This article first appeared in Independent Joe Issue 3 in December 2009. See all of Independent Joe online here (it looks just like the magazine): Indepdendent Joe Magazine Issue 3
The Cleveland and Northern Ohio economy is one of the nation’s hardest hit, losing thousands of jobs and watching its population be cut in half. But for Dunkin’ Donut franchise owners, it has been a good market.
Despite the economy, “we have been able to succeed,” said Stewart White, who converted a Mr. Donut franchise to be his first Dunkin’ Donuts shop in Youngstown in the 1980s. He has been in the donut and coffee business for 32 years, expanding from Youngstown to Cleveland where he has two stores and is opening a third.
White attributes Dunkin’s success in the Cleveland area to having good operators and a central production facility. He also said it does not hurt that Dunkin’ is “a blue-collar brand in a blue-collar town.”
Cleveland and surrounding cities have been hurt by the flight of capital and jobs. Once the home of major steel producers and auto-makers, Cleveland in 1950 was the nation’s fifth-largest city with a population of 915,000.
Today, its population is 440,000 and falling. Cleveland is ranked among the five poorest cities in America. And its population is aging. According to the U.S. Census Bureau, Cleveland’s median age was 37 years old in 2006, up from 33 in 2000. And despite having eight for-year colleges and universities, the city’s population of 25 to 34 year olds dropped by 31.72 percent from 2000 to 2006, from 71,847 to 49,057.
The Cleveland metropolitan area lost 24 percent of its manufacturing jobs between 2000 and 2005, according to a Brookings Institution study. The city is hoping its future economy can be tied to the health care industry built on the worldwide reputation of the Cleveland Clinic and the businesses created by technology transfer from research done at Case Western Reserve University. But for now, Cleveland’s economy would not seem to be a place where many businesses would thrive.
Dunkin’ Donuts is growing in that market. The Dunkin’ Donuts’ penetration of the northern Ohio market does not compare to New England, where “there is a Dunkin’ shop on every corner,” White said.
But according to statistics provided by another Dunkin’ Donuts franchise owner, SMB Donuts’ partners Ken Blum, Matt Doyle and Rob Branca, the Cleveland area had 34 Dunkin’ Donuts shops in 2005. It added three and closed one in 2006 and added two and closed one in 2007. Last year, during probably the worst of the recession, four new shops opened and none closed. One more shop has been added this year for a total of 42 shops. And more are planned or are under construction.
In Youngstown, White said, there were only three shops. Now there are 13.
The average weekly customer count and the average check size have been on the rise as well. In the Cleveland shops the average weekly customer count has gone up from 3,687 in 2007 to 3,826 this year. The average weekly check has gone up from $3.74 to $3.81, despite the slower economy, according to the SMB statistics. White said store revenues are being driven by coffee and other beverage sales. In years passed, donuts made up 50 to 60 percent of the sales mix, he said. Now it is at 30 percent, and at some stores it is at 20 percent.
“There has been lots of growth, but it has been careful, well-financed and well-planned growth,” White said. The SMB Donuts group has been opening new shops at a fast pace. The group opened its third shop in Parma to great fanfare last year, including a live broadcast from a local radio station. “They (SMB) are good operators,” White said. “They have come in here and really raised the bar for us.”
White attributes much of the success to the decision to locate a central production facility in Cleveland. The production facility struggled at first, he said, because there were so few shops to buy its donuts. But with the Dunkin’ growth in the market, the facility has thrived and now is being expanded to double its production capacity.
The vacant land in Cleveland, estimated at more than 3,300 acres, may be a blessing in disguise. “This market is not very pedestrian. There are a lot of wide open spaces,” White said.
The vacant land has helped franchise owners negotiate more favorable real estate deals. And it has made way for more shops that feature a drive through. Drive-thoughs are critical, White said. “I would never have a store without one.”
He learned from owning a shop without a drive-through. It struggled, he said, until he put in a drive-through. In terms of coffee, Dunkin’s competition in Cleveland is McDonald’s, which has been aggressively promoting coffee, and a chain of gas stations, not Starbucks. Most of the traditional donut shops “are not on the radar,” as coffee sellers White said.
The gas stations are a potential threat, White said. Not only are the gas station stores being upgraded, but customers can now order their coffee from the pump and have it waiting for them when they finish fueling their car, he said.
There are frequent rumors that Tim Hortons shops are considering crossing the border from Canada into Cleveland, he said. But that has yet to happen.
The Cleveland market is proof once more that committed owners running good shops with solid financial backing can succeed even in a economically declining market.