DUNN BROS TO OPEN MORE COMPANY STORES Franchise-heavy coffee chain looks to shuttered Starbucks, timely real estate deals.
By Abbie Westra
MINNEAPOLIS, Minn. -- After years of significant new franchise growth, including 21 new stores in 2006, Minneapolis, Minn.-based coffeehouse chain Dunn Bros is looking to open more company-owned stores. It's the effects of the economy on potential franchisees that have this 92-unit chain looking at opening locations in the Twin Cities, Dallas, St. Louis and Kansas City, Mo.--including some shuttered Starbucks shops.
Dunn Bros currently only has one company-owned store, its flagship spot in downtown Minneapolis.
"It won't be large-scale, but it will be significant," CEO Chris Eilers told the Mineapolis/St. Paul Business Journal. Of the 10 to 12 stores planned for this year, most will still be franchised. But Eilers expects some franchises to close, taking net store growth down to two to four locations.
The economy has made it difficult for potential franchisees to get financing for a store. And existing franchisees experienced same-store sales decreases of about 4% in the first quarter. While franchise applications are still coming in, their frequency has been cut in half.
According to the Minneapolis/St. Paul Business Journal, new stores cost between $300,000 and $350,000 to open, but the company plans to take advantage of cheap real estate and closed coffeehouses that need little converting.
Dunn Bros started with a single shop in St Paul, Minn., in 1987, quickly setting itself apart by roasting beans in small drum roasters during business hours, right in the retail space. In 1994, when the chain was three stores strong, Eilers and partner Skip Fay became the first franchisees. In 1998, they bought the company and started a countrywide expansion.
Lately, Eilers is focusing on nontraditional outlets as the company faces an economy that is less friendly to traditional stores. (Dunn Bros are located everywhere from historic buildings to strip malls.) There are currently Dunn Bros Express stores at the Minneapolis-St. Paul Airport, the University of Minnesota campus, the Minneapolis Public Library and the Minneapolis Convention Center.
These nontraditional outlets, which are about 500 to 1,000 square feet, have helped grow the brand. "It started mainly by being contacted by interested parties that were looking for alternative, high-quality coffee operators outside of the Starbucks realm," Eilers told Fare Magazine.
Eilers hopes the new company stores will continue to build brand awareness in new markets, potentially spurring more franchise sales as the economies brightens. The company is also increasing brand recognition by expanding its retail bean operation, including deals with the TCF Bank Stadium at the University of Minnesota and three area theaters.
Meanwhile, as larger chains battle for coffee market share, Dunn Bros has enjoyed the extra space Starbucks has allowed smaller specialty shops. "It makes it easier for us to define who we are based on a value proposition [that is] based on the quality of the experience," Eilers tells Fare.
In the future, Eilers expects the coffee industry to continue to create niches for individual coffee drinkers. "Whereas just a couple years ago everybody was trying to educate, now it's not about educating, it's about attracting your core customer," he says.
MINNEAPOLIS, Minn. -- After years of significant new franchise growth, including 21 new stores in 2006, Minneapolis, Minn.-based coffeehouse chain Dunn Bros is looking to open more company-owned stores. It's the effects of the economy on potential franchisees that have this 92-unit chain looking at opening locations in the Twin Cities, Dallas, St. Louis and Kansas City, Mo.--including some shuttered Starbucks shops. 