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Full Day's Work

Morning's over, but Dunkin' Donuts' sales aren't.
April 1, 2001
URL: http://www.entrepreneur.com/article/38782

Much to my chagrin, I have never met a doughnut I didn't like. However, whenever I think about owning a doughnut shop, the memory of the summer I worked at an ice cream store still dissuades me. (A normal human does not gain 30 pounds in three months.) I also recall the pity I felt when I saw the TV ad for Dunkin' Donuts (DD) that featured the old guy stumbling out of bed in the wee hours of the morning, grumbling, "Time to make the doughnuts." Yes, it's a good idea to be a skinny morning person when you're in the doughnut biz. So, assuming you qualify, let's explore the salient remaining issue: How on earth can you make a living baking 55-cent doughnuts?

The answer is, you can't. You make a living selling doughnuts, bagels, coffee and juice, plus some new proprietary additions known as the Omwich, the Dunkaccino and the Coolatta. New products like these have created some pretty exciting same-store sales growth in DD's strongest markets, which consist of the Northeastern and Mid-Atlantic states, Chicago and Northern and Southern Florida. With several markets in its prime territories seeing double-digit growth, DD says, average sales for the entire system are up 8 percent. Because DD doesn't make earnings claims, we don't know what the baseline sales figures are; however, it appears the franchise is putting lots of effort into improving them.

Here's why that effort's so important: It's pretty illogical to go to the trouble and expense of building a free-standing retail store that only actively sells products during a limited time frame. Taking note of that, British conglomerate Allied Domecq PLC, the owner of the DD franchise system, also owns the Baskin-Robbins and Togo's franchise systems. The company made these acquisitions with an eye toward creating a multibrand identity in a single space. On the surface, the strategy seems to make sense, but the jury is out on which combinations actually work.

Other franchisors are experimenting with that same concept. Tricon International, for example, has combined some KFC, Pizza Hut and Taco Bell locations into single facilities. When three concepts coalesce in one building, industry insiders call it a "trombo." The vision for the trombo at hand is that your DD customer would buy doughnuts and coffee in the morning, grab lunch at your Togo's and drop by later for Baskin-Robbins ice cream. In the marketing world, this is known as creating "complementary day parts."

I doubt there are many people in the United States who haven't heard of Dunkin' Donuts or Baskin-Robbins, but Togo's, which is mainly a California chain, has a long way to go before it has strong consumer recognition. One of the issues that's arisen when combining DD and Togo's locations is that, to uninitiated passersby, their signs appear to indicate they can get Dunkin' Donuts "to go," which is not particularly newsworthy. However, if you choose the DD and Baskin-Robbins combo as a franchisee, the long hours could exhaust you.

The management of Allied Domecq deserves credit for being innovative, but the smartest franchise buy is usually a proven and enduring concept in a market that already has consumer acceptance. This chain claims, "It's not just about doughnuts anymore," but I recommend new fran-chisees leave it to experienced franchisees to prove it. For the best chance of success with this system, stay close to established DD markets where TV advertising occurs, make sure your store has a drive-thru window, place the store on the side of the road that carries the morning commuters, and purchase a really good alarm clock.


Todd D. Maddocks is a franchise attorney and small-business consultant who is presently the CEO of The Worldlink Group. You can reach him at TMaddocks@aol.com.