As a kid in Rhode Island, Andy Cabral remembers pressing his nose up to the kitchen window of his local Dunkin' Donuts store, watching the bakers roll, cut and fry the doughnuts, the smell of pastries wafting through the air.
Decades later, as owner of five Dunkin' Donuts stores in Maryland, Cabral finds the complexity of the kitchen much less sweet. There are bakers to pay, pans to wash, mixers and fryers to buy, and exhaust systems to maintain. And what's more, the doughnuts do not generate nearly as much in sales as the coffee.
"Franchisees are chained to those kitchens," Cabral said. "We need to get out so we can focus more on the retail and less on the production side of things."
That's exactly what Cabral and other Washington area Dunkin' Donuts franchisees are doing. They're scaling back their in-store kitchens in favor of off-site baking factories that can supply doughnuts to several stores at a time. By keeping the retail space small, they -- and parent company Dunkin' Brands Inc. -- hope to expand swiftly into the ultra-pricey Washington real estate market while also cutting back on their doughnut-making costs.
Later this year, a group of Maryland store owners led by Ram Javia plan to open a factory in Elkridge, Md., where they'll cook up the doughnuts for their 41 stores. Another 16 owners, including Cabral, hope to get out of the kitchen next summer when they launch a similar plant in Lanham to serve their 31 stores. Together, they'll be turning out 1.6 million doughnuts a week.
"People are changing their thinking and working in teams," Javia said.
A long journey
They've come a long way from the chain's roots as a one-store operation in the Boston suburbs that expanded throughout New England by enlisting mom-and-pop franchisees willing to wield rolling pins in the wee hours.
"The goal over time is to have all our restaurants and stores supplied with factory-made doughnuts delivered throughout the day," said Mark Belanger, director of franchise services in the D.C. region. "Franchisees can take the dollars invested in traditional kitchens and invest them in new sites instead."
Those new sites will include 150 additional stores by 2008 in the Washington-Baltimore region, which is currently home to 142 Dunkin' Donuts. The Elkridge and Lanham factories would supply nearly half of the existing stores -- and perhaps more if they follow through on commitments to open another 45 stores in coming years.
Emphasizing the dunkin'
The factories are the latest sign of just how much the chain has changed since Fred the Baker, the Dunkin' Donuts pitchman, made famous the "Time to make the donuts" catchphrase.
For 15 years, up until 1997, television viewers saw Fred rise at dawn to bake in his Dunkin' Donuts kitchen. But since then, attention in the corporate ranks has shifted from the "donuts" to the "dunkin," thanks in part to the rise of Starbucks.
Today, store owners like Javia and Cabral encounter a different reality. Now, beverages -- mainly coffee -- make up more than 60 percent of the chain's annual sales, company officials said. By contrast, doughnuts generate only about 10 percent of revenue. The strategy now is to siphon coffee drinkers away from Starbucks and its rivals by offering quality brew at cheaper prices in more locations.
"We built our heritage on doughnuts," said Will Kussell, the chief operating officer for Dunkin' Brands in the United States. But, he said, "Dunkin' Donuts is no longer a doughnut shop. It is a coffee and beverage-led company" that also happens to sell doughnuts, muffins, bagels and breakfast sandwiches.
To that end, taking the labor-intensive doughnut operation out of the store makes sense, Kussell said. The company already has 64 off-site baking factories nationwide that supply doughnuts to nearly half of the chain's 4,800 stores.
The local group will follow a pattern: Each factory hires outside management teams to handle the baking and deliveries. In most cases, the finishing touches (such as frosting) are done at the store. Muffins, bagels and sandwiches -- which require not much more than an oven -- continue to be made in-house.
This transition toward the corporate kitchen came in fits and starts, said Jim McKenna, a former senior vice president of Dunkin' Donuts who now runs his own franchise consulting firm outside of Boston.
Some built on too grand a scale, McKenna said. Others built too far in advance of the stores they were supposed to support.
But as the chain grew in major markets, it clustered more stores next to each other. Buying patterns shifted. Instead of purchasing a dozen doughnuts at one shot, customers darted in for a quick cup of coffee and maybe one doughnut. The chain responded by offering more upscale java -- lattes, espresso, cappuccinos -- further encouraging the trend.
"Then the economics of [the factories] started to work," McKenna said. "The more units they have that can be supported by beverage sales, the more the bulk doughnuts business gets spread around, and the more sense it makes to have the doughnuts made in a centralized location."
Dunkin' Brands is doing its part to recruit the kind of franchisees willing to invest in that approach. The most recent recruits must agree to open at least five stores, have a minimum of $750,000 in liquid assets and a net worth of $1.3 million, said Andrew Mastrangelo, a company spokesman.
As in most franchise arrangements, the franchisees are responsible for all of their costs and expenses. From their sales, they pay royalty fees to the parent company and contribute to advertising.
Javia said he and his partners will invest $6 million into the Elkridge factory, which will initially produce 720,000 doughnuts a week. The group, which includes Harry Patel, Mehul Patel, Jay Bhalani, Sudip Patel, Ashvin Bhalani, Parag Patel and Chetan Bhalani, will own the factory but hire a management team to run it. The factory will dispatch trucks with at least two deliveries a day to each store.
They plan to open another 25 stores in the next three years, making about 1 million donuts a week at the factory, Javia said.
"There are so many hassles" with the kitchens, he said. "Once in a while a baker won't show up and my manager has to run to the store in the middle of the night to help out. . . . Soon we won't have to worry about those kinds of things."
But Cabral, who is involved with the Lanham factory, admits he's a tad nervous.
"We're scared. The first three weeks will be a lot of work," Cabral said. "But after that, it should run more smoothly."
Just in case, Cabral has a clause in his agreement: If necessary, he can pick up the doughnuts himself.
