April 19, 2007

The Journal News – A Makeover of a Familiar Brand

By Jay Loomis Jim Norman, 51, usually stops by the Dunkin' Donuts at 755 N. Broadway in White Plains five days a week. The real estate appraiser, trying to watch his weight, is careful about eating too many doughnuts. Yet he is a big fan of Dunkin's espresso and cappuccino. The store is a convenient stop that is less than a mile from his office. "You get service quickly and it is very efficient - even though there are a lot of cars," Norman said. Minutes earlier, on a recent Tuesday morning, Dmitri Donskoi sipped a cup of coffee at a table inside the store. The 23-year-old pre-med student from Brooklyn stops at Dunkin' at least four times a week for the coffee, bagels or "munchkins" - Dunkin's brand of doughnut holes. "It is like Starbucks, but cheaper," Donskoi said. "You get a lot more for your money." To keep this store running - and repeat customers like Norman and Donskoi coming back - a truckload of about 500 doughnuts arrives around 4 a.m. on a typical day, one hour before the store opens for the morning rush. That is followed by a second truckload of 200 doughnuts around 11 a.m. The store also serves 400 to 600 cups of coffee and 150 bagels a day. To make sure that the coffee is fresh, Dunkin' throws it out every 18 minutes. The peak business is during the breakfast hours of 7:30 to 9:30 a.m. when Dunkin' faces intensifying competition from the likes of McDonald's, Starbucks, convenience stores and others for the loyalty of a time-starved society. "I want to focus on making sure that we operate well within the four walls and continue to provide fresh product, great service and a friendly and clean environment for our consumers," said Peter Marrinan, chief executive officer for the restaurant subsidiary of The Beekman Group, the franchise operator of the store. "If we do that well, the competition is somewhat irrelevant." Dunkin' has long been an iconic brand with more than 6,000 locations in 30 countries, including 4,400 stores in 36 states. The Beekman Group, the largest Dunkin' franchise operator in Westchester County with 22 stores, is giving them a major facelift. Since buying the franchises in December 2005, Beekman has spent more than $1 million on store renovations that include equipment, furnishings, decor and updated signs. Investments of an additional $5 million to $7 million are planned in coming years. Beekman also wants to open additional stores, not only in Westchester but in the Bronx and other Northeastern markets. Beekman's Westchester presence includes Scarsdale, Harrison, Pleasantville, Greenburgh, White Plains, Yonkers and Goldens Bridge. "It is a terrific brand that is well positioned in its market," said John Troiano, the CEO of Manhattan-based Beekman. "We also like the fact that it is a brand with a lot of growth potential." Before Beekman bought the Westchester stores, the old operators were facing serious legal and financial problems. In 2005, the former owners, brothers Constantine "Gus" Gianopoulos and Anastasios "Tom" Gianopoulos pleaded guilty in U.S. District Court to tax evasion and making false statements on loan applications. Their company, Food Management Group, filed for bankruptcy protection in 2004. "It was disappointing because it affected more than 20 stores that would not be serving customers as well as they should, so I was concerned about that aspect of it," Marrinan said. "It is a rarity that a network of that size would fall into a bankruptcy position." Some of the stores also had lost momentum, suffering from outdated looks, loose ceiling tiles, chipped floor tiles and faded wallpaper. "Clearly when you came through these stores, the operations were in disarray," Troiano said. "There was no tenure of management and employee turnover was high. Some employees had been there only a week or two weeks." Half the stores lacked basic equipment like espresso machines, he said. "The entire network had old cash registers, which not only break down a lot and aren't current, you can't track inventory, you can't track what customers like to buy, you can't provide order accuracy," Troiano said. Getting good financial data on the stores also was a problem when they were under bankruptcy protection, Troiano added. "We didn't have tangible numbers," he said. "There were no financials handed to us that were audited financials. So we actually came to the stores and counted customers to figure out what the volumes were." Despite the lack of hard financial data, Troiano ultimately decided that buying the stores would be a good investment with turnaround potential. He was confident in the power of the Dunkin' brand. He also liked the demographics of Westchester. His hunch appears to have paid off. More than a year after Beekman bought the stores, they are profitable and generating good returns, according to Troiano. He credits the turnaround to Beekman's investments. Stores that previously were unable to process credit or gift cards now have that capability thanks to new cash register systems. Stores that previously averaged annual worker turnover as high as 400 percent have cut that to 50 percent after Beekman increased training programs and offered health insurance to every employee. "We think that showing a career path in this industry is important," Troiano said. "Someone can start as a crew member at the counter. Then they become a shift leader, an assistant manager, a store manager, district manager, and maybe at some point, move into a different market and open up their own stores as an entrepreneur." To the public, the most obvious changes are cosmetic. At 755 N. Broadway in White Plains, a $500,000 remodeling added a bigger countertop, new furnishings, cash registers, remodeled bathrooms and exterior landscaping. Traffic at the store is up 9 percent from a year ago. In Yonkers, another recently remodeled store, sales are up 17 percent over the levels of a year ago. In Harrison, Beekman expects to soon re-open a store remodeled to Dunkin's newest look. "We sort of blend across all income levels and professions, white collar and blue collar," Marrinan said. "You deal with the customers who are working physically every day. And then you deal with the guys who run multi-million dollar companies. It is a fun dichotomy. But at the end of the day, it is all the same. Everybody has the same needs. You want to make sure that they get in and out of your store quickly, that they get a really tasty and fresh product." About The Beekman Group The Beekman Group is a leading private equity firm dedicated to bringing financial and operational resources to small middle-market companies. TBG’s team consists of experienced private equity and operating professionals, as well as a select group of Industry Partners who are leading executives in our targeted industry segments. This Industry Partner approach to investing is the cornerstone of our investment strategy - creating value through partnership with small middle-market management teams. For more information please contact [email protected].