Two sides had been at war for over a decade; big gamble on unknown name.
Lisa Fickenscher writes in Crain’s New York that there is no love lost between Dunkin’ Donuts and fast food king Dennis Riese, who will close all 13 of his doughnut shops Friday night and replace them on Monday with a Canadian brand, Tim Hortons eateries, as reported by Crain’s on Thursday.
“We were always at each others’ throats,” said Mr. Riese, chief executive of a firm that owns more than 100 chain restaurants in the city, including such brands as T.G.I. Friday’s, Taco Bell and Pizza Hut.
The 25-year marriage between the Riese Organization and the franchisor soured more than a decade ago in a hail storm of litigation involving accusations of unsanitary restaurant conditions and sullied reputations. In 1999, Randolph, Mass.-based Dunkin’ Donuts attempted to oust its franchisee after the New York Post ran a photograph of a mouse eating a doughnut in the window of a Riese-owned outlet. In a lawsuit, Dunkin’ “alleged violations relating to health, sanitation and safety.”
That was also the same year that Riese Organization filed for bankruptcy and began closing many of its restaurants, including half of its Dunkin’ Donuts portfolio.
In fact, it wasn’t until 2004 that the two companies finally reached an agreement in which Riese Organization agreed to end its ties to Dunkin’ Donuts this month.
“We wanted to move as quickly as possible,” said a Dunkin’ spokeswoman, “Unfortunately, it takes a significant amount of time to litigate these types of cases.”
Mr. Riese calls such charges nonsense. “They couldn’t demonstrate [in court] that we weren’t running clean and healthy restaurants.”
In a war of accusations and counter claims, one thing is clear: Both sides eventually wanted out. Riese Organization claims that its stores were no longer as profitable, because Dunkin’ Donuts increasingly raised the bar on its franchisees investment in the brand and real estate consumed a bigger chunk of revenues.
Along the way, however, Mr. Riese insisted that Dunkin’ Donuts lost an important battle. The franchisor waived a non-compete agreement that would have prevented Riese Organization from opening a similar restaurant in the former Dunkin’ locations.
“That’s huge,” said Mr. Riese.
“Opening a Tim Horton’s would clearly violate that clause,” said Harold Kestenbaum, an attorney specializing in franchise law.
Dunkin’ Donuts for its part simply said, “We thought it was in our best interest to remove the Riese Organization from the system.”
The Canadian company, with nearly 3,000 restaurants in Canada and 500 in the U.S, is opening its first outlets with Riese in New York City. It offers much the same fare at comparable prices as Dunkin’ Donuts—though it has a more extensive menu including sandwiches and soups.
Industry experts say Riese Organization would be attractive to Tim Hortons because of its ability to open so many restaurants all at once, allowing the brand to make a splash and reach a lot of consumers in prime locations—most of the spaces are in transportation hubs in and near Pennsylvania Station and in Times Square.
But they also point to Riese’s litigious past as a red flag for the Canadians.
“I’d imagine that Tim Hortons does have some concern about Riese based on the fact that there have been lawsuits,” said Andrew Moger, chief executive of BCD, a restaurant development firm.
Mr. Riese concedes that he expects to have challenges in his latest alliance. For one thing, New Yorkers aren’t familiar with Tim Hortons. Mr. Riese also can’t vouch for the corporate culture of the company, which is owned by Wendy’s.
“I’ve heard through the grapevine that they are a great system.”
In the meantime, he is spending $2 million to market the Tim Hortons brand and transform his 13 locations.
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