units are required to be on busy thoroughfares, transport hubs

or shopping centers.



W H Y D I D T H E Y F A I L ?

Reference: http://www.morebusiness.com/franchise-risks

1. Aggressive Growth

• Attempt to sell its brand everywhere and anywhere, from gas

stations to kiosk (dilutes appeal of core product)

• Allow franchise locations that are too close in proximity (new

store may offer additional revenue to the home office, but the

overall result is less profit for each individual store owner)

e.g. 2003 – 2004: second quarter revenues increased by 15% -

same store revenues only by 1%

W H Y D I D T H E I R F R A N C H I S E F A I L ?

2. Market Oversaturated

Distance to actual key product by new introduction of

product lines (line of high-carb, high-calorie frozen

drinks, or "drinkable donuts”, sugar-free donut, large

coffee section, sausage rolls)



3. Profit over Growth mistake

• “Channel Stuffing": Stores received twice the

inventory at the end of quarter so corporation could

bolster its reported profits

• Questionable transactions and self-dealing

accusations over the buybacks of franchisees



Reference: http://money.cnn.com/magazines/fsb/fsb_archive/2002/05/01/322792/

4. Accounting scandal 2005

• Franchisees are forced to purchase

equipment/supplies from headquarters with extreme

markups (greedy short-term profit generating

solution)

• Result: 31% percent of sales were generated for

required mix and doughnut-making equipment


Dunkin Donuts generally does not sell equipment or product to its

franchisees, they have a strong royalty stream that is based

solely on store sales

Company looks to own profit rather than profit of all franchisees

as it has gone public and trades stock shares on the public

market, which forced company to produce high profits at the

parent-company level, while its outlets struggled.

Reference: http://money.cnn.com/magazines/fsb/fsb_archive/2002/05/01/322792/

C O M P A R I N G T O D U N K I N D O N U T S

Business

Franchising: Study of A Success and A Failure