Whether Dunkin' Donuts' new shop openings should be primarily company owned, franchised, or franchisee developed.
To initial a more aggressive expansion program and overcome competitive pressure, the company needs to speed up new shop openings. Possible solutions are as follows:
1.Company-owned Stores oriented;
2.Franchised Stores oriented;
3.Franchisee-developed Stores oriented;
•Company-owned Stores: Even though the bank-financed company-owned stores raise the debt-equity ratio, they actually make more revenues than franchised and franchisee-developed stores. I recommend that the company opens more company-owned stores which would not only create economy of scale- lower selling, general and administrative expenses but also expands the opportunities for the company’s further internal promotion.
•Franchised Stores: While the company has to spend as much money on franchised stores as on company-owned stores, the former seems to make more profits than the latter. Though only about 40% of the profits is from franchise income, the other 60% is from rental, which is still attainable through leases. Developing a buy-out plan for the company or the franchise owners will solve the problems either by increasing the company-owned stores or by producing enough cash inflow for the company to pay off its debts.
•Franchisee-developed Stores: franchisee-developed stores make as many profits as franchised stores but cost much less. The franchise income is low but the company will benefit from both expanding market share and improved balance sheet.
•Mix structure: To solve the company’s internal promotion problems for managers, highly debt-equity ratio and expand its market coverage, the company needs a mix-structure which focuses primarily on both company-owned stores and franchisee-developed stores.
Based on the arguments mentioned above, to initial a more aggressive expansion program, overcome competitive pressure and benefit from the expanding strategy, the company should open its new shops primarily on company-owned stores and franchisee-developed stores.