Passengers resting or buying food at Dunkin Donuts at International Arrival area in the Philadelphia International Airport which is the air transportation hub serving metropolitan Philadelphia area, Pennsylvania, USA.GETTY

The Dunkin’ coffee-and-doughnuts, a pioneer in nontraditional franchising, is considering backing away from scaled-down formats at a variety of locations. It closed more such locations in 2018 compared to earlier years. Nontraditional franchising has its own merits and demerits. According to a Dunkin’s Representative, ‘During our recent earnings call, we discussed that we saw increased closures in 2018 for various nontraditional locations that may not provide the full Dunkin’ experience or enjoy the same franchise agreement term as traditional units.’

Nontraditional franchises are smaller than traditional ones, located inside a mall, food court, college campuses, airports, or offices. They are also trademarked as “express” by some businesses. One of the major advantages of the nontraditional franchises is their location with access to existing customers. In addition, the convenience and food choices provided adds to their popularity. Imagine the excitement of families, particularly children, when they find choices from Pizza Hut, Taco Bell, and KFC all in one restaurant!

Why go for nontraditional franchises?

Nontraditional franchises are cost-effective with shared equipment and space. Since there is a host, these franchise units piggyback on other business facilities such as space, equipment, seating, insurance, and parking. In addition, considerable savings are enjoyed due to shared labor expenses. This advantage gets multiplied when dual or triple concepts are offered at the same location by a franchisee. For customers, convenience and safety becomes a draw. For franchisees the reduced investment, franchise fees, agreement terms and other cost reductions are attractions. Financing is also an advantage compared to the requirements for a freestanding franchise unit. Due to the reduced size of business operation, management is relatively easy. For franchisors, it is a lucrative way to rapidly grow franchises. In some cases, these units may serve as test cases for new concepts and innovative merchandising techniques. When seating is limited, not provided or shared, maintenance costs are reduced.

What are the disadvantages?

In spite of several advantages, nontraditional franchises have limitations. Due to the scaled-down operations, franchises are severely limited in the menu choices compared to those offered by the full scale or traditional units. This also impacts the services provided, making it necessary to offer self-service units. Quality of food may also get adversely affected. Many nontraditional franchises, particularly those operating in food courts and malls face intense competition.

Since nontraditional units have symbiotic relationship, the performance of the host may affect the franchise business. For example, on college campuses, summer times are slow, in airports, there are fluctuations in demand and at convenience stores, the demand is transient. Lack of storage space increases the likelihood of shortages, disappointing the consumer, when supplies run out.

One of the major demerits of traditional franchises relate to the customers’ perceptions. When units are rather ubiquitously available in different formats, with limited products and services, the overall perception of a brand’s experience gets affected. Often customers expect the same level of service and quality as they associate with the brand name of the traditional franchise. Even minor experiences at nontraditional units, such as cold hamburgers, soggy tacos, long wait times, or lack of clean appearance may dent or dilute a brand’s image. Over time, such experiences may lead to customer dissatisfaction. Actually, the protection of the original franchise concept and experiences provided by traditional units are of utmost importance.

Although non-traditional units require considerably less investment, the sheer number of units can be problematic. Imagine when upgrades are required how expensive the deal would be for both franchisors and franchisees. Franchisee motivation and acceptance for additional investment will not be easy.

Fast food stand of Dunkin Donuts, Baskin Robbins and Subway in Manhattan in New York City, USAGETTY

Strategic Decision

With all the advantages, non-traditional franchise development requires careful strategic planning. Spreading too thin may jeopardize the brand image, affecting the real experience provided by the original concept. A careful strategic balance between traditional and nontraditional units is necessary.

Dunkin’ has been very successful in locating stores in nontraditional locations. In addition, their original traditional concept has its own appeal to many loyal customers. The concept has deep roots and is well entrenched. They have been serving a special blend of coffee way before Starbucks became popular. Maintaining experiences traditionally provided to loyal customers is important. Of course, any concept needs updating when necessary.

Dunkin’s recent plans for upgrading their traditional concept are promising. ‘As we focus on optimizing our footprint, our broad portfolio of nontraditional sites will continue to play an important strategic role for Dunkin’. We are going to be more selective in the types of units we pursue to ensure they fit strategically into our market plan and give guests the fullest Dunkin’ experience possible,’ added Dunkin’s representative.

Overall, nontraditional franchising have many advantages, but careful strategic planning is essential before deciding the number and extent of these units.