Dunkin' Franchisees Oppose Initiatives

Hess caught in middle after forging Dunkin' Brands marketing agreement

BELLINGHAM, Mass. -- A majority of Dunkin' Donuts franchise owners in New England and New York say that they oppose new partnerships that have been struck between Dunkin' Brands and Sara Lee Foods, Procter & Gamble and Hess Corp. The franchise owners said they believe that these marketing programs devalue the Dunkin' Donut's coffee brand.

Hess Corp. signed an exclusive agreement with Dunkin' Donuts in December that called for Dunkin' Donuts to offer its donuts, coffee and hot chocolate in a new self-service station in many of Hess' gas station and convenience locations throughout [image-nocss] the country. (Click here for CSP Daily News coverage.)

Dunkin' Donuts' presence within Hess stores rolled out in January, primarily outside of New England, initially within Hess locations in Florida, North Carolina, South Carolina and Virginia. Hess said that it plans to introduce at least 175 self-service Dunkin' Donuts sites in 2008.

In a survey, the Dunkin' Donuts Independent Franchise Owners (DDIFO) Association asked franchisees to express their opinions about the partnerships allowing Sara Lee's foodservice division and Hess 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.

Laurie Hecker, director of communications for Hess Corp., told CSP Daily News that the company was still in the process of assessing the franchisee-sponsored survey, and thus had no comment to offer by presstime.

The survey was conducted in January. Respondents were franchise owners representing more than 1,000 retail locations. 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 also announced its partnership with P&G to sell packaged coffee in supermarkets, drug stores and off-price retailers. Those 12-oz. packages of coffee compete directly with the 16-oz. packages sold at Dunkin' Donuts shops. To date, franchisees have received no financial benefit from P&G sales, according to the survey, and 59% of the respondents said the P&G deal devalues their franchise.

"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 DDIFO, the largest independent organization of Dunkin' Donuts franchise owners. It serves members in 12 states. "The company believes these partnerships are a strong way to build the brand and that may be the case," he said. "But, in markets where there is already a strong brand presence, like the northeast, it can have a negative impact."

Dunkin' Donuts, a subsidiary of Dunkin' Brands Inc., Canton, Mass., has more than 7,900 donut and coffee shops in 31 countries, with about 3,500 U.S. shops.