# Dunkin' Donuts Case Study Essay

1704 Words Dec 23rd, 2013 7 Pages
1. What does Tommy want?

Tommy was looking for a change, especially since he just finished putting his third and last child through school. Tommy also operated a food section that served breakfast items (other than doughnuts) and hamburgers, which he claimed generated half of the sales. He was interested in buying out the franchise from Dunkin' Donuts. He would take down the Dunkin' Donuts sign and continue to operate the shop under a new store name of his choice. He also planned to negotiate direct lease with the landlord instead of leasing the building and land from Dunkin' Donuts. However, he mentioned to Dunkin' Donuts that he was not interested in pursuing this option.
Tommy seemed to be interested in selling the business to
In case of company-owned store, it would have to bear all incremental costs whereas in case of franchised store option, it would have to bear incremental costs only for leasehold improvements. The profit margin for company-operated store is 13%. Now. since the sales in the year 2012 are \$6150 * 52 =\$319800 *13% = \$41574.

In case of franchised store, the initial franchise fee for new or existing franchise owners, franchise fee on sales, flat and override rental fee. So, for a new owner in the first year, the company earns \$32000 + 4.5% of \$319800 + \$3000 + 7% of 154800 = \$32000 + \$14391 + \$3000 + \$10386. = \$59777. For the existing franchise, the company earns \$53227.

So, the fourth option of selling it to a new or existing franchise owner seems to be more beneficial option. However, the third and the fourth option do entail possible transaction costs related to having Tommy as a landlord.

1. Which option is more attractive to DD?

Herman and Benito both managed Dunkin' Donuts stores before they applied for franchises. However, Herman consistently scored high on CSG whereas Benito managed to pass the CSG but not consistently and nor with high scores. From the financial stability on a personal point of view, Herman owned two apartment complexes and held a one-half interest in two more apartment complexes in the Boston area. His personal assets were believed to approach a million dollars. Benito's personal assets consists

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