Coffee Prices Bite Businesses, Public

Lisa van der Pool reports in the Boston Business Journal that he price of coffee is continuing to rise. Wholesale coffee prices are the highest they’ve been in 13 years.

Futures contracts for December 2010 delivery have risen each of the last few days and a fungus in Colombia is threatening to hit the country’s coffee output, according to a Bloomberg News reports.

Leaving managers of many Boston-area coffee shops to ponder whether to pass on those costs to customers.

The J.M. Smucker Co., which licenses Dunkin’ Donuts coffee for sale in retail stores, has already announced it will raise prices by four percent.

But whether local Dunkin’ Donuts shops hike coffee prices is up the each franchisee, according to the Canton donut and coffee chain.

“Dunkin’ Donuts restaurants are independently owned and operated by franchisees who are responsible for making their own pricing decisions.

“While we are aware of J.M. Smucker Company’s recent price increase for grocery store coffee, it will not impact the cost of coffee in our restaurants. Dunkin’ Donuts licensing agreement with J.M. Smucker Company extends only to coffee sold in retail environments like grocery stores, mass merchandisers, club stores, and drug stores throughout the United States,” Michelle King, director, Global Public Relations at Dunkin’ Brands, Inc. in Canton, Mass., said in a prepared statement.

Starbucks Corp. has announced it will not raise prices. Starbucks last raised its prices in January of this year.

Smaller coffee shops are reacting more quickly.

Boston-based FlatBlack coffee house, which has three retail stores in the city, is raising prices about 5 percent this week. A regular latte at the gourmet shop costs $3, up from $2.85.

“We have no choice but to raise our prices, said Jeff Chatlos, co-founder and vice president of FlatBlack coffee shop.

Josh Gerber says he has worked hard to not raise prices at the two locations of 1369 Coffee House in Cambridge that he runs, but he says if coffee prices continue to spike, a price increase is on the horizon for his customers.

Overall, Gerber’s coffee prices have gone up between 5-15 percent over the past year.

“It’s a lot when it¹s your primary product. It’s unfortunate, because I know people are cutting back on their budgets and we¹re working hard to make that morning coffee fix possible,” said Gerber, co-owner of 1369.

William Trull, a roaster for Red Barn Coffee Inc. in Milford, watches coffee prices on his notebook computer as he’s roasting beans. He said Red Barn hasn’t raised its prices yet, but that may change. He expects coffee prices to settle down again, but not until October or November.

Boston Business Journal

Burger King in Advanced Sale Talks

(Reuters) – Burger King Holdings Inc (BKC.N) is in advanced talks to sell itself to investment firm 3G Capital, the New York Times reported on Wednesday, boosting shares more than 16 percent .

3G could not immediately be reached and a Burger King spokesman declined comment.

The second-biggest U.S. hamburger chain has underperformed rivals like McDonald’s Corp (MCD.N) as its key customer base of young men has been hit harder by unemployment in the past two years.

That group has suffered massive job losses in industries like construction and manufacturing.

The company, which has a market capitalization of about $2.3 billion, debuted as a public company in May 2006 with an initial share price of $17.

Shares were up 15 percent to $18.92 in midday trading.

Famed for its flame-broiled Whopper, Burger King had previously been owned by private equity firms, which still hold a stake in the company. TPG, Bain Capital and Goldman Sachs purchased Burger King from British beverage company Diageo (DGE.L) in 2002 for about $1.5 billion.

One of the potential suitors, British private equity firm 3i Group Plc (III.L), distanced itself from a possible deal.

“We can confirm that we are not in discussions with Burger King,” a spokeswoman for 3i said.

Burger King last week forecast weak demand during its new fiscal year due to the U.S. economy’s slow pace of recovery and government austerity programs in several European countries. The company said it was unsure how costs for key ingredients like beef would impact the company.

Its shares hit a low of $16.30 in mid-August, but surged to $19.50 in premarket trading on Wednesday.

Private equity firms have become increasingly active and last month was the busiest August since 1999 in terms of the value of merger and acquisition deals struck.

In August, Blackstone Group struck a deal to buy power company Dynegy Inc for $543 million, or $4.7 billion including debt.

Nigel Travis Talks Dunkin’s Strategy

In QSR Magazine’s September issue cover story, Carolyn Walkup writes: the midst of the worst recession in decades may seem like a tough time to take the reins of a restaurant company that sells discretionary treats not needed in the everyday diet. However, Nigel Travis, whom Dunkin’ Brands hired to head its Dunkin’ Donuts and Baskin-Robbins brands in January 2009, quickly showed he was up to the task.

Fresh from a four-year record of achieving excellent results at Papa John’s, Travis set out to do the same at the privately held, 60-year-old treats company. Dunkin’ Brands’ board of directors chose Travis to succeed CEO and industry veteran Jon Luther. Luther, who joined Dunkin’ Brands in 2003, remains as executive chairman of the board and worked with the board to develop an orderly succession plan.

In announcing Travis’ appointment, Luther singled out his accomplishments in several companies he headed of building strong franchisee networks, improving sales, and furthering global growth.

In spite of the economic downturn, Dunkin’ Donuts opened 350 new stores worldwide in 2009, with 250 of those in the U.S. When counting sister Dunkin’ Brands treats concept Baskin-Robbins, franchisees opened 550 stores last year. Dunkin’ Donuts units alone number nearly 6,400 in the U.S. and 2,700 overseas.

“We think this trend will continue and get better,” says Travis, who predicts that Dunkin’ Donuts brand openings this year will exceed last year’s to total 500 newcomers worldwide.

“The recession caused some difficulties,” he says. “High unemployment had a negative impact. The biggest impact has been the lending environment and getting new people to come in.”

He’s optimistic, though, about recent talks with banks, and has found some that “seem very positive about our brand.”

“The recession is just a problem you have to attack with vigor,” he says. “We are focused on the top line and are reducing costs of operating and construction. Our franchisees worked with their store economics.”

The brand does seem to be faring well, according to restaurant consultant Aaron Allen, founder and chief executive of Aaron Allen Restaurant Consultants, who credits Dunkin’ with doing a good job of keeping costs in line.

Dunkin’s policy of allowing franchise agreements with no minimum number of store openings required, along with its flexible unit designs utilizing smaller footprints, encouraged franchise development in these challenging times. Design choices include kiosks, gas stations, in-line units, and end caps, as well as free-standing stores.

Read more: QSR Magazine

Dunkin’ Sees Benefit from Lowering Threshold for Franchisees

Jon Chesto reports in the The Patriot Ledger that a dramatic change in Dunkin’ Donuts’ franchising policy to make it easier for new franchisees to open a Dunkin’ shop has helped fuel the chain’s growth during the first half of this year.

Canton-based Dunkin’ Donuts reported on Wednesday that it enjoyed a net increase of 338 new locations worldwide in the first six months of 2010, including 75 new stores in the United States. The company currently boasts of more than 9,000 locations worldwide.

The chain, run by Dunkin’ Brands Inc., changed its policy to allow new franchisees to sign a development agreement for as few as one to three locations. Previously, Dunkin’ had required first-time franchisees to sign development agreements for at least five locations.

Grant Benson, vice president of franchising and market planning at Dunkin’ Brands, said the company made the change about a year ago, partly to help new Dunkin’ franchisees land the financing they need. Benson said the change certainly helped continue to propel the chain’s expansion through the headwinds of an economic downturn.

“We have provided franchisee candidates more flexibility by allowing smaller development commitments,” Benson said. “In some cases, it could be as few as one, (but) we would like to be able to see at least two or three.”

Benson said much of the recent U.S. growth took place in the Southeast and in the Midwest, while overseas growth was strong in Korea and China.

Benson attributed the flexibility of the Dunkin’ Donuts model – shops can be opened in hospitals, train depots or gas stations – as a key element of its success. “That flexibility doesn’t exist with a lot of other concepts,” Benson said.

Jim Coen, president of the Dunkin’ Donuts Independent Franchise Owners association, said this is the first time he’s seen Dunkin’ Donuts allow development agreements for one-location franchises since he’s been involved with the chain. However, Coen said he expects most franchisees will continue to pursue multiple locations.

“The average franchisee nationwide owns at least six shops,” Coen said. “There’s an economy of scale, a point where you reach critical mass, that you really need.”

The company didn’t provide comparable growth numbers for the same six-month period in 2009. Benson said there were 171 net new locations in the U.S. in all of 2009, and 351 net new locations worldwide.

“It speaks to the staying power of the brand and the profitability of the brand,” Benson said. “It’s not a fad. It’s here to stay and built to ride out some of the turbulent times.”

The Patriot Ledger

National Members Meeting to Celebrate DDIFO Growth and Unity

Over the past year, DDIFO has enjoyed tremendous growth. With the inclusion of the Midwest Dunkin’ Donuts Franchise Association (MWDDFA) and the Independent Association of Franchise Owners (IAFO), an association of Dunkin’ franchise owners from the Mid-Atlantic market, DDIFO now represents over 2400 shops in the U.S.  According to DDIFO President Jim Coen, this will be one of the themes celebrated at the upcoming National Members Meeting on September 21, 2010 in the Cabaret Theatre at Mohegan Sun in Uncasville, Connecticut.

But it’s also more than that. “We are designing the meeting around the concept that DDIFO is ‘United Now…More Than Ever’ because we all know that with greater numbers and greater unity comes greater strength for the organization,” said Coen.

 “The DDIFO National Members Meeting is the showcase event for our association,” said Kevin McCarthy, DDIFO Chairman. “With the robust growth of DDIFO we can now say we are closer to national representation. We are expecting good turnout from members throughout the Dunkin’ Brands development triangle of New England to Illinois to Florida. The meeting will provide members with interesting and relevant information plus the opportunity to network and share stories from the front lines.”

Mohegan Sun is situated on 240 acres along the banks of the Thames River in the scenic foothills of southeastern Connecticut. Coen says DDIFO chose this site for the National Members Meeting because the venue offers wonderful amenities at a reasonable price. Plus it is within driving distance for members located along the east coast. Mohegan Sun is 225 miles from Philadelphia, 125 miles from Midtown Manhattan and 105 miles from Boston.

The event will be punctuated by a top-notch list of speakers featuring:

U.S. Senator Scott Brown (R) MA. Senator Brown was elected by the people of Massachusetts on January 19, 2010 to fill the term of the late Senator Ted Kennedy. He serves on the Senate Committee on Armed Services, the Committee on Veterans’ Affairs, and the Homeland Security and Governmental Affairs Committee.  Prior to his election to the U.S. Senate, Brown served in the Massachusetts State Senate.  Senator Brown is a 30-year member of the Massachusetts Army National Guard and currently holds the rank of Lieutenant Colonel in the Judge Advocate General (JAG) Corps. Brown was awarded the Army Commendation Medal for meritorious service in homeland security following the terrorist attacks of September 11, 2001.  Scott’s first job as a teenager was at a Dunkin’ Donuts in Wakefield, MA, he particularly remembers cleaning out the grease trap.

Scott Carter, principal of Supply Chain Associates, Norcross, Georgia. Carter has over 20 years of management, finance, operations and consulting experience.  He has worked in executive positions in industry and consulting and has successfully built two global business strategy and operations consulting firms, UPS Consulting and Supply Chain Associates, LLC (SCA).  He is a member of the board of directors for two quick service restaurant co-operatives representing over 13,000 North American store locations. Carter served as interim CEO for the National DCP and now serves as a strategic advisor.  

Eric Karp, Esq. Karp is a partner at the Boston law firm Witmer, Karp, Warner & Ryan LLP. He serves as counsel to numerous franchisee associations in such chains as McDonald’s, Choice Hotels, Dunkin Donuts, Popeye’s Chicken, Cartridge World, TCBY Yogurt, Portable On Demand Storage, Fitness Together, Resort Maps, and Massage Envy. In that capacity, he provides a broad range of advice and guidance to the leadership of the associations on matters including the franchise disclosure documents, franchise agreements and issues that affect the relationship between the franchisee community and the franchisor as well as vendors and suppliers to the system. He has represented franchisees throughout the country in a myriad of franchise issues including sales, purchases, relocations, remodels, transfers, defaults and terminations and lease issues. 

Perry Ludy, Carolina Restaurant Partners LLC, a Dunkin’ Donuts franchise operator in Myrtle Beach and Florence, South Carolina.  Aside from operating a network of Dunkin’ stores, Ludy is the author of several business books including Profit Building: Cutting Costs without Cutting People, an award-winning management book that is translated into several languages and sold worldwide. Ludy is also a contributing writer to DDIFO’s Independent Joe magazine. His column, “Profit Building” includes many of the topics included in his books. Ludy

Dennis Gramm, FNC Restaurants, a two store franchisee in Northwest Suburban Chicago. He has been part of the Dunkin’ Donuts and Baskin Robbins businesses for 14 years. He began his Dunkin’ Donuts career in May 1996 as a General Manager of Operations in Boston. He experienced quickly the strength of the Dunkin’ Donuts Brand and the importance of franchisee involvement in the independent franchise association, committees and Brand advisory councils.

Dennis has been a franchisee since June of 2007 and a member of the Mid-West Dunkin’ Donuts Franchisee Association and the DDIFO. Prior to becoming a franchisee he held several leadership roles in ADQSR and Dunkin Brands as a Senior Market Executive, Regional Vice President and Vice President of Operations Baskin Robbins USA. In addition to his Dunkin Brands resume Dennis has held executive leadership positions at KFC, Pepsico and Market Day Corporation.  

In addition, the meeting will feature discussions with members of the Brand Advisory Council Panel and the DDIFO Board of Directors. DDIFO Communications Director Matt Ellis will serve as emcee for the meeting.

DDIFO Members Can Register Here

Sponsor support has been significant, booth space has been sold out. Sponsors for the DDIFO National Members Meeting include:

Access to Money;  Adrian Gaspar, CPA; Bederson & Company CPAs; Belshaw Adamatic Bakery Group; Comcast Business Services; Direct Capital Franchise Group; DTT Surveillance; Glacial Energy; HME; HS Brands; IKMS Group; iTech Digital; Jarrett Services; Jim Ventriglia, CPA; New England Repair Service; Paris, Ackerman & Schmierer, LLP; Paris-Kirwan Insurance; Payless Shoe Source; PepsiCo; Performance Business Solutions; RF Technologies, Royston LLC; Secure Energy Solutions; Skal East; Sprint; Starkweather & Shepley Insurance; SureShot Dispensing Systems; The Franchise Pros

DDIFO Members Can Register Here

Subway Says Breakfast a Success

Four months after debuting its breakfast menu, expansion plans are set

Elissa Elan reports in Nation’s Restaurant News that after serving breakfast for four months, Subway said the daypart has increased sales systemwide and exceeded expectations, leading the sandwich chain to expand the early-morning menu with limited-time offers and explore the service of more coffee or espresso-based beverages.

In an interview with Nation’s Restaurant News, Larry Varvella, Subway’s research and development project leader, said the chain’s foray into breakfast — a daypart filled with heavyweights McDonald’s and Dunkin’ Donuts — was a success for the brand and its franchisees.

“We’re very excited that our initial results show it is outperforming even our original expectations,” Varvella said. “Those original expectations were based on our franchise owners breaking even at the least. Of course we fully realized that to be a major player [at breakfast] we needed a long-term commitment. We figured that would be a three-to-six-month period. The last thing we wanted was for our owners not to be profitable.”

The Milford, Conn.-based quick-serve sandwich chain introduced its breakfast program April 5 to more than 25,000 Subway restaurants across North America. The menu features egg and cheese sandwiches served on whole-wheat English muffins, flatbreads or Subway’s traditional 6-inch and foot-long hoagie breads at a prices ranging between $1.75 and $2.25 for the English muffin melts, $2 to $3.50 for the 6-inch hoagies or flatbread sandwiches, and $4 to $6 for the foot-long variety.

The chain entered breakfast as more research highlighted the daypart’s growth potential and popularity with consumers. According to a study conducted by market research firm Mintel Research earlier this year, the breakfast foodservice market is expected to grow 13 percent through 2014. In addition, two of the fastest-growing menu items at quick-serve restaurant chains are specialty coffees and breakfast sandwiches, according to NPD Group, a marketing research firm based in Chicago.

More sandwiches are on the way, Varvella said, although he would not disclose what was in test or when new items would debut.

“We are definitely looking at introducing new items through limited time offers,” he said. “We fully believe that new products are one of the life-bloods of a restaurant chain. We want to keep [the program] new and exciting, and have a lot of items in the pipeline.”

He added that Subway also is exploring the possibility of expanding its beverage line to include espresso-based and flavored coffee drinks.

“Coffee has been a very strong part of our program,” Varvella said. “We’re looking at expanding with Seattle’s Best above and beyond standard drip coffee.”

Though Varvella would not disclose sales for the breakfast program, he indicated there are several barometers that have determined its success, including the acceptance by Subway franchisees.

“The franchisees are happy and the customers are buying the product,” he said. “In the past the menu mix was higher in non-breakfast items, but now we’re seeing equal amounts [in sales] of about 50 percent breakfast and non-breakfast, which, again, is ahead of projections.”

Varvella noted that the two best-selling breakfast items include the egg white western melt and the double bacon and cheese omelet. Latest promotions have highlighted the steak, egg and cheese sandwiches.

Read more at: Nation’s Restaurant News

Folgers Supermarket Sales Tops all Others

Number of the day 3 to 1

The San Francisco Chronicle reports that according to Bloomberg Business that’s how much of a lead Folgers still has on Starbucks when it comes to sales in supermarkets and other mass retailers. While coffeehouses and flavored lattes have fueled the gourmet trend, stalwarts including Folgers and Maxwell House still dominate in the kitchen, according to research firm SymphonyIRI Group. The bad news? As the world emerges from recession, the number of people making coffee at home is likely to fall, analysts say.

Read more: San Francisco Chronicle

Coffee Supplier to Increase Prices by 9%

Greg Farrell in New York and Javier Blas in London report for the Financial Times that the company behind some of the most popular coffee brands in the US on Tuesday became the first to raise its retail prices after wholesale costs hit a 12-year high.

JM Smucker, which distributes the Dunkin’ Donuts, Millstone and Folgers coffee brands to US retailers, said the 9 per cent price increase would be effective immediately.

Kraft, which markets Maxwell House coffee, declined to comment.

Coffee prices hit a 12-year high on Monday of more than 180 cents per pound on the back of low supplies of premium Arabica coffee from Colombia after a string of poor crops in the Latin American country.

Wholesale Arabica coffee prices have surged 30 per cent since early June.

The London-based International Coffee Organisation said recently that the “current tight demand and supply situation” was “likely to persist in the near to medium term”.

Coffee industry executives believe wholesale coffee prices could rise further before the arrival of the new Brazilian crop later this year. “Until October it is going to be tight on high quality coffee,” said a senior executive at one of Europe’s largest coffee roasters. He added: “The industry has been surprised by the scarcity of high-quality beans.”

The wholesale price of other agricultural commodities – including wheat and cocoa – has also risen sharply, opening the door for food companies to increase retail prices in the short term.

So far, none of the major US coffee shop chains, including Starbucks and Dunkin’ Donuts, have announced plans to alter their pricing.

Starbucks, in particular, is sensitive to the prices it charges. Two years ago, following a string of lacklustre earnings announcements, Howard Schultz returned to the company as chief executive and closed underperforming stores and launched a massive renovation programme for existing stores. One aspect of the renovation involved the company’s “pricing architecture”. In response to the perception that a cup of Starbucks coffee cost $4, the chain lowered the prices of some of its offerings.

Tim Hortons, the Canadian chain of coffee houses, which has a large presence in the US, said the chain “books its coffee contracts for at least six months at a time, which protects its restaurant owners and customers from jumps in worldwide future markets”.

Financial Times

DDIFO Approves Mid-Atlantic Franchisee Group and Colitsas as New Board Member

DDIFO has officially approved creating a Local Members Committee for Dunkin’ Donuts franchise owners belonging to the Independent Association of Franchise Owners (IAFO) – representing 125 Dunkin’ Donuts stores in New York, New Jersey and eastern Pennsylvania. The Board has also voted to add IAFO Executive Director Tom Colitsas as a member of the DDIFO Board.

“A lot of work has gone into making this a reality,” said Colitsas. “I met with (DDIFO President) Jim Coen a year ago and we discussed how to bring this region into the association. Going forward we are going to engage in an aggressive campaign to increase membership among franchise owners in this region.

Colitsas says the IAFO is holding a seminar in August on topics of interest to the members and at that time they will discuss the benefits that come with inclusion in the DDIFO. “The recruitment effort will focus on education and communication,” he said.

Perhaps the strongest benefit for IAFO members is their inclusion in a group that is growing not just in size but also in influence. Late last year, DDIFO welcomed a Local Members Committee (LMC) made up of over 400 shops from the Chicago area. With IAFO’s entrance, DDIFO now represents close to 2500 shops nationwide.

“We have a huge investment in Dunkin’ Donuts and, as franchise owners we have to protect our investment by making sure we have strong platform from which we can negotiate with the company,” said one Mid-Atlantic franchise owner who asked to remain anonymous.

DDIFO President Jim Coen says the addition of the IAFO shows that DDIFO’s efforts to provide a united voice for franchise owners is working. “Franchise owners throughout the system are learning that we are a true advocate for their business interests and have the clout to get things done.”

Board Vice-Chairman Asheesh Seth, who was the former Executive Director of the Midwest Dunkin’ Donuts Franchise Association (MWDDFA), says IAFO members will immediately see that DDIFO is a great source of information when it comes to protecting franchisee interests. And, he says, the addition of these new members will further strengthen the DDIFO.

“DDIFO’s strength is directly proportional to the number of members it has.  The more that join, the stronger DDIFO will be. IAFO’s inclusion is a huge step in the right direction toward creating a truly national franchisee organization,” he said.

According to Colitsas, new members from the Mid-Atlantic region are going to play a prominent role in the DDIFO.

“We’re very excited down here. We have a good team of dedicated people and we are going to surprise everyone. We’re going to make this a prominent region and make a big contribution to the national effort.”

Ex-Dunkin’ Exec Joins Denny’s as CMO

Adweek reports that a week after splitting with Omnicom’s Goodby, Silverstein & Partners on its $60 million ad account, Denny’s has named Frances Allen chief marketing officer, an open position.

She held that title at Dunkin’ Brands from 2007-09, where her primary agency partner was IPG’s Hill, Holliday in Boston. Her resume also includes tenures at Pepsi-Cola, Sony Ericsson and Frito-Lay.

Debra Smithart-Oglesby, interim chief executive officer and board chair of Denny’s, said in a statement: “We believe her ability to drive brand reputation through compelling marketing campaigns will play an important role at Denny’s. [She] will be responsible for enhancing the focus of our national and local marketing efforts in order to re-energize and grow the Denny’s brand.”  

Denny’s has about 1,600 U.S. stores. Most of the chain’s advertising has centered around its breakfast offerings, including high-profile promos in the last two Super Bowls.

The company has had a series of management changes of late, with CEO Nelson Marchioli, who led the firm since 2001, leaving in June amid pressure from investors to transition Denny’s to a franchise-oriented business model.

Adweek

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