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How To Finance a Dunkin’ Donuts Franchise
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If you’re interested in opening a food service franchise with a long history of working with independent owners, Dunkin’ may be an option for you. The brand has grown from a single location in Quincy, Mass., in 1948 (as Open Kettle) to 12,900 stores around the world as of early 2019. Known for its sweet treats, the company dropped Donuts from its name in 2018 for a coffee-first focus. Dunkin’ still offers its Munchkins doughnut holes, along with classic doughnuts, pastries, coffee and espresso-based drinks, bagels, sandwiches and snacks.
Parent company Dunkin’ Brands, which also owns the ice cream chain Baskin Robbins, operates an “asset-light, 100% franchised business model.” The company reports that Dunkin’ generated $629.2 million in revenue in the 2018 fiscal year with sales of $8.8 billion. Same-store growth for U.S. Dunkin’ locations was up 0.6%, a rate that was lower than what the company saw 2014-2016.
Dunkin’ is accepting applications for franchises in California, North Carolina, South Carolina, Texas, Michigan and 21 other states as of July 2019. Read on to learn about the costs of opening a Dunkin’ franchise and ways to finance a location.
Costs of buying a Dunkin’ franchise
- Franchise fee: Between $40,000 and $90,000
- Estimated initial investment: Between $228,621 and $1.7 million
Before you buy a franchise, you’ll need to understand the costs involved. People who are interested in opening a Dunkin’ location will need significant resources. Dunkin’ may offer a discounted initial franchise fee, or waive it altogether, in certain situations such as for a franchisee who commits to developing a “large number” of restaurants. Qualified military veterans may earn a 20% discount on the initial franchise fee if they purchase a store development agreement for five or fewer locations. Franchisees in some new and developing markets may be able to take advantage of special incentives from Dunkin’.
Real estate costs
Your initial investment depends on a variety of factors, including the number of restaurants you’re acquiring; the square footage, configuration and location of those businesses; the costs of real estate development and construction; and the financing you secure. Franchisees can consider an array of concepts, including classic free-standing stores and end caps, the term for retail space at the end of a strip shopping center, or locations in gas stations, hospitals, grocery stores, travel plazas and universities, which may affect their costs.
Where you build your restaurant may also affect your estimated costs. The majority of Dunkin franchisees either own or lease their locations from a third-party. Dunkin has real estate and construction professionals who can help franchisees find a location and develop the restaurant. The company takes a variety of criteria into account when approving a site for a Dunkin’ restaurant. Dunkin’ prefers sites that have 1/4 to 2 acres, high visibility from major streets, space for one parking spot for every three seats in the restaurant and easy navigability, among other criteria. Dunkin’s Preferred Site Criteria brochure has more details on ideal criteria for the restaurants.
Ongoing costs of buying a Dunkin’ franchise
- Royalty fee: 2-6% of gross sales
- Advertising fee: 5% of gross sales
Dunkin’ franchisees pay for a substantial portion of the brand’s advertising, as well as marketing, research and development through royalty and advertising fees. Franchisees in the U.S. typically make these payments on a weekly basis.
Franchisees must source the majority of their equipment through Dunkin’ or one of the company’s approved vendors. It does not provide an estimate on these costs.
Dunkin’ also requires franchisees to remodel their locations every 10 years, which will add to the ongoing costs of running the store. The company does not provide estimates on the cost of renovations.
Becoming a Dunkin’ franchisee
- At least $250,000 in liquid assets and a net worth of $500,000
- Experience in food service or retail management
The process of becoming a Dunkin’ franchisee can take up to 18 months. You’ll start by finding an available market and submitting an online application. Potential franchisees must meet certain requirements, which vary by market. At minimum, you’ll need $250,000 in liquid assets and a net worth of $500,000 for each unit. You will need to demonstrate that you have the will and capital for multiunit development opportunities, though franchisees are not required to open multiple locations.
Dunkin’ will evaluate your background to determine if you’re a good fit to become a franchisee. The company looks for candidates who have experience in food service, retail or multiunit management. Understanding of local store marketing, the process of real estate development and how to get involved in the community are important qualities for applicants to have. You’ll also need to show Dunkin’ that you’re passionate about operational excellence and skilled at building high-performing crews. Applicants should expect to provide proof of assets and citizenship (or a permanent resident/alien registration card) and undergo a credit check.
Once you submit your application, a representative from the Dunkin’ franchise team will get in touch with you to discuss next steps. You’ll have meetings with a franchise manager and existing franchisees, go through due diligence, choose a territory and draft your business plan.
Then, you’ll undergo a financial review based on your business plan. This step requires that you complete background checks, present your business plan to a Dunkin’ franchise manager and file legal entity documentation. Dunkin’ estimates that it takes 60 to 90 days to receive approval after submitting your online application. It will take an additional eight to 15 months to find a site, get it approved, complete construction and open your restaurant.
Dunkin’ provides franchisees with training programs on topics like branding and business management. The training includes approximately 50 hours of classroom instruction and 300 hours in on-the-job training. You’ll need to take a three-day franchise business course in the Boston area, and additional lessons at a training center in Braintree, Mass.; Orlando, Fla.; or at a designated restaurant somewhere else. Other lessons can be completed online.
Read the FDD
Dunkin’s brand strength and experience franchising may make it a compelling business for people who want to open a restaurant franchise to consider. However, potential franchisees should read the fine print of the Financial Disclosure Document, a legal document required by the Federal Trade Commission. It’s also a good idea to consult lawyers and accountants, look into the costs of competing franchises and consider the latest financial reports from the brand before signing on the dotted line.
Is a Dunkin’ franchise right for you?
You will need to do your own research to determine if opening a Dunkin’ franchise is likely to be a profitable venture. Systemwide sales across Dunkin’ U.S. saw a growth of 3.9% in 2018 compared with 2017, which the company attributes to the opening of 278 new restaurants in 2018. However, Dunkin’ does not predict any individual store’s sales, costs and profits. The company recommends that you speak with existing franchisees about their profitability, and seek the guidance of an attorney and an accountant.
While Dunkin’ requires a relatively high franchise fee and initial investment, those costs may be comparable with those of rivals. While it does not offer in-house financing as some other fast-food chains do, Dunkin’ does offer a network of preferred lenders and offers franchisees territory exclusivity, which prevents another franchisee from opening a Dunkin’ location near yours.
How to finance a Dunkin’ franchise
Franchises give business owners the opportunity to participate in a model that’s already proven successful in other locations, but they do require a significant upfront investment. Franchisees may need to find financing to cover the costs.
People who are interested in opening a Dunkin’ franchise may be able to access financing through the following sources:
Financing through Dunkin’s preferred lenders: Dunkin’ does not offer financing for franchisees. However, the company has built relationships with preferred lenders. They may be able to offer qualified franchisees a variety of financial services and lending products, including U.S. Small Business Administration loans, business acquisition loans, equipment financing, construction loans and more. Dunkin’ states that its preferred lenders provide a “simplified application process and quick turnaround times.” You can learn more about financing through a preferred lender in Dunkin’s FDD.
SBA loans: You may be able to get a loan guaranteed by the Small Business Administration to cover the costs of opening a franchise. The SBA partners with various lenders, including community development organizations and microlending firms, to offer financing of up to $5.5 million for business purposes. Qualifications for each SBA loan program vary, but in general, borrowers must operate a for-profit business in the United States or its territories, demonstrate a need for the money, intend to use the money for a sound business purpose, be current on all debts to the U.S. government and have a viable business plan. Borrowers may also need to put down collateral to secure the loan. Dunkin’ is listed on the SBA Franchise Directory, meaning it meets eligibility criteria for funding through the SBA.
Bank loan: Franchisees may be able to secure a bank loan more easily than independent business owners. Banks and financial institutions offer different loan products, including franchise loans, so it’s worth shopping around for the most competitive option. Qualification criteria will also vary by lender. In general, lenders look for borrowers who have a good credit score, collateral, a down payment and a high-quality application package.
Rollovers as Business Startups: You may be able to pull money from your retirement savings and use the funds to finance a franchise through the Rollover as Business Startups (ROBS) option. Withdrawals for a business will be free of penalties and taxes. However, putting your retirement savings on the line to fund a franchise could leave you in a bind if the business fails. Weigh the risks against the potential gains and consider speaking with a financial advisor or an accountant to determine if this is a smart way to finance your franchise.
Always make sure you thoroughly understand the fine print of any loan or financing option before obtaining the money. Understanding the risks of what’s involved could help you avoid a major headache down the road.
The bottom line
With a wide variety of available markets, Dunkin’ offers ample opportunities for potential franchisees in many areas of the country to get started with the brand. Franchisees should make sure they meet the minimum financial and experiential requirements before applying. They should also consult with an attorney, an accountant and current Dunkin’ franchisees to estimate potential profitability of opening a new restaurant. While the costs of opening a Dunkin’ location are high, franchisees may be able to secure funding to make their dream a reality. Compare Dunkin’ against other franchises to make sure it’s the best franchise for you to open.