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Dunkin’s Minnesota Return

Dunkin’ Donuts is not a brand to shy away from big plans. In 2005, the Canton, Massachusetts-based brand closed its last store in Minnesota, but loyal fans waited for its return. After years of yearning, they heard the news. The brand announced plans to triple its U.S. franchises within the decade, including 100 stores in the state.

That was 2008—and it didn’t add a single one.

Six years and two “bring back Dunkin’” Facebook groups later, the chain is back with a decidedly more modest goal of 50 stores. With franchisees lined up and a store already open in Rochester as of this summer, plans are progressing. But can the brand overcome the problems it faced in 2005 and 2008?

Steve Rafferty, senior director of franchising for Dunkin’ Brands, says yes.

“We did not have the proper infrastructure to expand at the time,” Rafferty writes. “We have learned a great deal since then.”

Edwin Shanahan agrees. The executive director for the Dunkin’ Donuts Independent Franchise Owners says earlier issues were primarily a question of unpredictable suppliers.

“Essentially what we had back then was a more erratic supply chain,” Shanahan says. Costs were “volatile depending on how far away you were.”

Dan Hooker, however, suggests the problems went deeper. The current owner of Donut Connection and Kaleidoscoops in Austin was the last franchisee standing when the chain left the state in 2005. He says his 15 years with Dunkin’ were a good experience, but the company’s priorities shifted. In 1994, Dunkin’s owner Allied-Lyons bought spirits marketer Pedro Domecq, changed its name to Allied Domecq, and took a new approach with the donut-and-coffee company.

 “As time went on, what happened to Dunkin’ was what I call the McDonald-ization of Dunkin’,” Hooker says. “By that I mean old-time executives left and new executives were brought in by Allied Domecq. Dunkin’s philosophy changed.”

Hooker says the chain was emphasizing larger franchisees and he asked to get out in 2005, even though his franchise agreement didn’t end until 2012.

“The road we were going on with Dunkin’ was getting narrower and narrower,” Hooker says. “Remodels, equipment purchases, concept change really didn’t fit us anymore. They sent us some paperwork that we had to spend 10s and 10s of thousands on equipment in the next few years. There’s no way we were going to borrow that kind of money.”

Brian Weidendorf, owner of Hinckley-based Land and Lease Development, has the northern territory that includes the city of Duluth. This July, the Minneapolis Star-Tribune reported he would be opening up seven units starting in 2015. He declined to speak to Franchise Times.

“It’s not the right time for an article,” Weidendorf says, “I just need to put it off. I only own one territory—there’s guys who own bigger territories than me.”

He mentioned Rochester Retail Services, a developer that opened its first store in Rochester to great fanfare this July. The franchisee is listed as Donuts Non Traditional LLC, but no owner has come forward to speak to media. Manager on duty Matthew Jacobson said traffic has been very high, even at 10:43 a.m. on a weekday.

“Oh yeah, it’s a great location,” Jacobson says. “It is doing fantastic. I’m in the middle of a rush right now.”

Last year, Dunkin’ increased its presence in Dallas, Houston and Salt Lake City. While they, like Minnesota, are far from the chain’s East Coast roots, Rafferty says the brand’s troubles are behind it. As of press time, it had 7,821 U.S. stores.

Rafferty says whether it’s Texas or Minnesota, Dunkin’s processes are far better than they were in 2008 and 2005. Store development agreements are in place in Minnesota for 12 stores and the brand is actively recruiting.

“We’ve improved our processes around franchisee selection, site selection, training and operations support,” Rafferty writes. “Due to our continued, contiguous expansion across the U.S., we’ve also built out our national supply chain.”

But Hooker says he’s not worried about the competition. He says no amount of systems can change the labor-intensive nature of the donut business, and in the Midwest, the chain won’t be able to lean as heavily on beverages for revenue as it has elsewhere.

“Dunkin’ now is concentrating on anything but donuts,” Hooker says. “They’re going to find out that their business model is a tough sell. West of the Mississippi the name does not have the power that it does on the East Coast.”

Lunch sandwiches and coffee, he says, are a different business than the donuts Minnesotans are expecting. Furthermore, in light of the brand’s previous failures to launch, Hooker says he’s not sure it’s going to have as much success as executives are predicting.

“It’s one thing to say you’re going to do it,” Hooker says. “It’s another thing to actually do it.”

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