Why the big push now? "The opportunity is there," said Grant Benson, vice president of franchise and market planning for Dunkin' Brands, the Canton, Mass.-based parent company of Dunkin' Donuts, noting that the first part of the expansion plan will be in the Southeast and Midwest states, as well as in other regions where the company is already seeing strong growth opportunities, including western Pennsylvania, Texas, Denver, Nebraska and Mississippi. "We will ramp up growth," he said. "There's an embracing of our opportunities by existing franchisees looking to grow and add to their networks and by new franchisees seeking business opportunities." According to Benson, the company's key criteria for potential franchisees includes previous business experience, primarily restaurant and/or quick-service restaurant experience, and background in building teams and managing P&Ls.
To serve as incentive for franchisees in these new markets, Dunkin' plans to provide fee reductions, such as a "material reduction" in royalties, for the first few years of operation to "help reduce some of the early pressures" of buying a franchise. The availability and specifics of the incentives vary on a market by market basis.
As far as helping franchisees get the rest of the capital they need to start, Benson said Dunkin' doesn't guarantee financing, but works "very closely with certain national lenders to help bring them together with franchisees." He added, "The best sources of capital tend to be local sources in the areas franchisees are locating their businesses. We help franchisees make presentations to those banks and get information to the banks to help them understand the company."
Besides adding locations, Dunkin' plans to add jobs. According to Dunkin', each new store adds an average of 20 to 25 new full-time and part-time employees. "In some of the smaller or rural communities, the effect will be noticeable if even three or four more stores open," Benson says. "It doesn't take a lot of units opening to create a lot of jobs and increase the tax bases in these communities."
While Dunkin' claims each new store adds an average of 20 to 25 new full-time and part-time jobs, aggressive expansion is often accompanied by potential problems, such as encroachment, in which franchisees' locations open so closely together, they end up competing with each other. But with Dunkin's expansion, Benson said he expects "just the opposite. Growth is moving away from markets that are already heavily penetrated. We're going into markets where there's a lot of room, and even in markets we have heavily penetrated, we have a good performance of not impacting existing stores."
One of Dunkin's biggest competitors, Starbucks, with about 11,000 U.S. locations, also expanded aggressively before the recession, doubling its number of company-owned stores from 2005 to 2007 before having to close hundreds of stores and laying off thousands of employees. Benson said he isn't concerned about the Starbucks precedent. "It gives you reason to learn and be careful. But it's about taking a look at the proximity and the impact of putting stores too close together, and analyzing and planning that very carefully. We're not experiencing that [issue] even in markets more heavily penetrated than Starbucks. And we continue to be cognizant of it and to look at each and every site."