As traditional daypart borders keep blurring for quick-service chains seeking daylong traffic gains, hundreds of Dunkin’ Donuts operators are complaining that the franchisor’s intent to sell pizzas, deli sandwiches and other novelties could dilute their brand’s identity and prove unworthy of capital commitments.
But with Starbucks Coffee extending all-day food offerings, Taco Bell and Wendy’s both poised to sell breakfast, and McDonald’s considering rollouts of espresso-based specialties like those Dunkin’ launched a few years ago, it is obvious that more QSR rivals sense an imperative to escape traditional niche specialties and court consumers with broader menus.
Some 200 owners of nearly 1,500 franchised shops contend that Dunkin’ Brands Inc. doesn’t understand their reservations about menu expansion or equipment upgrade mandates. But other Dunkin’ Donuts operators among those who have refurbished nearly 50 test stores say incremental sales of new foods have more than justified the trouble.
Dunkin’ franchisee John Motta of Nashua, N.H., who has been selling the flat-bread sandwiches and hand-held breakfast and lunch pizzas since last August and just started selling hash browns, said his 24-hour outlet’s sales rose 20 percent through January, compared with the same period a year earlier, without special advertising or marketing. The new products generated at least one-fourth of that increase, with decor enhancements accounting for the rest, he indicated.
“It’s almost a whole new business,” Motta said, adding that customers have told him his store “still felt like Dunkin’ Donuts.” He said three flat-bread sandwiches and hand-held individual pizzas have been solid sellers.
However, Motta said the franchisor had paid him $25,000 to offset his $200,000 cost for an extensive unit remodeling. Others have estimated that the cost would run about $32,000 for new high-speed convection ovens and other equipment and fixtures at a typical Dunkin’ outlet.
Payroll inflation stemming from the new menu items added about 2 percentage points to his labor costs, Motta said.
In recent communications to franchisees, Dunkin’ Brands said the so-called PM Platform and Next Generation Sandwich Station under test are aimed at better competing in today’s quick-service marketplace and at raising same-store sales by at least 5.2 percent. Canton, Mass.-based Dunkin’ underscored the necessity for operators of the wholly franchised, 5,200-unit chain to act now or allow competitors to grab market share.
A key element of Dunkin’s game plan for afternoon sales is the bundling of new sandwich items with iced tea and other beverages, as well as potato chips.
Competition for the morning daypart, when Dunkin’ Donuts generates about 78 percent of its overall sales, is intensifying as burger, sandwich, bakery-cafe and coffeehouse chains modify their breakfast and coffee programs, toppling boundaries between traditional quick-service and fast-casual players.
Media reports have indicated that McDonald’s, whose coffee sales surged 15 percent after its standard brew was upgraded last year, now has begun to deploy automated espresso machines in some outlets. That threatens to siphon away customers who buy caffe lattes and flavored cappuccinos at Dunkin’ outlets, which depend on coffee items for most of their whopping 64 percent of total sales from beverages.
Currently, despite the relatively smaller size and Northeastern concentration of its chain when compared with Starbucks and McDonald’s, Dunkin’ Donuts ranked third in patronage frequency in a recent national survey of quick-service coffee customers by the foodservice research firm Sandelman & Associates of San Clemente, Calif. Fully 10 percent of respondents bought coffee from Dunkin’ in the previous month, while 17 percent bought it from Starbucks and 12 percent from all other quick-service restaurants, most often from McDonald’s.
But that specialization could help explain the concerns of franchisees about the new foods and dayparts their brand’s owner appears intent on exploiting. A detailed memorandum on the website of the Dunkin’ Donuts Independent Franchise Owners association, or DDIFO, outlines in a question-and-answer format the opposing viewpoints of the franchisor and DDIFO members about the proposed initiatives. The Q&A concludes with the DDIFO’s statement, signed by president and former franchisee Mark A. Dubinsky, that any move forward in rolling out the new initiatives should be voluntary and that the system should “proceed very cautiously and very judiciously.”
“I’m hopeful that Dunkin’ Brands will carefully consider some of the franchisees’ concerns. They don’t quite understand what we don’t like,” said Dubinsky, who explained that the DDIFO represents about 200 franchisees who own approximately 1,500 units in the Northeast.
However, Dunkin’ Brands officials “work closely with our franchisees through our franchisee advisory councils, which represent the whole system,” said Margie Myers, the franchisor’s senior vice president of communications. “Together we are trying to build the brand and are looking at opportunities to bring continual innovation to the menu offerings.”
She stressed that franchisees who are testing the so-called PM Platform are enthusiastic about it.
However, among the issues that the DDIFO has raised are what it says is the questionable return-on-investment outlook related to the costs of ovens and other equipment and additional remodeling, estimated to be about $32,000. Dissidents cite several other factors, such as the purported inability of about 25 percent of franchisees to participate in menu extensions because of store space limitations; the as-yet-unknown results of initial tests; what they say are likely higher food costs; and the still-unknown plan for marketing the brand’s evolution.
Aaron Anderson, a Dunkin’ franchisee who is testing the new food platforms at a unit in Taunton, Mass., told the Taunton Gazette that he so far had purchased two high-speed ovens, six food warmers and a new refrigeration station for about $25,000, but that positive customer feedback had prompted him to form plans for similar installations at his four other Dunkin’ outlets.
Anderson’s Taunton unit is serving the small hand-held pizzas, priced $2.69 to $2.99, and three kinds of warm flat-bread sandwiches, $1.99 to $2.69. Sandwich ingredients include various combinations of cheese, ham, turkey and bacon. The new convection ovens replace older microwave gear.
The new ovens, a kind already being used systemwide by Subway and Starbucks, are said to heat 12 times faster than conventional ovens, cook consistently and fit into smaller spaces. Dunkin’ Brands indicated that the new equipment would be required in all restaurants, except those that are too small to accommodate the larger, reconfigured sandwich station and refrigeration and freezer units.
The DDIFO group objects that only a single oven brand has been authorized and notes that some restaurants may have lease restrictions against such installations. The group also questions the franchisor’s position that microwave ovens no longer would be adequate. Additional costs would be incurred to redesign menu boards and in-store point-of-purchase materials and to offer free samples, the DDIFO said.
The franchisor concedes that the new platforms would add 10 to 20 hours of labor per week at each outlet, whose utility costs would increase by about 8 percent to 9 percent.
Dunkin’ Brands said a marketing campaign now being developed would target current core customers primarily and emphasize that the chain now offered “craveable” foods after 11 a.m.
But the DDIFO asks: “Why is Dunkin’ Brands currently developing a marketing campaign? Why is this not completed and approved? What if we build it and too few customers come?”
Potentially addressing those concerns, the franchisor recently hired talk show host and Food Network star Rachael Ray as a media spokeswoman who also would work with Dunkin’s culinary team on product development. She is set to make her TV debut for the chain next month.
