The chief executive of the new National DCP (NDCP) is not someone who makes promises easily. But, Kevin Bruce is confident of his promise that Dunkin’ Donuts franchise owners will see lower prices between now and end of June—and then again at every six month interval until December 2014.

“We’re confident that through our initiatives that we will reduce prices to our members for the next three years as spelled out in the agreement,” said Bruce, who noted how just saying that was such a “good feeling”.

The savings is but one of the many happy returns for Dunkin’ Donuts franchise owners who voted overwhelmingly to support merging the regional operations of its supply chain into one, truly national entity with one board of directors and one, unified mission.

The DCP was already unique because few, if any, franchised restaurant systems also have a supply chain cooperative that franchisees own and operate. Now, as a result of its 25 year Relationship Agreement with Dunkin’ Brands—a core component of the merger—the NDCP now controls its sourcing as well as its distribution.

“That means we go from being a vendor to being a partner and that is exciting,” said Michael Batista, who became Chairman of the National DCP Board of Directors in January 2012. Being more than just a distribution vendor equates to being partners with the Brand, Batista says. “We are at the table early on to drive the cost of existing and new products. If we were strong before, we are stronger now.”

“The new agreement strengthens and ensures the NDCP exclusive role in the distribution and procurement processes. Now we are the exclusive entity and can leverage that role for the benefit of franchisees,” said John Justo, who served as a member of the National DCP Board and the Northeast Board until the end of 2011.

When Bruce and the regional DCP boards began discussing how to merge operations into one entity, cost savings was a primary incentive. “One of the value elements is having a smaller nimbler board structure such that we can make decisions that allow us to achieve savings, efficiencies and productivity more quickly.”

Bruce says that includes not just taking advantages of the economies of scale that come with merging four operations into one but also leveraging the strength of the co-op to negotiate more competitive prices with vendors. “If it wasn’t a cost savings deal we wouldn’t have done it,” he said.

“The entire initiative will enable franchisees to secure the lowest, sustainable cost of sales possible, with savings coming from many platforms. We’ll have unified control over our operations, and be able to leverage the synergies of a billion dollar-plus supply chain,” said Justo.

“The mission of the DCP is to serve members at the lowest cost,” said Dipak Patel, who was co-Chair of the National DCP Board from 2008-2011 and still serves on the NDCP Board of Directors. “Because of the merger, unit profitability will increase which will enhance franchisee equity.”

“It will increase profitability by streamlining operations at the NDCP,” said Chris Prazeres, who was a member of both the National and Northeast DCP boards through the end of 2011. He says the NDCP’s control over sourcing will be pivotal to delivering members the lowest possible cost which will increase franchisee profitability.

Bruce says the National DCP has two major goals for 2012: reducing food costs and maximizing savings in distribution.

“Every region will benefit from lower pricing and costs savings returned to them through their patronage dividend and lower case prices,” said Bruce. That’s the promise of the new DCP and he’s sticking with it.

Pioneers and visionaries: those were just two of the words used to describe the seven inaugural inductees into the DDIFO Franchisee Hall of Fame. The event, which kicked off the 2011 National Members Meeting at Mohegan Sun, was a rousing success. Over 100 people attended, all of whom stood to applaud the accomplishments and contributions of these men.

“It was tremendous seeing people stand and applaud,” said Adam Goldman, a new franchisee from New Jersey. “Hearing those stories, it’s obvious these guys were successful because they loved the company and loved the product. It felt like family.”

The seven inductees were: John Boujoukos, Antonio Couto, Jose Couto, Ralph Gabellieri, John Henderson, George Mandell and Dunkin’ Donuts founder William Rosenberg.  A family member or representative of each family was greeted on stage by DDIFO Chairman Daniel Connelly and DDIFO President Jim Coen and was presented with a handmade DDIFO Franchisee Hall of Fame glass plaque from Peggy Kerr Glass.

As he came up to receive the plaque for John Henderson, DDIFO General Counsel Carl Lisa delivered a heartfelt speech to the crowd. “I knew all these guys and they were tremendous people who worked hard to get Dunkin’ Donuts off the ground. It is great to honor them tonight.”

The inductees were selected through a nomination process involving franchise owners, members of the DDIFO Board of Directors and the DDIFO Roundtable. All involved agreed this was an important tribute to some of the early franchise owners, the Dunkin’ founder and select members of his early leadership team. DDIFO will continue the Hall of Fame inductions every year as part of the organization’s National Members Meeting program.

“We can never lose sight of the hard work, dedication and investment these early franchise leaders made to build the Dunkin’ brand. It says a lot that today, second and third generation members of the early franchisees’ families are still operating Dunkin’ Donuts stores. It’s such a great story to share,” said Coen.

The seven are (in alphabetical order): John Boujoukos, Antonio I. Couto, Jose  Couto, Ralph Gabellieri, John Henderson, George Mandell and Dunkin’ Donuts founder William Rosenberg. Each will be honored at a gala dinner and Hall of Fame Ceremony Monday September 19th, at Mohegan Sun.

“We are thrilled to have the opportunity to honor these franchise owners and important members of Mr. Rosenberg’s early team at Dunkin’ Donuts,” said Coen. “For over 50 years Dunkin’ Donuts franchise owners have worked hard and long hours, invested their resources, and involved their families in every aspect of the business, while developing a strong and loyal customer base. We believe it’s time for DDIFO to recognize those people whose vision, dedication and leadership have been instrumental in the success of Dunkin’ Donuts and it’s franchise owners.”

The inductees were selected through a nomination process involving franchise owners, members of the DDIFO Board of Directors and the DDIFO Roundtable. Family members of each inductee will receive a handmade glass plaque from Peggy Kerr Glass.

The National Members Meeting is organized around the theme of, “Investing in Our Future.” Kicking off at 10am, it will feature guest speakers and breakout sessions on such issues as government relations, tax laws, operations and investment. There will also be an exhibit hall with over 40 sponsor exhibits.

If you are planning to attend and haven’t registered please do so today. Register Here.

As Dunkin’ Donuts was thrust into the spotlight during its recent IPO, the company’s strong history of franchising was also put center stage. As it looks toward further expansion, Dunkin’ Brands is again relying on its roster of experienced, hard working and well-capitalized franchise owners to carry the ball.

In light of Dunkin’s dynamic history of franchising, DDIFO is establishing a Franchise Owners Hall of Fame to recognize those individuals who have contributed to the success of Dunkin’ Donuts. “These individuals have gone above and beyond to help build Dunkin’ Donuts into the esteemed brand it is today,” said Jim Coen, president of DDIFO.

Coen is reaching out to DDIFO members to nominate individuals for induction into the Hall of Fame and will also ask DDIFO’s Board of Directors and Roundtable to nominate franchisees of distinction. The top 5 vote-getters will be honored as inaugural members of the DDIFO Franchise Owners Hall of Fame at the DDIFO National Members Conference Gala Dinner at Mohegan Sun, September 19, 2011. The event starts 6:00 pm. Inductees will receive a handmade glass plaque from Peggy Kerr Glass; winners will be informed of the honor prior to the presentation.

“For over 50 years Dunkin’ Donuts Franchise owners have worked hard and long hours, invested their resources, and involved their families in every aspect of the business, while developing a strong and loyal customer base,” said Coen. “We believe it’s time for DDIFO to recognize those people whose vision, dedication and leadership have been instrumental in the success of Dunkin’ Donuts.”

Nominate a deserving person by clicking here

Nominations may be submitted up until September 2, 2011. The ballots will be sent out September 6 and tallied on September 9.

The agreement was negotiated by a team of franchisees: Jim Cain, Bill Daly, Mark Dubinsky, John Motta, Rod Valencia and Ed Wolak. They were known as the G-6 and represented, in equal parts, the Brand Advisory Council (BAC), the Enterprise Advisory Council (EAC) —representing TOGO’s and Baskin’ Robbins—and DDIFO.

According to John Motta, a G-6 member and the BAC co-chair at the time, there was little doubt the letter would resurface one day. Back in 2005, Dunkin’ Brands was sold to a trio of private equity firms whose terms negated the opportunity for a public stock sale.

“I put my copy of the letter in a safe place, because I always thought that the private equity companies would spin us off and there would be IPO,” said Motta. “Some people thought it was a dead deal, but I always felt they would honor it.”

Motta says Luther initiated the original concept of the G-6 and worked with representatives of the new ownership team to approve the pre-IPO sale. Other terms requested by the G-6, including the inclusion of a franchisee on the Board of Directors, were discussed but ultimately rejected by Dunkin’ Brands.

“Because of the make-up of the G-6, we were truly independent of all entities and that gave us the ability to have productive dialogue with Luther and [former Dunkin’ Donuts President Will] Kussell,” Motta said.

In the weeks and months leading up to the agreement, G-6 members took two trips to New York to interview with potential buyers. Before those fact-finding missions, the group engaged Riparian Partners, a Rhode Island merger and acquisition advisory firm, to study the pending sale. “That helped us be sure we asked the right questions and were on the right course,” Motta said.

Former franchise owner and G-6 member Mark Dubinsky remembers DDIFO playing an important role behind the scenes ensuring the franchisee community’s concerns were addressed. Those concerns included distribution in new channels and opportunities to invest in new markets.

“The G-6 worked diligently to extract the maximum benefit for the franchisees during what many franchisees perceived as a potentially perilous transition period. While I remain proud of our efforts, I—for one—was not completely satisfied with our results.”

In a statement to DDIFO, Luther, who is now non-executive Chairman of the Board of Dunkin’ Brands said, “The Dunkin’ Donuts and Baskin-Robbins brands were built one franchisee at a time, and hence the company felt it was important to offer this program.  We were very pleased with the participation from our corporate employees and the franchise community, and we look forward to writing the next history of our chapter together.”

Since its blockbuster opening where it jumped more than 50 percent over its $19 per share initial price at one point, Dunkin’ Donuts stock—traded under the symbol DNKN—has traded at around $25 per share.

According to Lynn Cowan, a reporter for the Wall St. Journal, “Analysts caution that the company’s debt level is high and its valuation is steep compared with other quick-service chains that court a breakfast crowd. Dunkin’ Brands is entirely franchised, so those mom-and-pop shop owners are responsible for most of the costs to launch and maintain doughnut and ice cream shops. The result is higher operating margins and a richer stock valuation compared to company-owned store model favored by Starbucks.”

According to an unscientific survey of DDIFO members, 62 percent said they were planning to purchase DNKN stock at the IPO. A subsequent survey finds that 30 percent have since sold their shares.

Just weeks after the IPO, Dunkin’ Brands began its process of reporting quarterly earnings to its shareholders. For the second quarter, Dunkin’ reported a profit of $17.2 million, down from $17.3 million a year earlier. Revenue rose 4.4% to $157 million, and its operating margin widened to 39.3% from 38.4% though operating expenses were slightly higher.

Even as analysts spin the earnings reports and Dunkin’ Brands’ leadership charts its expansion course across America, Motta believes franchisees will continue their focus on day to day operations and the strengths that have built Dunkin’.

“Franchisees are still going to be focused on customer service and unit profitability,” he said.

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Josh Kosman’s new book is called “The Buyout of America: How Private Equity Is Destroying Jobs and Killing the Economy.” As a business reporter specializing in private equity, mergers and acquisitions for the New York Post, Kosman has specific insight into how private equity firms buy and sell companies and what happens to those companies as a result.

Kosman has written extensively on Dunkin’ Donuts and the recent IPO and will be a featured speaker at the upcoming DDIFO National Members Meeting on September 20, 2011 at Mohegan Sun.

“There is a risk when a company like Dunkin’ is owned by private equity firms that the owners won’t reinvest their profits back into the brand,” said Kosman. “There is pressure for growth not just to satisfy the private equity owners but also for the shareholders. Private equity companies care about how the stocks in their portfolio perform because it tells them what real value of their investment is. If they sell too many shares the value goes down. It creates artificial demand, and in the case of Dunkin’ Donuts, it worked.”

Dunkin’ Brands has made it clear that their strategy for growth is expanding into territories beyond the traditional development triangle that runs from New England to Chicago to Florida. Kosman points out they’ve tried to expand for years but now there’s added incentive because every move is being watched by analysts and investors.

“If I was a Dunkin’ franchise owner I would be concerned about how Dunkin’ Brands will attain the growth necessary for a publicly traded company to demonstrate value to shareholders,” said Kosman. “Will it mean that K-Cups will be sold through other channels? I don’t know but if I were a franchisee, I would wonder.”

Kosman believes private equity firms make fortunes by starving the businesses they own. He cites Domino’s Pizza and Burger King as examples. In the case of Domino’s which Bain Capital, one of the trio of firms that still controls 78 percent of Dunkin’ Brands,  bought in 1998 Kosman says, Bain—after introducing 30-minute delivery—sat back and collected its profits and did not improve the product while the company lost market share. Five years after going public, in 2009, the company set about reinventing itself with a new recipe and a focus on ingredients—not just its 30-minute delivery guarantee.

In the case of Dunkin’ Donuts, Kosman says, the private equity groups timed their IPO pretty well. “When Dunkin’ went public other specialty retailers like Francesca’s Holdings, a women’s boutique, had already popped 63% on their first day of trading which showed that specialty retailers are a flavor of the day for investors.”

In his upcoming talk at the DDIFO National Members Meeting, Kosman says he plans on discussing private equity’s track record in restaurant companies and what is to be learned from examples like Domino’s and Burger King. He says he wants franchisees to better understand exactly what they’re dealing with now that Dunkin’ has become a publicly traded company with the private equity trio maintaining majority ownership. At the time Bain, Carlyle and Thomas H. Lee purchased Dunkin’ they paid approximately 13.5 times EBIDA and was criticized for the price of the purchase but, Kosman points out, today it’s trading above that multiple.

He also will address future competition for Dunkin’ as the company looks to expand its number of stores. Specifically, he says, Tim Horton’s the Canadian-based coffee and donut chain is lining up as a direct competitor—along with McDonald’s and Starbuck’s—with its aggressive growth plans and lower debt to earnings ratio.

Kosman says it is clear Dunkin’ Donuts franchisees have demonstrated how to use their power as an influential stakeholder. He points to the firing of Steve Horn as one example of how franchisees used their collective strength to exert pressure on the company at a time when negative media reports of excessive litigation roiled the company’s leadership.

When DDIFO members gather at Mohegan Sun for the annual DDIFO National Members Meeting on September 19^th & 20^th, Dunkin’ Brands will be into its first quarter as a publicly traded company. The pressures of reporting quarterly earnings to Wall Street is likely to impact franchise owners who are already dealing with high commodity costs and price-point competition from McDonald’s.

The theme for the national members meeting is “Investing in our future.” Kicking off on Monday September 19th at 12pm with the DDIFO Board of Directors
meeting which will be open to all DDIFO Members. That evening there will be a Gala Dinner and awards ceremony starting at 6:00 pm with all attendees and sponsors. The conference will continue on Tuesday September 20th and will feature guest speakers and breakout sessions on such issues as government relations, tax laws and marketing. There will also be an exhibit hall with sponsor exhibits.

According to DDIFO President Jim Coen, “The theme captures a unique historical perspective on what Dunkin’ Donuts franchise owners and shareholders of DNKN have invested in the success of Dunkin’ Donuts.”

The Dunkin’ IPO has been an undercurrent in the lives of franchisees for some time. Many franchise owners have expressed their concern over how the pressure to accommodate stockholders’ profit expectations will impact their day to day business.

As Josh Kosman wrote in the New York Post recently, “Indeed, Dunkin’ is relying on its franchisees—who own and run nearly all the stores—to expand its footprint with limited capital investment from the parent. Almost all the 206 net expansions in the US last year came from existing franchisees opening new locations.”

While the IPO will be a major topic of the national members meeting, Coen says franchise owners want to discuss a broad range of issues related to their business, their investment and their future.

To register for the DDIFO National Members Meeting Click Here!

For Sponsor information please contact Joan.Gould@ddifo.org or at 508-422-1161.

On June 29, 2011 members of the Committee on Community Development and Small Businesses— representing the Massachusetts State Senate and House of Representatives—heard testimony on a bill sponsored by Senator Brian Joyce (D-Milton) to amend the General Laws of the Commonwealth to benefit franchisees.

The bill, SB 1843, would “level the playing field” for small business people who enter into a franchise agreement with a franchisor, according to DDIFO President Jim Coen, who was one of several interested parties offering testimony at the hearing.

There are over 15,000 franchise businesses in Massachusetts whose total economic output to the state is greater than $49 billion, according to the International Franchise Association. Franchise owners invest hundreds of millions in local communities—creating jobs, paying property and payroll taxes and supporting local Little Leagues and other organizations.

“As franchising has flourished over the last 50 years, franchise agreements between franchisees and franchisors have become more and more one sided to the benefit of the franchisor,” said Coen. “Franchising suffers when franchisors abuse the power granted them in their franchise agreements and wipe out the equity that’s been built and the personal money that’s been invested because they want to take your franchise and sell it to someone else—someone with deeper pockets who can pay higher fees,” he testified.

Franchise attorney Eric Karp, partner in the Boston law firm Karp Warner & Ryan, told the committee, “Franchise agreements are generally presented to franchisees on a take or leave it basis, with negotiations usually ruled out.  These agreements are heavily one-sided in favor or the franchisor, usually an out of state company. This is result of the overwhelming imbalance of legal and financial resources between the franchisor and the franchisees.”

SB 1843 includes language that would balance the terms. It says, “The franchisor is obligated to act in good faith and shall not refuse to renew a franchise for arbitrary or capricious reasons. For the purposes of non-renewal, good cause shall mean cause based upon legitimate business reason, and includes the franchisees failure to comply with any material lawful requirement contained in the franchise agreement.”

Stan Furash was operating two Dunkin’ Donuts franchises in Bradenton, Florida when, in 2009, Dunkin’ terminated his franchise agreement.  “Dunkin Brands terminated us because they claimed my wife abandoned the business, which to me was a farce because the shops were doing better than ever before, and there was no mention of abandonment in the franchise agreement, besides there are many successful franchisees that operate in multi states. Our situation was better than that because I was paying attention to these two shops every day.”

Furash says while he ran the two stores he increased annual revenue from $1.5 million to $2 million and couldn’t understand why he was being targeted. He fought the termination, draining his savings to pay the associated legal fees. In the end he lost because he says, “The deck was stacked against me, and they held all the cards.”

Furash was ultimately forced to shut the doors and turn off the lights. “Our bank foreclosed as we could no longer pay the bills.  Forty good people were put out of work. My financial situation is a disaster. At 57 years old I am forced to start over. We have little or no ability to pay for our children’s college and have to start saving for retirement at a very late age. It still doesn’t make sense to me.”

For long-time franchise owners, renewing their franchise agreement can be an eye-opening experience. Attorney Carl Lisa, founding partner of the Providence firm Lisa & Sousa, LTD. has worked with Dunkin’ Donuts franchisees for over 40 years. He told the committee that franchise agreements have changed dramatically and rewrites typically lessen franchisee rights.

Lisa cited several changes to the franchisee/franchisor relationship he has witnessed during his career including: requirements for additional capital investments with little contribution from franchisors; expanding default clauses that allow for only one strike before the franchisee is out; and encroachment.

Senator Joyce’s bill specifically seeks to limit encroachment on an existing franchisee’s business. The bill says, “A franchisor that develops a new outlet or location which has an adverse impact on the gross sales of an existing franchisee’s outlet or location shall be liable to the affected franchisee for monetary damages,” unless the franchisor first offers the new outlet or location to the existing franchisee; or if at the time the new outlet or location is developed, the existing franchisee is not in compliance with the franchisors current reasonable criteria for new franchisees.

Franchise attorney Robert Zarco, founding partner with Zarco, Einhorn, Salkowski & Brito, P.A. in Miami, says encroachment is pervasive in franchising and franchisees are often unable to protect themselves from cannibalization because of their competing interests. Franchisees are focused on bottom line profitability while franchisors focus on the top line since they that derive revenue as a percentage of gross sales.

“This bill levels the playing field by requiring franchisors to think long and hard and conduct accurate impact studies as they would now be liable to compensate the existing franchisee for the adverse impact caused by lost sales, unless the franchisor satisfies certain conditions and exceptions under the statute,” he said.

According to attorney Karp, existing franchise agreements have removed “long established constitutional, statutory and rules-based rights” for franchisees seeking to resolve disputes with their franchisors. While Senator Joyce’s bill does not directly address whether franchisees can file class actions or expect trials by jury—issues highlighted in Karp’s testimony—the bill does allow franchisees to recoup legal expenses if they win a judgment. Current franchise agreements require franchisees to pay the franchisor’s legal fees even if they win their case.

Lisa cited the 2008 Rhode Island Fair Dealing Law as an example of franchise legislation that has balanced the legal rights of franchisors and franchisees. He also reminded lawmakers that as that bill was being considered, opponents predicted a drop in franchise business and job cuts. Those predictions proved untrue as they also did in Wisconsin, Iowa and other states that passed fair franchising legislation. In fact, Dunkin’ Donuts is presently advertising to find potential franchise owners for new developments in Wisconsin and Iowa.

The joint committee is reviewing SB 1843.

When franchisee association leaders gathered in Washington last month for the 2011 CFA Day Forum, they were witness to an important piece of franchising history. For months leading up to the June 22 meeting, members of the Fair Franchising subcommittee worked to draft a groundbreaking document, the Universal Franchisee Bill of Rights. Before a conference room of approximately 100 people, the document was read publicly for the first time—by none other than Benjamin Franklin.

The actor depicting the 18^th century patriot read each of the Bill’s 12 sections covering such essential points as: Freedom of Association; Good Faith & Fair Dealing; and Fairness in Dispute Resolution.

The document’s preamble reads, “The Universal Franchisee Bill of Rights is a fairness doctrine. It has been developed by franchisees in multiple systems and industries to identify the basic terms of fairness that are missing in their franchise agreements and must be restored to ensure the success and growth of franchise systems.”

CK Patel, a member of the Asian American Hotel Owners Association (AAHOA) and co-Chairman of the CFA Fair Franchising subcommittee, says the Bill of Rights is an important step forward for franchisees to be able to receive an adequate return on the hard work and hard-earned capital they invest in their businesses.

“This Universal Franchisee Bill of Rights is all about fairness in franchising. It has been developed by franchisees in multiple systems and industries to identify the basic terms of fairness that are missing in their franchise agreements and must be restored to ensure the success and growth of the franchise systems,” said Patel.

DDIFO President and co-Chairman of the CFA Fair Franchising subcommittee Jim Coen says he and his colleagues wanted to be sure the Bill of Rights was written by franchisees to identify in plain terms the imbalance in franchise agreement. “These onerous franchise agreements must be rebalanced to ensure the future success of franchising,” he said.

Speakers at this year’s CFA Day Forum included Eric Karp, a Boston franchise attorney. His presentation on the role a franchisee association can play when there is a pending franchisor sale or change of ownership centered on taking the proper steps to position the franchisee association as a stakeholder before the sale occurs. Stakeholders, Karp said, are representative, cohesive, proactive, visible, assertive, resource and responsible.

Attorney Robert Zarco detailed examples of how franchise agreements fail to protect franchisees against such issues as encroachment. It’s “pervasive” in franchising because, “Expansion in a franchise system is how franchisors generate new revenue and that expansion often encroaches on existing franchisees.” Zarco said, “There is an internal conflict of interest and interdependency in the franchisor/franchisee relationship.”

Zarco joined franchisees for their visit to Capitol Hill on the second day of the forum, telling staff members for Massachusetts Senators John Kerry and Scott Brown that franchise agreements are inherently unfair and that franchisees are “seduced and induced” to sign agreements without fully understanding the gaping inequities in the contracts.

While not a legislative document, the Universal Franchisee Bill of Rights seeks to address those inequities. Franchisees shared the document with members of Congress they visited during the CFA Day Forum.

“It was a great leave-behind,” said Coen. “The issues highlighted in the bill of rights absolutely resonated with the staffers we met on Capitol Hill.”

To date, the CFA and seven franchisee associations:  AAHOA, DDIFO, Independent Hardees Franchisee Association, Independent Organization of Little Caesars Franchisees, Meineke Dealers Association, National Franchisee Association (Burger King) and the North American Association of Subway Franchisees have ratified the Bill of Rights.

The entire Universal Franchisee Bill of Rights is available to read and endorse at www.franchiseebillofrights.org. At the site franchisees, franchisors and others can click to endorse the document and make comments. Coen says the collaborative effort of the various independent franchisee associations that contributed to the creation of the document speaks to its inherent strength.

As Benjamin Franklin at the time of the signing of the Declaration of Independence in 1776, “Yes, we must, indeed, all hang together, or most assuredly we shall all hang separately.”

Endorse the Universal Franchisee Bill of Rights