Dunk'd, My Odyssey Through Franchise Hell

Soon after completing the deal and much to my surprise, I found out how the franchising system really works. The Dunkin’ Donuts franchise system, once considered the ‘gold standard’ had become a fiercely adversarial rivalry between the franchisor and franchisee with the new owners utilizing the leverage of a one-sided franchise agreement to increase their profits at the expense of the franchisees.

Blue MauMau
May 13, 2010

Dunk'd, My Odyssey Through Franchise Hell
Irwin Barkan

IrwinBarkan.jpg

I am writing a book about my ‘truth is stranger than fiction’ 9-year battle with Dunkin’ Donuts, which exposes the dark underbelly of franchising and the civil justice system. My story is unique but the theme has been repeated with hundreds, no thousands of franchisees around the world, yet the media silence has been deafening. To learn more about my book read more…

About the Book:
Dunk’d tells the story of my involvement with Dunkin’ Donuts, from my acquisition of 5 franchises in Providence, RI which eventually leads to the loss of millions of dollars, bankruptcy court, and still ongoing litigation with Dunkin’ Donuts, now five years old and still on the clock. In between these events I experienced a myriad of franchise abuse which I will detail to the franchisee community so, hopefully, you will avoid the traps that were set for me and not make the same mistakes that I made. Dunk’d will expose how the two most recent owners, a “Big Multi-National ” (Allied Domecq) and “Big Private Equity” (Bain Capital, The Carlyle Group and Thomas H. Lee Partners) have corrupted the iconic Dunkin’ Donuts franchise brand, how I continue to fight them in order to uncover the truth about how they worked to kill my business.

Read the INTRODUCTION.
The story will illustrate how ‘Big Business’ has manipulated the American free enterprise system and utilizes unlimited amounts of money and power to crush anyone in their path, in particularly the small ‘Main Street’ businessman. Dunk’d is a cautionary, humorous and true story that provides valuable insights into how franchising really works and, increasingly, how it benefits the franchisor over franchisees whose energy and money make this system work. It is a must read for franchisees, anyone considering buying a franchise, anyone contemplating a law suit and anyone who has ever bought a cup of coffee from Dunkin’ Donuts.

My Story:
I am a serial entrepreneur who lives in New England and has always believed that Dunkin’ Donuts is one of the premier retail brands and franchise systems I had ever encountered. When I got the chance, I acquired a 5-store network in Providence, Rhode Island with big plans to turnaround the brand’s lagging image in this market and develop a large store network which I could pass down to my sons. Soon after completing the deal and much to my surprise, I found out how the franchising system really works.

The Dunkin’ Donuts franchise system, once considered the ‘gold standard’ had become a fiercely adversarial rivalry between the franchisor and franchisee with the new owners utilizing the leverage of a one-sided franchise agreement to increase their profits at the expense of the franchisees. I will detail how they forced franchisees to add newly acquired brands and concepts to their menu offerings which were designed to increase sales and royalties for the franchisor. When these ill-designed ventures failed miserably it’s the franchisees, myself included, who lost millions of dollars in the process.

I will detail how ownership launched an onslaught of lawsuits targeted at franchisees, over 350 within a two-year period, and used other techniques designed to intimidate franchisees and even snatch away the stores built by the franchisee’s money. While successfully transforming the Providence stores and increasing sales, I soon began losing money hand over fist, in part, because Dunkin’ Donuts has reneged on their original promises. When I got angry about being thrown into this money pit, Dunkin’ Donuts decided to crush me with all its power and money.

And when I took them to court, they tried to use the justice system to get away with it, and almost did. The first excerpt, the Introduction to the book is posted here; I will add excerpts over the next months, use this blog to tell my story and tell the stories of other franchisees. You can go to our website at Dunk-d.com to read more about my story and the ongoing litigation, United States District Court Civil Action No. 05-50 Irwin Barkan vs. Dunkin Donuts, Inc. You will also find others who have suffered at the hands of franchisor abuse and, most importantly, how we can turn the tide.

Comments

1. By Franchisee Prospect 2010-05-20 13:04
How do you buy the book?

I was looking at a Dunkin' Donts opportunity in the midwest but I want to learn a LOT more about this franchise agreement business before I spend another dime researching the market.

Funny. The franchise sales guy didn't tell me anything about this contract stuff. He mostly just wanted to know what kind of assets I had.

2, RichardSolomon 2010-05-21 11:18
The days when any single concept franchise was potentially

investment worthy for the projected life of one contract term are long over.

We have seen the single concept product/service that is the centerpiece of such a model simply become an add on for competition. Premium coffee at McDonalds s only one of many examples of that. Smoothies, for example, are available everywhere including in grocery stores. A Flip Flop Store franchise is nonsensical financial suicide.

An investment now in any central product/service concept is an investment in bankruptcy somewhere within 5 years of your opening date. The single product models are in their decay stage and being milked to death, attempting to wring every last dollar out of it without regard to the impact of that on franchisees.

This is also an example of what I mean when I say that reading the FDD doesn't give you insight into investment worthiness of any franchise.

Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

3. Granville_Bean 2010-05-18 20:29
why?

So if it sucks so much, why did ya sign up for it?

Just another disgruntled "Hurt Zee". Perfect for BMM, preaching to the choir.

4, michael Webster 2010-05-18 23:24
Why Do You Comment?

Granville Bean, the noted ex attorney, and sometime franchisee writes: "Just another disgruntled "Hurt Zee". Perfect for BMM, preaching to the choir. "

Ok, Putz why do you even bother posting?

You have no choir.

You complain.

You have no positive contributions.

So, why are you here?

Please leave, or better add something of value instead of your crap snobbery.

Michael Webster, a franchisee attorney in Toronto, Ontario, is the Chair of the Strategic Committee for the International Association of Franchisees and Dealers. The IAFD's goal is to empower franchisees worldwide. We provide tools for advocacy, communication, education and member benefits for all franchisee associations.

5. qsucks 2010-05-17 09:20
If DD Franchisees Have Been Dunk'd

Does that mean Quiznos franchisees have been Dick'd?

6. Dunk'd Guest 2010-05-14 13:51
Dunk'd rings truer than true

Specifically this—"the new owners utilizing the leverage of a one-sided franchise agreement to increase their profits at the expense of the franchisees"

It is exactly how they set up, fleece and take a franchise from a franchisee without paying a dime for it and making the now bankrupt franchisee pay their legal bills for doing it. Since the awful franchise contract allows it, the courts just give them the green light to go ahead if the franchisee sues.

7. Don Beau 2010-05-15 02:05
Buyout of America

Above is example of the damage created by Private Equity firms on not only franchising but the economy both nationally and internationally is enromous.

What is Private Equity???

In a word, it's looting. Private Equity firms are looters, predators, symptoms of overly concentrated wealth. What they do is buy existing companies, sell off their assets and load them up with debt to make a quick profit. What they don't do is make things, create jobs or contribute to the "real" economy. The only thing they make is money for their owners and investors. This is something to keep in mind the next time you hear a Republican touting Mitt Romney's business experience.

I knew a little about PE firms from reading newspaper and magazine articles. I knew that Mitt made his fortune with a PE firm called Bain Capital. I remember reading in Road & Driver that a firm called Cerberus had taken Chrysler private and I had read about a conflict of interest issue involving a politically connected firm called the Carlyle Group. What I didn't have was an understanding of how Private Equity firms operate. So I read a book I will share what I found out.

The book I read was The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis by Josh Kosman, published in '09 by Penguin, NY. Mr. Kosman is a business reporter at the New York Post and has been covering the financial industry for 12 years. We'll get to that scary subtitle in a bit. First the basics.

It turns out that Private Equity is a new name for an old game: Leveraged Buyouts or LBOs. Remember those ? The most infamous was the buyout of RJR/Nabisco by Kohlberg Kravis Roberts (KKR) in 1989. This one is still No.4 on the list of the 10 biggest buyouts of all time. It inspired a book, Barbarians at the Gate: The Fall of RJR/ Nabisco by Bryon Burrough and John Helyar, and a movie with the same title. There was a boom in LBOs during the '80s set off by KKR's innovative exploitation of a tax loophole. Since interest paid on loans is deductible from corporate income taxes, the money that would have been paid in taxes could be used to pay off loans more rapidly. The financing for the 80s boom came from S&Ls and junk bonds.

Here's how they do it these days. The PE firm (or firms, they often team up) puts up some of its own money and then solicits investors in order to get up a fund. The investors could be anybody, individuals, banks or hedge funds. During the recent LBO boom it was mainly state pension funds looking for high returns after the dot.com bubble popped. The investors usually agree to invest for a period of time, not a set amount, and they can be required to put up more money if the firm needs it. Once they've got a fund together, they look for a company to buy out.

DonBeau, Omnifran, "Your Connection to the World of Franchising"

8. Don Beau 2010-05-16 19:17
Private Equity Firms???
Dunkin’ Donuts
Tuesday, July 17, 2007 at 03:53PM
Andrew McDonald in Bain, Carlyle Group, Thomas H Lee Partners

1515 Broadway; 761 7th Ave.; 240 W 40th St.; 580 9th Ave.

Private equity owners: Bain Capital, Thomas H Lee Partners, Carlyle Group

Owned by private equity since: 2006

Deal Value: $2.4 billion

Employees: 132,000 (estimated)

Buyout firms run on Dunkin’ Donuts and the 2 million cups of coffee the franchises sell a day. Buyout giants Bain, TH Lee and Carlyle knew a sweet deal when they saw it and worked with Dunkin’ Donuts’ CEO Jon Luther to buy the company, but the franchisees who get up every morning to make the donuts — and who had about $5 billion invested in their stores — weren’t invited to the (breakfast) table as the deal was made. The buyout firms made sure they could have their cake and eat it too, though; they got tasty low-interest loans from lenders for $1.5 billion to seal the deal and then set up the company to make sure their own upfront investment got paid off quickly. The folks who pour the coffee, on the other hand, tell us they’re making more like $8 an hour. It’s hard to run a household, let alone America, on that kind of money.

DonBeau, Omnifran, "Your Connection to the World of Franchising"

9. RichardSolomon 2010-05-17 08:43
It won't be long before $ 8 an hour looks good to the franchise

owners. Then they will wish they had spent more time being militantly aggressive - at least those who are not themselves violating the terms of their franchise agreements.

The name of the game in milking an over the hill brand is to divert as much money as possible from the "system" by fair means and foul and then let it collapse.

I know - you all think I'm just nuts. Tell me that next year this time, OK?

Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

10. Guest 2010-05-21 06:51
$8??? I wish! Try $0 and negative cash flow…

…that's where you end up with a dying brand.

11. Guest 2010-05-21 06:51
Getting Milked

I don't think Dunkin' Donuts is an "over the hill brand".

There is no doubt that Jon Luther and company "milked" equity from the "tits" of the franchisees.

I am confident that this current management team sees that Luther's "milking" set the brand back 10 years.

They show signs that they are attempting to repair the damage Luther caused.

12. Guest 12010-05-18 12:16
Militantly aggressive at Dunkin?

Are you suggesting that the franchisees didn't get this way when they needed to?

Ask Steve Horn.

Oh, that's righ. No one is answering at his extension any more.

He's not gone because the private equity owners suddenly got a conscience and thought it was time to do the right thing with his litigation strategy.

13. RichardSolomon 2010-05-21 08:35
Compared to the life cycle issues regarding which folks seem to

be in denial, Steve Horn was only an amusing distraction.

The DDIFO did a good job sorting out Steve Horn and his ilk, but no amount of Association impact can reverse life cycle issues.

Compare the revitalizations of the brand and product offerings at McDonalds over the years with the lack of same at DD. McD has managed to stave off life cycle issues through adding to its mix things that could easily be accomodated and that seemed to be popular in other models - coffee is only one of them. What, please enlighten us, has DD done to duplicate that klnd of impact making improvements?

McD is another old concept, but McD isn't shopping pre need arrangements like DD is. Could it be that kindly old Mr Rosenberg who let frachisees cheat him but didn't improve the model was in fact doing an ultimate diservice?

The fact is that brands and systems require discipline and upgrading as an ongoing aspect of their management. Lax governance coupled with head in the sand "Oh it'll be alright" perspectives on the future result in DD, not in a McD model.

Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

14. Guest 2010-05-18 10:20
Which companies?

Which companies have followed this process in the past? Future???

15. RichardSolomon 2010-05-18 14:09
All the ice cream franchise companies - Hickory Farms -

and any other company that - for reasons of the need to milk the brand before it dies totally - took the products and ran them through alternative distribution deals - like super markets - forgetting about franchisee exclusivity.

When it becomes difficult ot keep selling new franchises, over the hill franchise companies look to other ways to milk revenue out of a dying system/brand.

Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

16. Ask the Man that owns one 2010-05-21 09:43
Lifecycle Interruptions

Although Starbucks is not franchised, what do you think of their current move to put Seattle's best in franchises across the country. In my town, Subway is next door to Starbuck's and is now promoting a $2.50 breakfast which is basically an egg white McMuffin and a large Seattle's best coffee.

Is this a stroke of genius or stupidity for Starbuck's?

17. Ray Borradale 2010-05-16 15:59
Private Equity trickery

Don, so can we presume that, in relation to franchising, the debt built by the acquired franchisor is a positive for the Private Equity Investor where failed franchisees add to the debt stock of ailing company outlets with possibly deliberately missing profit orientated infrastructure?

Trickery business; what a windfall for franchisee investors … a mix of private equity investment and franchise contracts and not knowing when they sign up that almost any franchise business is susceptible.
Australian Franchise Opportunities, a common sense approach to franchising

18. Guest 2010-05-16 16:11
World Wide

This epidemic of franchise abuse is in every region of the World. Why is the franchisee, who is the investor, the voter and driver of the business left hung out to dry on all occasions? Franchisee's keep their heads in the sand until it's to late. This is why they are easy prey to the franchisors around the world.

19. DDed 2010-05-17 07:44
Dunkin's toxic franchise agreement

Makes it all possible. Mr. Barkan lays out the scheme which the franchise agreement allows to be enforced in court. It is so one sided that Dunkin can simply pick a franchisee to pluck when it needs cash and waves the toxic franchise agreement in his face and demands that he surrender tons of cash or have his stores taken from him for no money.

The franchisee then has the pleasure of paying Dunkin Brands legal bills too.

Fun times in donut world.

http://www.bluemaumau.org/dunkd_my_odyssey_through_franchise_hell
—-

Risks: Ray Borradale, Bankruptcy, Blue chip, Breach of contract, Churning (serial reselling), Co-branding forces untried/loser business model onto existing franchisees, Comments on article are interesting, onfidence in judiciary eroded, Controlling, trapping or defeating the franchisee, Designed to fail as franchise investment, FranWhack: a system that is not investment-worthy, Fraud, Futility of taking legal action, Good money after bad, Individuals are profoundly shaken by fraud experience, Individuals with a very successful career history, Lawsuits, individual, Mad as hell, not going to take it anymore, Material facts were not disclosed, McDonald’s of…, Misrepresentations, Private equity, Seduction, Some of the nastiest predators run several tradename systems, The game is rigged, Wanted: sheep, War of attrition, United States, 20100513 Dunkd my

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License