By Catherine Curan
As stores across the retail spectrum scuttle expansion plans — with Starbucks one of the more notable examples — budget coffee king Dunkin’ Donuts is brewing up a big-league increase in its New York presence.
With 341 New York City locations, Dunkin’ Donuts already operates more stores here than Starbucks. But its no-frills décor and lack of coveted coffeehouse amenities like Wi-Fi have helped its rival win the war of perception about which chain is tops — no matter how often yum-o queen Rachael Ray shills about America running on Dunkin’.
Now, Starbucks, which some say got into trouble because it overextended itself and ended up cannibalizing its own stores, is beating a much-publicized retreat in New York City and nationwide. Meanwhile, Dunkin’ plans to nearly triple its U.S. store count to 15,000 by 2020. That goal includes aggressive development here, seizing on both its competitor’s stumbles and
recession-wary consumers’ desire for less-expensive daily java.
“You’re hearing every day about another national company having problems, that won’t be signing leases, or is in a holding pattern or bankrupt,” said Joseph Isa, a senior director at Winick Realty Group. “Dunkin’ Donuts is bucking that trend and actively and aggressively looking for locations and signing leases.”
The company declined to respond to calls seeking comment, but according to The Real Deal’s research, Dunkin’ has signed at least nine local deals this year, and a dozen in the last two years. Brokers and franchisees are busily lining up more, with one new franchisee set to open 14 stores on the Upper West Side in the next five years.
The company’s flexibility about store sizes, combined with a new, more upscale store design that has greater appeal for landlords, is helping Dunkin’ get deals done. What’s more, landlords feeling the weak economy’s sting are now more amenable to Dunkin’ Donuts franchisees, since they are typically well-capitalized.
“The retail market in general has softened, and landlords who saw Dunkin’ Donuts as not a worthy tenant would now love to have them,” said Jonathan Krieger, a managing director at Robert K. Futterman & Associates, who represented both the tenant and the landlord in a May 2007 Dunkin’ Donuts deal at 370 Lexington Avenue.
Dunkin’ Donuts’ rapid rollout, however, has hit plenty of speed bumps. A widely covered legal battle between the corporation and a Muslim/Orthodox Jewish pair of Brooklyn-based franchise partners last spring raised allegations that the chain is squeezing out small franchisees in favor of larger ones that can more easily achieve the massive corporate growth target. As reported in the New York Post, court records showed Dunkin’ sued franchisees 154 times in the last two years, versus five similar suits from McDonald’s and 12 from Subway in the same period. (The Brooklyn partners did not return a call seeking comment.)
Against this backdrop, many larger franchisees are still seeking to whip up profits with multiple Dunkin’ locations. At press time, Winick’s Isa was negotiating four deals, following fast on the four he has already done this year.
Unlike Starbucks, which is known for corporate deals backed by the mega-firm’s corporate balance sheet, Dunkin’ Donuts’ deals are typically done by franchisees. While working with a franchisee can be off-putting to a landlord, since the guarantees are typically a security deposit and a good-guy guarantee, sources on all sides of these transactions said Dunkin’ Donuts’ financial requirements, typically more stringent than other franchisors’, give more assurance.
“When I take Dunkin’ Donuts to a landlord, they are not worried that the franchisee has a spotty past or won’t be able to pay the rent,” said Isa.
Furthermore, the company is able to branch out because of a current willingness to consider spaces from 800 to 2,000 square feet — a far broader spectrum than many other retailers. Isa’s four deals this year so far have ranged from 760 to 1,378 square feet; the company has even scaled its concept for spaces as small as 400 to 500 square feet.
Franchisee Peter Sedereas, whom Isa represented on a couple of recent Upper West Side transactions, plans one of these small units for his fourth store so far, featuring coffee and donuts only, in a 500-square-foot space at 535 Amsterdam Avenue at 86th Street. That is the southernmost location he has leased so far in his territory spanning West 57th to West 110th streets.
“As we head farther south, rents do get more expensive, but Dunkin’ has come up with a way to create stores in smaller spaces without breaking our business model,” said Sedereas.
An even more important change, though, may be the new look of the stores. Sedereas is outfitting his locations with high-end features straight out of a luxury kitchen designer’s playbook. His first four stores, all of which are slated to be open by September, sport granite countertops, Italian marble floors and dark-stained chair rails — plus Wi-Fi.
“In the past they had bright pink and orange, and the look really didn’t work for Manhattan, especially for a lot of landlords looking to improve their buildings,” said Isa.