Conflict Brewing Between Dunkin’ Donuts and Franchise Owners

An overwhelming majority of Dunkin’ Donuts franchise owners in New England and New York oppose new partnerships between Dunkin’ Brands, Sara Lee Foods, Procter & Gamble and Hess convenience stores. The majority also believes these actions will ultimately devalue the iconic coffee brand. A spokesman for Dunkin’ Donuts disagreed saying the chain did extensive due diligence before announcing the partnerships.

The Dunkin’ Donuts Independent Franchise Owners asked franchisees to express their opinions about partnerships allowing Sara Lee’s food services division and Hess gas stations to sell Dunkin’ Donuts coffee. 98% of franchise owners who participated in this survey said they oppose the Sara Lee partnership; 97% oppose the Hess partnership and 98% said these deals will negatively impact their businesses and the Dunkin’ Donuts brand over the long run.

The survey was conducted in January. Respondents are franchise owners representing more than one thousand shops.

"There is little doubt in my mind that the Dunkin’ brands management team either failed to understand or did not much care about DDIFO member sentiment as to the Hess and Sara Lee distribution deals," said Mark Dubinsky, president of the DDIFO, which is the largest, independent organization dedicated to protecting the interests of Dunkin’ Donuts franchise owners.

However, in a statement released to Convenience Store Decisions, Stephen J. Caldeira, chief communications and public affairs officer for Dunkin’ Brands Inc., said Dunkin’ Brands and its senior leadership team communicate broadly and directly with its entire Dunkin’ Donuts franchisee system about all of its strategic partnerships, which are designed to build out the Dunkin’ Donuts brand for the long-term.

"We do extensive due diligence on all strategic partnerships to ensure that our alliances with these world-class companies strengthen the Dunkin’ Donuts brand for the benefit of all, including franchisees," Caldeira said. "These partnerships are part of our brand seeding strategy to be the national leader in the coffee category. The common thread in all of these partnerships is to fortify our position within an extremely competitive marketplace by not conceding any of the playing field to entrenched national competitors." Dunkin’ Donuts shops are 100% franchise owned. Despite the company’s expansion into new U.S. markets and international markets, 99% of survey respondents said their cash flow from operations has been declining for some time and is showing little sign of improving any time soon.

Last year Dunkin’ Brands announced its partnership with P&G to sell packaged coffee in supermarkets, drug stores and off-price retailers. Those 12-ounce packages of coffee compete directly with the 16-ounce packages sold at Dunkin’ Donuts shops. To date, franchisees have received no financial benefit from P&G sales. 59% of survey respondents said the P&G deal devalues their franchise.

"The company believes these partnerships are a strong way to build the brand and that may be the case," Dubinsky said. "But, in markets where there is already a strong brand presence, like the northeast, it can have a negative impact."

Caldeira disagreed. "Our goal is to increase franchisee profitability by responding to ‘on-the-move’ consumers’ desire for their brand of coffee wherever they go," he said. "And we’re confident that these partnerships will achieve this goal–quite simply, if our franchisees do not do well, then we do not do well."

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