A “Hole” Lot Of Learning: What We Can Learn As Franchisors From The Donut Franchise Giants by Forbes – Entrepreneurs

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There are two things that I have in common with Homer Simpson. The first is my surname. The second is a love of donuts. (Or is it doughnuts?…..the jury seems to be still out on how to properly spell the name of these delicious sweet treats, so for the purposes of this article I’ll stick with the shorter version!)

It’s much to my delight therefore that donut stores are now a common sight in shopping malls and in most towns – with the donut revolution here in the UK led still by the two main donut franchise giants, Dunkin’ Donuts and Krispy Kreme. Why are donuts so popular? They’re a quick, tasty, affordable treat, go perfectly with coffee and it’s difficult to do donuts badly. The main players in the donut market have been around for an awful long time with no signs of going anywhere fast. And with a fast track to popularity in the office being to arrive armed with a box of donuts on a Monday morning, as franchisors what can we take as lessons from the leading purveyors of these “circles of happiness”?

Don’t try to be a jack of all trades – be a master of your own.

The success of the key franchise players in the donut market lies in having a simple mission – and sticking with it.

Dunkin’ Donuts started back in Massachussetts in the 1950s…..a single shop opened to serve coffee and donuts fast, with friendly service and at an affordable price. Fast forward 60 years and that mission hasn’t really changed. They’ve focused on improving their product and service but have been careful not to stray away too far away from their core offering and diversify, although they do now offer a range of sandwiches and as I write this the company is right in the middle of a rebrand - dropping the word Donut from their name altogether (shock, horror!) to emphasise their beverage options too. How that brand shift will impact the franchise company long term, it’s far too early to tell.

Krispy Kreme, launched in North Carolina by its founder back in 1937, started life with the simple slogan “Hot Donuts Now”  - the Orginal Hot Glazed is still it’s most popular product offering by far. However, Krispy Kreme – a brand which can certainly be said to have risen from the ashes on more than one occasion – headed down a very slippery slope in the 1970s when it was bought by a large parent company who introduced all sorts of different products into the stores, from ice cream to soap! Now it’s recovered focus and sells only donuts in store – albeit with around 300 variations currently worldwide.

For many franchisors in a competitive marketplace, it can be tempting to diversify in order to provide franchisees with additional income streams. The donut giants can provide a valuable lesson that going down such a route can may not always be the best course of action for both franchisees and the brand – instead look to what you can do to develop your core products and services further.

Don’t be frightened to pivot (or backtrack!)

Dunkin Donuts have scaled back their operations significantly over the past 18 months, closing a large number of their “express locations” in places like airports and concessions in large retail stores. Like brands such as Subway, they’re realized the importance on focusing on their most profitable units and model where customers can get the whole Dunkin’ experience. Focus on what you do and do it well – and don’t be frightened to make difficult decisions for the sake of the long term future of your brand. Your franchisees rely on you to do this.

Franchisee support is key

A happy and engaged team of franchisees is the key to franchise success – I’ve written about this on a number of occasions before. The donut kings have not been immune to franchisee mutiny – Dunkin’ Donuts faced a massive legal battle in Canada several years ago when a group of franchisees took action against the franchise brand. The franchisees claimed that Dunkin’ Donuts as the franchisor had failed in their duty to take sufficient steps to protect the brand and support the franchisees against the “Tim Hortons phenomenom” when the home grown competitor had saturated the marketplace. Whilst the case in point was around a very specific set of circumstances, it still provides a useful reminder to all franchisors that supporting the franchise network on both a national and particularly at a local level is vital.

Tim Hortons itself has experienced similar difficulties – it’s a brand name which is still not well known here in the UK but of course for Canadians it’s a name which has been synonymous with hot coffee and donuts since 1964. Having been taken over by Restaurant Brands International in 2014, Tim Hortons faced a public backlash from some franchisees, claiming the parent company had not only increased margins at their expense but had also failed to provide adequate support – again ending up in court on a number of franchisee law suits with potentially disastrous implications for the reputation of the brand.

At the end of the day, your franchisees ARE your brand -  it’s crucial for any franchisor, big or small, not to lose sight of this and to keep focused on looking after the network as a number one priority.

Don’t over expand too quickly

In the early 2000’s here in the UK, we all went Krispy Kreme crazy! Lines formed outside stores, with customers all desperate to have their fix of the glazed delicacies which had acquired a cult-like status. When Krispy Kreme opened a store in Cardiff in Wales (it’s 46th in the UK at the time) more than 1,000 people waited for two hours for a donut! 

Desperate to capitalize on this popularity, Krispy Kreme exploded everywhere – opening outlets in supermarkets and malls, airports and gas stations as well as in all major towns. The problem then was that they then became far too accessible and the rarity appeal was completely lost – not to mention the logistical nightmare for the franchisor of trying to provide adequate support so many units. Their strategy also impacted on franchisee profitability – opening far too many stores in close proximity which ended up competing against each other.

Whilst for any franchisor, the temptation to expand quickly will always be there, it’s important to recognize how rapid expansion will impact not only on the brand as a whole but also how such expansion will place stresses internally on processes and procedures and existing franchisee relationships.

Embrace technology

This is something that both of the big donut giants have done and continue to do well. They’re both extremely aware of customer buying habits and the need to be as accessible as possible – quickly!

Krispy Kreme’s app is an excellent example of tech used brilliantly to drive sales – the app and online desktop widget not only allows customers to set preferred locations and to find out where they can get their Krispy Kreme fix locally when out and about, it also has the “Hot Light” element which tells customers when the donuts are “hot off the line” in their local store so they can hot-foot it quickly there! They also have a Rewards system where new sign ups receive an original glazed just for downloading the app and creating an account.

Dunkin’ Donuts has gone a step further – their Mobile Ordering app allows members of their reward scheme to order in advance and skip the line. It also apparently has several Artificial Intelligence systems in testing at present – such as a device that will recognize your gender and suggest different menu items based off popular orders!

As any franchisor knows, times are changing rapidly and so any successful franchise brand must not only stay on top of technology but also embrace it to stay ahead of the game and to remain in favor with the franchisee network

Be selective in picking your franchisees – and train them well

Like all good franchisors, the big donut franchise names have demanding selection processes for their franchisees and invest heavily in training.

Krispy Kreme has the Krispy Kreme University training program for franchisees, General Managers and Assistant Managers as well as an Information Services Department, which creates electronic tools, reports, and forms to give the Laboratory visibility into franchisees’ donut mix consumption. This helps the brand to ensure that everything remains on brand and is of the consistent high quality that customers expect.

We all know as franchisors how one poorly performing franchisee within the franchise network can affect the reputation of the entire company – it’s important to have systems in place to ensure quality control as the brand expands horizontally. This is also a reason why brands such as this favor a multi unit model of franchisee expansion – taking on only franchisees who will commit to opening a number of units. That way not only do they save on costs of training and support, they can also (hopefully!) feel more confident in terms of quality delivered.

Franchisee success becomes your own – not vice versa

One major mistake made by Krispy Kreme in it’s 2000’s heyday was to charge its franchisees massive mark ups on machinery and materials that their franchisees had to buy from the central franchisor organization. Why? The reasoning was of course to boost the headquarters reported profits. However, the result? Franchisees who were unable to maintain and grow profitable businesses, becoming unhappy and disengaged. The successful and sustainable franchise models are ones where the franchisor focus is on the management/royalty fees as the source of head office income rather than reliance on significant mark-ups to sustain them financially. A franchisor is then motivated by encouraging their franchise network to be as individually successful as possible which in turn reaps rewards for the franchisor.

It’s fair to say that at present the sugar rush shows no signs of slowing down – and with a number of exciting new donut franchise names emerging into the marketplace now, it will be interesting as a bystander (and donut fan!) to see how the established names react to this. In the meantime, I’m off to get myself a sharing box…….

April 7, 2019 at 07:49AM
Forbes – Entrepreneurs