From the age of 8, Ken Blum ’88, now a Dunkin’ Donuts franchise owner, would stop at a shop for doughnuts and coffee with his teenage brother on Saturday mornings before heading to work at their dad’s tire business. Anh-Dao Kefor ’05, director of integrated marketing for beverages at Dunkin’, dipped the brand’s French crullers in hot cocoa with her sister when they were kids. Justin Unger ’08, who made Sunday morning runs to Dunkin’ for iced coffee as a Babson student, now takes his 3-year-old son, Jack. Unger, director of strategic partnerships at Dunkin’, still gets a coffee, while Jack has a chocolate doughnut.
For many Americans, doughnuts are a much-loved, feel-good food. More than 193 million people ate these hand-held treats in 2017, and a reported 10 billion doughnuts are made in the U.S. annually. Today, system-wide sales for Dunkin’ Brands—which includes Dunkin’ Donuts and ice cream maker Baskin-Robbins—exceed $11.1 billion from more than 20,000 locations worldwide. Dunkin’ Donuts itself is found in 46 countries.
In New England especially, Dunkin’ customers tend to be loyal and maintain a strong, emotional connection to the company, says Kate Jaspon ’98, CFO for Dunkin’ Brands. Jaspon, who joined the company as an assistant controller in 2006 after auditing it in her previous job with KPMG, remembers childhood visits with her family to Dunkin’ to pick up Munchkins. Professionally, she was drawn to the company because of its iconic branding and growth potential. As a Babson graduate and the daughter of a small business owner, she also liked Dunkin’s all-franchise model and the opportunity to work with entrepreneurs growing small businesses.
Given the company’s entrepreneurial bent and penchant for innovation, perhaps it’s not surprising that so many Babson alumni work for Dunkin’ Brands. It’s not unusual to attend a meeting and discover that the person sitting next to you is a Babson graduate, Jaspon says. She and fellow alumni say the world of doughnuts and coffee is fiercely competitive. Staying ahead of competitors in this space requires fresh, innovative ideas, Justin Unger adds. “When we’re trying to solve a business challenge,” he says, “the entrepreneurial mindset is a valuable asset.” But franchise owner Blum also likes to remind his employees to smile and keep it light. “There’s a lot of work to do, and it’s very hard work,” he says, “but this is a fun business.”
The World of Franchises
After graduating from Babson, Blum worked in commercial banking in Boston for nearly 20 years, eventually leading the franchise-lending group for Sovereign Bank, where he backed a variety of franchises, including Dunkin’ Donuts. “The Dunkin’ franchisees I did business with were some of the nicest people you would ever meet,” Blum says. “I think part of me wanted to be part of that community.” Growing up with a father who owned a small business, Blum often wondered if he should go into business for himself as well.
In 2005, one of his clients, John Batista, who had owned Dunkin’ franchises for decades, asked Blum to partner with him and expand Dunkin’s reach in the Cleveland area. Blum and his wife, Gerri, who was then home with the couple’s four kids, decided to say yes. Gerri spent a year in Dunkin’ stores, learning the ins and outs of operations, while Blum wrapped up his bank job and began his own six months of hands-on training. They moved the family to Ohio and opened their first location in Cuyahoga Falls in November 2007. Blum remembers a lot of anxiety and doubt. But when the banking industry tanked in 2008, he was relieved that he had left, and by the five-year mark he and Gerri felt confident in their decision to join Dunkin’. Blum’s brother, Bob, eventually joined the business as a partner, and they now own 26 Dunkin’ locations.
For many Dunkin’ franchisees, doughnuts are a family affair. Consider Alex DiPietro ’09, who met his wife, Lindsey ’08, at Babson. After working in technology sales for several years, DiPietro went into business with his wife’s father, Carlos Andrade, an immigrant from Portugal who followed in his brother’s footsteps and purchased his first Dunkin’ franchise in the Boston area roughly 50 years ago. Over the decades, the Andrade brothers have drawn many more relatives into the business. “I always joke that my wedding ran on Dunkin’,” DiPietro says. “We had 300 people there, and pretty much all of them were franchisees.”
Since DiPietro joined his father-in-law’s business, they’ve expanded from 70 stores to 130, making them one of Dunkin’s largest franchisees. DiPietro manages 13 locations in Massachusetts, 10 in Connecticut, and 13 in Florida. His responsibilities range widely, from overseeing daily operations and building maintenance to staking out new properties and growth opportunities. He believes more people should consider owning franchises. “Coming out of a great school like Babson, everyone wants to create a product or build their own business,” DiPietro says. “But I think franchises are overlooked as an opportunity to own a business. An established brand has already done a lot of heavy lifting, and it allows people to get their feet wet.”
Dunkin’s franchise agreements are typical in the franchise world, explains CFO Jaspon. Franchisees pay an upfront fee per location that is good for 20 years. They also pay ongoing 5.9 percent royalties to Dunkin’ Brands each week, along with a 5 percent fee based on top-line sales, which goes toward advertising. In many regions, multiple owners invest together in cooperative kitchens where doughnuts are made daily and delivered to stores, keeping the process efficient and consistent.
After a significant career in corporate America, including many years as an executive consultant, Adam Goldman ’89 began exploring the possibility of owning a business. “I got tired of being on a plane from Monday through Friday,” he says. “I wasn’t finding any great manufacturing businesses for sale, but I was going to Dunkin’ Donuts every day for my coffee.” Goldman felt the store near him in West Orange, New Jersey, didn’t run as well as it should and thought he could probably do better. With his interest piqued, he began researching franchise opportunities. Dunkin’ Donuts stood out in part because it allowed franchisees some latitude in their entrepreneurial tactics. So in 2009, Goldman purchased two stores in nearby Paterson. He hired more staff, bought updated equipment, and launched new initiatives, such as delivering doughnuts to local offices.
He then purchased a third location in West Orange, but the store felt small and parking was lousy. So Goldman operated out of that Dunkin’ while building a new store just 150 yards away, this one with a drive-thru, ample parking, a kitchen, and quadruple the seating. The new location opened in December 2015. “We operated the old store until 12:30 p.m., and then opened the drive-thru at the new place at 12:31 p.m., and never skipped a beat,” Goldman says.
In an effort to control operating costs at this larger facility, he outfitted the store with green technologies, including LED lighting, high-efficiency heating and cooling, an in-house “biodigester” that breaks down food wastes to produce energy, and an electric-vehicle charging station in the parking lot. The store won Dunkin’s “Green Elite” designation, and Goldman says the West Orange community has loved the new location. “Dunkin’ told us to expect a 30 percent bump in sales due to the drive-thru,” Goldman says, “but we actually had an 85 percent bump in sales.”
Location, Location, Location
The success of Goldman’s stores (he and his wife, Karen, now own four) points in part to the importance of wisely chosen locations. Blum in Ohio prefers to locate his stores on Monday-to-Friday commuter routes, just before the driver hits the highway. “Right turn in, right turn out, you’re on your way,” he says, adding that he also considers commuter psychology. “We prefer to be at the beginning of the commute as opposed to the end. If you’re five minutes late heading out the door for your 30-minute commute, and you know we’re fast, you’ll stop for a cup of coffee even though you’re running late, thinking that you might be able to make it up,” Blum says. “But if it’s at the end of your commute, and you’re five minutes late, you’re not stopping.”
The Babson franchisees say fast but friendly service is critical, particularly at the drive-thru window. Goldman’s West Orange drive-thru serves 130 to 140 cars an hour during the morning rush. Blum coaches his teams to assume that most customers are late to work. Dunkin’ has less of a “sit-and-stay” mentality than other coffee spots, adds DiPietro, and focuses more on moving people in and out. “Our customers have to get to work, have to get the kids to school, and have to move along with their day,” he says. “Speed of service is imperative in our business.”
Competition comes from all directions. The U.S. doughnut universe includes such contenders as Krispy Kreme, Canadian chain Tim Hortons, and local bakeries. But the competition grows especially fierce around coffee and other beverages, which account for more than 60 percent of Dunkin’s U.S. sales. The competition comes from chains such as Starbucks, quick-service restaurants such as McDonald’s, local coffee shops and high-end “beaneries,” and the so-called “C” stores, or gas and convenience businesses, such as Cumberland Farms. “They’re using coffee and other beverages to drive people into their stores,” Jaspon says. “They’re actually giving the product away for very cheap, which has given us a whole new form of competition to deal with.”
Dunkin’ also competes with the coffee maker at home and at the office, Blum notes. “There are so many choices for customers to get a cup of coffee, so we have to execute at as high a level as possible,” he says. In part, this means delivering coffee just the way the customer likes it. “For every medium black coffee there are 30 people who will order it highly customized, say with one Splenda, three creams, and a pump of caramel swirl,” Blum says. “People are very particular about how they want their coffee.”
Perhaps the biggest challenge for Dunkin’ franchisees is the struggle to find good employees. Given the low national unemployment rate, employers face a severe labor shortage. A declining number of high school students—previously a reliable source of workers—apply as well, exacerbating the problem. “Applications are way, way, way down,” Blum says, “and not everyone’s cut out for customer service. I have more anxiety about staffing than any other issue. My wife will tell you: As we get closer to an opening, I get crankier and more and more anxious.” Each new location typically requires 10 to 30 employees, depending on store size and volume.
In the search for solutions, Blum and his brother have traveled to Washington to lobby on franchisee issues such as immigration reform, with the hope that increasing the number of people coming from other countries can expand the pool of available labor. Goldman notes that a large number of his employees are from Bangladesh. “I have brothers, sisters, uncles all from the same families working for me,” says Goldman, whose franchises experience unusually low staff turnover. Most employers are desperate for reliable help, Blum says. “Talk to people in other industries that support us: the carpet guy, the window guy, the landscaper, the snowplow guy. They’re all in the same boat,” he says. “Everyone’s just scratching their heads and struggling.”
We Are Family
Any time multiple franchise owners get together, staffing difficulties are a frequent conversation topic. “We share each other’s pain,” Blum says, who adds that he and other franchisees typically see one another as allies rather than competitors. Goldman says, “In general, we talk, we share ideas, we help each other out. We are more family than competitors.”
That spirit of cooperation also exists at the corporate level, where partnering with franchisees is built into the organization model. For example, Dunkin’ Brands maintains a formal committee system made up of franchisees elected by their peers. Regional Advisory Committees (RACs) elect representatives to the Brand Advisory Council (BAC), which meets with the corporate team in Canton, Massachusetts, four times a year. The BAC also has subcommittees of franchisees to focus on such areas as marketing, restaurant operations, profitability, and technology. “The meetings are useful, as you get to meet and interact with the brand leadership,” says Blum, currently co-chair of the Midwest RAC and a member of the BAC. “You don’t always get exactly what you want, but you get to share your ideas and opinions in a constructive format.”
Franchisees are central to Dunkin’ Brands, which is 100 percent franchisee-owned, notes CFO Jaspon. Dunkin’ does not run any stores itself, which contributes to a smaller-than-usual corporate structure and allows for corporate-franchisee teamwork. “Franchisees are an integral part of every decision we make,” says Anh-Dao Kefor in integrated marketing.
Corporate guides strategy, develops and rolls out new products and promotions, manages advertising budgets, and handles product nutrition information and regulatory compliance, for example, but it solicits feedback from franchisees along the way. This occurs through the committee system and in more informal ways, too. “I might pick up the phone to franchisees and say, ‘Hey, I want to run something by you,’” Kefor says, asking, for instance, about their initial reaction to a new product concept or promotion.
“People think of us as a very large corporate organization,” Jaspon says, “but it’s really a conglomerate of small business owners.” In addition to working with franchisees, Jaspon oversees the team that handles financial planning and analysis, business analytics, and tax and accounting. Her daily duties include managing interactions with the Securities and Exchange Commission and investors, and she handles the finance side of all business functions. “Every day is different,” she says. “I could be in meetings with franchisees, meetings with our investors, or leading the finance group in the office.”
In Kefor’s daily work, she views franchisees as one of the customers her integrated marketing team serves, in addition to the field teams for marketing and operations, who drive the communication and execution of upcoming programs. Kefor’s first roles with Dunkin’ were marketing positions for Baskin-Robbins, and over the next decade she eventually moved into strategic initiatives and operating systems roles, serving as the bridge between the Baskin-Robbins brand and franchisees. “I would spend my commutes every day on the phone with our franchisees, getting to know them, understanding their stores, basically building trust and credibility,” Kefor says.
At the beginning of 2018, Kefor took on her current role with Dunkin’ Donuts, leading the four-person team that oversees the 12- to 18-month marketing calendar for beverages. Her team develops monthly programs to match the season (say, Girl Scout-inspired flavors during the Scouts’ cookie season), partnering with the advertising, loyalty, public relations, and media teams to develop campaigns. Sharing the story and details of each program with franchisees keeps Kefor and her team on their toes. “We’re not developing a product and taking it straight to the consumer,” she says. “We have the opportunity to collaborate with our franchisee partners first. We want them to be advocates and ambassadors, and that requires a strong business case and due diligence on our end to get them on board. I’ve learned that you have to be proactive about franchisees’ concerns.”
Drawn in by Doughnuts
When Nisha Munshi, MBA’15, meets new people, there’s often a funny moment when they ask what she does for work. “When I explain that I’m a registered dietitian for Dunkin’ Donuts, they often look at me with a slightly confused face,” she says. Munshi earned an undergraduate degree in nutrition sciences and went on to Massachusetts General Hospital to complete a dietetic internship. She completed several clinical rotations in different areas of nutrition and discovered that she liked the broad reach she could have while working for food companies.
When she began at Dunkin’, Munshi spent much of her time in a regulatory compliance role, compiling information about ingredients to create Nutrition Facts labels, as well as ingredient lists and allergen information for each Dunkin’ product. “Over the years my responsibilities have broadened to strategy, and I’m now developing nutrition-related goals and initiatives for the company as a whole,” she says.
Munshi earned her Babson MBA in part to hone her strategy skills. She also conducts trend research to track better-for-you choices at other quick-service restaurants, monitoring such information as the sugar and calorie content of their products. She shares this information with the innovation teams at Dunkin’. The company already offers options such as oatmeal and wraps with egg whites and veggies, developed in response to customer requests. “We’re always going to have those indulgent products, but consumers are becoming more savvy about what’s in their food, where it comes from, and what’s good for them,” Munshi says, adding that customers should watch for additional options coming soon. Dunkin’ Brands also removed all artificial dyes from its doughnuts and has pledged to remove them from the rest of its menu by the end of this year.
As director of strategic partnerships, Justin Unger also is responsible for reaching new customers, which his team does by linking Dunkin’ Donuts with other brands. They led a recent collaboration with Massachusetts-based shoe company Saucony, which created a Dunkin’-themed running shoe for the Boston Marathon. The shoe designers began with an existing Saucony shoe, the Kinvara 9, and tricked it out with Dunkin’ colors, images of coffee beans and a frosted doughnut, and the America Runs on Dunkin’ logo. The limited edition shoe sold out quickly, Unger says, but the benefits of such partnerships linger. “We wouldn’t necessarily be able to talk to runners the way we did, but the partnership with Saucony made our brand top of mind for new audiences,” Unger explains. “And the beauty of the partnership is that it goes both ways. We are a trusted voice for our audience, so it increases reach for both partners.”
Technology innovations also are key to maintaining and attracting customers. When Unger joined Dunkin’ Brands in 2016, he oversaw its DD Perks loyalty program and mobile app, which rewards customers with personalized promotions and offers. Customers also can use the app to place orders and pay in advance of pickup.
Dunkin’ is not alone in these types of innovations. For example, Starbucks offers a similar app. “We’ll continue to see the industry as a whole lean in on loyalty and innovation and technology and to think about how we can use them to enhance the guest experience,” Unger says. Jaspon notes a recent example of originality: “Our newest store in Quincy, Mass., is the first store in the restaurant industry that we’re aware of where you can order ahead of time, skip the drive-thru line, and go to a separate window to pick up your product.”
In the end, though, a friendly “good morning” still goes a long way in building customer loyalty, notes franchisee Goldman, who says 95 percent of the people in his stores are repeat customers. Blum agrees. “We want people to leave a little happier than when they walked in,” he says. “If we succeed, they come back the next day.”
Erin O’Donnell is a writer in Milwaukee.