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#1 on the Franchise 500: Even Without the 'Donuts', Dunkin' Takes the Cake The #1 company on our Franchise 500 list has expanded what it's known for -- and grown its customer base.

By Maggie Ginsberg

This story appears in the January 2020 issue of Entrepreneur. Subscribe »

Courtesy of Dunkin'

The brand once known as Dunkin' Donuts turns 70 this year. The first 68 are inextricable from the word Donuts. They were a beloved treat for founder Bill Rosenberg, a working-class eighth-grade dropout in Depression-era Boston. By the time he died in 2002, he'd built his brand into 5,000 stores in 38 countries.

But the most recent 20 years of history have been an evolution toward something bigger. The brand evolved into the largest coffee-and-baked-goods chain in the world, as well as one of the fastest-­growing in the U.S. Of its 13,000 stores, about 9,500 are in the U.S., and it plans to double that number over the next 20 years. It might even pull it off, with rising same-store sales now driving $1.3 billion in hot and cold drinks.

Today the company also sells bagels and sandwiches and low-calorie wraps, and customers can purchase creamy, nitrogen-infused cold brew from tap handles. The foam cups it used for decades are actively being phased out in favor of a double-walled paper cup that won't be too hot to the touch. Using the company's DD Perks app, customers can even order on their phones before leaving the house. So given all this, the brand didn't want to be limited by its doughnut-­focused name. In September 2018, it announced that it was changing its name to simply Dunkin' -- a change as big as when Kentucky Fried Chicken eliminated Kentucky, Fried, and Chicken from its name.

Dunkin' Donuts, minus the Donuts. It was once unthinkable. But the weirdest thing has happened: Doughnut sales grew. It's happening at the nearly 500 U.S. stores that have adopted a store redesign. It turns out people became more impulsive when the doughnuts jumped from behind the counter to a front-facing pastry case by checkout. It didn't matter if the word was in the title. Now, worldwide, Dunkin' is moving two billion doughnuts a year -- in 70 varieties, no less.

That's just how powerful this brand has become. The company debuted at #17 on our first-ever Franchise 500 list in 1980, and it's ranked every year since. Seventeen times, it broke the top 10, including five years consecutively now. And it has ranked #2 three times in three different decades.

This year, finally, for the first time ever, Dunkin' is #1. It's the just result for a brand that has innovated through the decades while never losing sight of what makes it so strong.

Related: Want to Open a Business? Here Are 5 Reasons to Consider Franchising.

Bill Rosenberg always had a hustle. He was born in June 1916 in Boston's Dorchester neighborhood, and family legend has it that he was selling ice from his tricycle at 3 years old. He had a watermelon stand at age 9, bought and sold ice cream for a markup by age 11, and dropped out of school at 14 to work full-time and support his family. Even then, Rosenberg had a soft spot for doughnuts.

In his 2001 memoir, Time to Make the Donuts, Rosenberg reflects on visits to a diner in Boston, where they sold the "biggest nickel jelly doughnuts you ever saw." And at home, his mom would fry hot-cake doughnuts in a kettle with rendered beef fat, which she'd drain on kraft paper bags. "I'll never forget licking the grains of sugar off my lips and fingers," he wrote. "This great experience left an indelible memory of how doughnuts meant so much to me and every other kid."

Rosenberg went chasing dough, but originally, it wasn't with Dunkin'. In 1946, starting with a single truck, he founded what would become Universal Food Systems, New England's largest food-service business. In addition to running commissaries and vending machines for factory workers, the company built trucks with sidewalls that opened to the street, so workers could buy sandwiches, pastries, doughnuts, and coffee -- precursors to today's food trucks.

Rosenberg was committed to quality, and to get the drip flavor right in his coffee, he ran boiling water over leaching bags in custom-designed 100-gallon stainless steel tanks. The diligence allowed him to charge 10 cents a cup, rather than the standard five. And for his doughnuts, he bought from bakeries that produced fresh batches multiple times each day. In time, coffee and doughnuts came to account for 40 percent of his food-service business, so he opened a stand-alone retail shop where customers could come to him.

In 1948, with brother-in-law Harry Wintour as full partner, Rosenberg went brick-and-mortar with a place called Open Kettle in Quincy, Mass., just outside Boston. It was the first retail doughnut store with dine-in seating. The coffee was freshly ground and brewed in small batches, and while the typical doughnut shop offered four or five choices, Rosenberg -- inspired by Howard Johnson's 28 varieties of ice cream -- made dozens. Business boomed, and in 1950, Rosenberg rebranded Open Kettle to Dunkin' Donuts. Over the next five years, he opened four more stores. And that's when he set his sights on franchising.

Franchising was a new concept in the early 1950s, and not particularly well-respected. Howard Johnson's was one of the first to do it, and across the country in California, Ray Kroc was just discovering and wooing the brothers who'd started McDonald's. But Rosenberg believed franchising could be transformative, so in 1955, he bought out his brother-in-law and sold his first Dunkin' Donuts franchise.

By 1960, the company was on its way to 100 stores, and at a convention in Chicago, Rosenberg began rallying his fellow franchise companies -- ­brands like Chicken Delight, Burger Chef, and A&W Root Beer -- to organize into what would become the International Franchise Association. Today the IFA is the world's oldest and largest franchise organization, representing more than 733,000 franchise establishments…including Dunkin' units.

"It's safe to say that Dunkin' is a very active and well-­respected franchise brand," says Stephen Worley, an IFA spokesperson, clearly careful not to show preference for one member over another. "In many respects, it's one of the more recognizable franchise brands in the country."

Rosenberg claimed that alongside Dunkin' Donuts, forming the IFA was his proudest achievement. "In 1960, when franchising was in its infancy, most people looked upon it as an outcast or a misfit, but I believed it was the epitome of entrepreneurship and free enterprise," he wrote. "When you share with others, everyone benefits. That's the whole concept behind franchising. If the franchisees do well, I do well; we all do well."

Perhaps for this reason, Dunkin' moved to embrace franchising in a way that even its famous franchise rivals hadn't. For most of its history, Dunkin' has been 100 percent franchised -- ­meaning it's owned zero corporate-owned stores. That was way ahead of its time. Other franchise giants ran a mix of franchised and corporate locations, though in the past few years, many of them are actively trying to sell their corporate locations to franchisees, in part as a way to take those financial burdens off the parent company's bottom line. Pizza Hut, for instance, had 649 corporate U.S. locations in 2009; now it has only 23. Many other competitors, like McDonald's, hover at around 93 to 95 percent franchise ownership.

Grant Benson, Dunkin' Brands' senior VP of franchising and business development and 34-year company veteran, believes this is what set up the brand for its initial success. It has 1,100 franchisees -- and "if you think about it," he says, "that's really 1,100 volunteers that are choosing every day to invest and reinvest in your brand based on their faith and confidence in the concept."

That puts a big onus on the corporate company. "Franchisees are only made profitable when the brand is relevant, innovative, and meeting the needs and expectations of the guests," he says. So as times changed, Dunkin' had to change as well.

Related: Licensing vs. Franchising: Which Path Is Right for You?

Dunkin' has long been selective about its franchise partners, but the cost of entry can actually be less than that of other well-known brands. While low-end price tags for Krispy Kreme and McDonald's are $440,500 and $1.26 million, respectively, motivated entrepreneurs can buy into Dunkin' starting at just less than $100,000 for a kiosk-type operation.

That value play was one of many things that got David Baumgartner's attention. He'd spent his career in print distribution, but when the economy crashed in 2008, he knew it was time to find a new line of employment. He didn't know much about franchising -- or, for that matter, about Dunkin' Donuts (as it was still known then). But he was aware of the brand's loyal following, and after doing his homework, he was impressed by the company's growth goals, especially given the sputtering economy. (A 2009 Entrepreneur article called Dunkin' a "recession-­resistant franchise.")

Baumgartner opened his first Dunkin' in Chattanooga, and business was brisk. But "everybody thought we were a doughnut store," he says, so coffee took a while to catch on -- especially cold coffee, which was virtually nonexistent in the South.

But that wasn't unheard of. Dunkin' was big back then, but it still wasn't as nationally known as today. The brand was coming out of a few rocky decades. It had a successful IPO in 1968 but began suffering in the 1970s as founder Bill Rosenberg began a long fight with cancer and diabetes. (Rosenberg's doughnut habit eventually landed him in a weight-loss program.) Stock plummeted. Franchisees sued over an equipment-­purchasing dispute. Rosenberg retired in 1989, and the company sold to British food conglomerate Allied Domecq that same year. (Allied also owned Baskin-Robbins, which is how all those Dunkin'-Baskin combo locations came about.)

But there was also an upswing. The brand's famous 1980s "Time to make the doughnuts" ad campaign, featuring a fictional Fred the Baker, was a national hit. Allied Domecq's restaurant business would become Dunkin' Brands Group and start working toward a second IPO.

So that's what Baumgartner was walking into when he opened his Chattanooga location in 2009, confusing locals with all those doughnuts.

Then Dunkin' really started making moves. In 2009, it brought in former Blockbuster and Papa John's leader Nigel Travis as CEO -- and for the next nine years, he'd grow company revenue by 60 percent and add 6,000 stores. He also took the company public again, in 2011. Then in 2018, former McDonald's executive David Hoffmann took over as CEO and quickly announced a three-year strategic plan called Blueprint for Growth. It laid out an aggressive pledge to add more than 200 new U.S. locations annually through 2021. Long-term, it plans to grow to 18,000 stores -- mostly outside the Northeast, where the brand has long dominated.

The company soon upgraded its app, called DD Perks, to allow its 12 million subscribers to order ahead. It also presented a vision for what it called a Next Generation redesign, which would give stores a modern look, a cold-beverage bar, and quick-grab deli cases for on-the-go customers.

Through all this, franchisees like Baumgartner saw their customers change. People once thought he ran a doughnut shop but started to see it as their morning coffee destination. "Now it's almost flipped. All you have to do is get [the coffee] in people's hands, and they become regulars."

Experiences like Baumgartner's are largely responsible for Dunkin's decision to drop Donuts from its name. Coffee has long been the company's big sales driver, and focusing on the winning product has proven successful. In 2018 Dunkin' invested $100 million to reinvigorate and expand its espresso platform and install the new iced-­beverage tap systems. In Q1 2019, the upgrades culminated with 5.5 percent system-wide sales growth and the company's largest quarterly same-store sales increase in four years.

Opinions about the name change weren't all positive. As one Wall Street Journal headline lamented, "Dunkin' Fans Say Losing the "Donut' Leaves a Hole." But it certainly got a lot of attention, and signaled its bigger ambitions. "There were millions and millions of impressions [on social media]," says Benson, the Dunkin' senior VP. "In every possible venue and media outlet, there was an opinion being bantered around about it."

But sales spoke louder than anything else. Espresso became Dunkin's fastest-growing product category, and the company credits it for a year of growth that, through Q3, saw 135 stores open and same-store sales grow by an average of 1.9 percent.

Baumgartner now owns and operates 41 stores in Tennessee, Georgia, and Alabama, with plans to double his footprint by the end of 2023. Custom spins on the Dunkin' slogan -- Knoxville runs on Dunkin', Birmingham runs on Dunkin', and so on -- have helped secure local followings in every new market. After building the company's first freestanding Next Generation store, he now runs seven Dunkin' locations with the new branding.

Related: Why It Took Dunkin' Donuts 10 Years to Build the Perfect New Cup

Today Dunkin' says it's growing on the strength of its franchisees. Through peer-elected advisory councils, they meet regularly with corporate leaders at the local, regional, and national level. That's where the good ideas are born, says Benson. And the meetings prove critical to mobilizing the large network in support of big brand initiatives.

In return, franchisees benefit from nearly universal brand recognition, powerhouse marketing support, and flexible build-out options. In the spirit of Rosenberg's doughnut truck, Dunkin' stores today can be located inside gas stations, airports, hospitals, and supermarkets. In addition to the strip-mall and stand-alone stores (with and without drive-throughs), you can find Dunkin' inside Walmarts, and some still cohabitate with sibling brand Baskin-Robbins.

"How many opportunities are there where you can get involved in a 70-year-old brand that has 10,000 stores in the United States and more space to develop?" says Baumgartner. "And they're going to give you the support and the field staff to help you be successful."

What's most interesting about Dunkin' isn't the degree to which it's changed. It's the degree to which it's maintained its core values. "Change is hard, but not changing is harder," says Benson. Consider the fact that Dunkin' still offers the original coffee blend it first brewed seven decades ago. The iconic Dunkin' font is the same as it was in the 1970s, and the "America runs on Dunkin'" slogan has been in play for 14 years. When Dunkin' decided to phase out its environmentally unfriendly foam cups, it undertook 10 years -- 10 years! -- of weekly meetings, testing, and focus groups to settle on a more sustainable paper alternative.

The trick the company has pulled off is to be at once old and new, to give its customers something fresh without betraying its founding principles or significantly upending the daily ritual that brings them through the door.

"We're talking about coffee and doughnuts," says Benson. "These are the highlights in people's busy days. So we're being very true to that legacy, retaining all the goodness and richness that's been earned one cup of coffee or one doughnut at a time."

Check out our complete Franchise 500 rankings, or view more stories here.

Maggie Ginsberg

Contributing writer

Maggie Ginsberg is an award-winning writer and regular contributor to regional and national magazines for 15 years. She's based in the Midwest and writes a monthly column on entrepreneurship and innovation for Madison Magazine. 

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