Dunkin' gets some Southern exposure

FRANKLIN, Tenn. -- Joe Rando spent nearly two years planning for this day: opening a Dunkin' Donuts here so he could get a good cup of coffee, the kind he remembers drinking during his days as a student at Tufts University.

But five hours into the grand opening on Wednesday, with a line snaking out the door, the region's lone franchisee ran out of doughnuts. All 650 dozen of them. That's a rate of 26 doughnuts a minute.

``We thought we had enough," said Rando, 40, who had to give out hundreds of coupons for free doughnuts. ``It's pretty crazy."

Dunkin's expansion in the Nashville market, with as many as 100 new locations planned over the next few years, is part of the Canton chain's strategy to triple its stores nationwide to 15,000 by 2020 . Dunkin' is the country's top doughnut chain. But under new owners, including two of Boston's biggest private equity firms, the company is moving fast to capture the lucrative coffee market and broaden its concept to include hot dogs and pizza in new cities. Last year, nearly 70 percent of its 543 new US stores were built outside the Northeast.

The success -- and saturation -- in New England has prompted local franchisees to open stores in new markets, including Tampa and Charlotte, N.C. But they're learning the hard way about the challenges of expanding in areas where Dunkin' isn't on every block. In places like Tampa, customers are buying dozens of doughnuts but not ordering as many of the more profitable beverages. A Coffee Coolatta? Never heard of it.

``I've never been in a Dunkin' Donuts. I have no clue what they serve," said Billy Cowart , who lives near the new store in Franklin, about 20 minutes outside Nashville. ``But if they're trying to sell coffee, they should change their name to `Dunkin' Donuts and a Lot of Coffee,' or `Not Just Donuts.' "

As part of Dunkin's rapid push for growth, the company has tightened its stringent requirements for new franchisees, doubling the minimum amount of cash and assets needed, and asking them to build a minimum of five stores in each market. Rando estimated it would cost at least $6 million to open five stores in a market like Nashville. That's a shift for the $3.8 billion Dunkin' empire, which was built largely by franchisees who ran one or two stores.

``This is a much bigger business than 20 years ago," said Will Kussell , Dunkin's chief operating officer. ``We're a power brand that requires very strong, capable franchises."

The pressure is on for Dunkin' to get bigger as fast food companies, including Burger King and Subway, are introducing gourmet brews to US customers. McDonald's is serving Newman's Own Organics coffee, and java giant Starbucks, which opens about five stores a day globally, signed a deal to serve coffee inside Stop & Shop supermarkets. That could mean trouble for Dunkin' stores, which in older markets earn as much as 70 percent of their revenues from coffee.

But Dunkin' executives are confident their national push won't turn into a disaster like Southern rival Krispy Kreme Doughnuts Inc., which aggressively expanded in the late 1990s, only to close dozens of stores years later and lose $198 million in fiscal 2005. Dunkin' has more advertising support, stricter financial requirements, and a bigger menu than Krispy Kreme, according to analysts.

``Dunkin' Donuts will not make the same mistake," said Stuart Morris , president of QSR Consulting Group Inc. in Coronado, Calif. ``Dunkin' Donuts has an established presence with over 4,000 restaurants with a more diversified product offering that appeals to a greater audience."

And Dunkin' is refining the way it selects new markets. At first, the company looked at bigger cities, but now is focused on smaller ones, such as Cincinnati and Cleveland, where the population is growing, and coffee still is sold largely by independent shops, according to Kussell.

Nashville never was at the top of Dunkin's list until Rando called Dunkin's chief executive, Jon Luther , and persuaded company executives that Nashville is the kind of market that Dunkin' craves -- a fast-growing city with lots of coffee drinkers, cheap real estate, and Northeast transplants who know a good cup of joe.

In a matter of months, Rando transformed himself from a former wireless services executive into a well-financed entrepreneur. He trained for 13 weeks at Dunkin' Donuts University in Canton and other sites in Florida, California, and Tennessee, where he learned how to brew coffee, scoop ice cream, and make the doughnuts.

Back home, Rando scouted out the right store location (3 miles from his home, across from a Starbucks that draws people to the area), interviewed dozens of potential employees, and trained them on how to prepare the perfect doughnut.

On opening day Wednesday, Rando got to the store at 2 a.m. Dunkin' fans had started to line up even though the store wouldn't open for three hours. The first customer was Pete Wade , a 36-year-old high school calculus teacher, who ordered nine dozen doughnuts for his students and colleagues, an order that took 25 minutes to fill. A Bible group studying at the nearby Starbucks considered moving their weekly gathering to Dunkin.'

``When I moved from Chicago, there was a such a fuss here about Krispy Kreme," said Jerry Teige , one of the Bible group members. ``I never got into them."

At 7:45 a.m., a local radio show held a doughnut eating contest between customers and a radio host, who stuffed their faces during a live broadcast. Local sports stars -- including David Givens , a former Patriots player who signed this year with the Tennessee Titans -- also were on hand pouring coffee.

By 10 a.m. the store unexpectedly was out of doughnuts, prompting Rando to send staff to Kinkos to run off copies of coupons for free doughnuts. A second batch of 400 dozen didn't arrive until 3 p.m. from a nearby bakery; Dunkin' bakes doughnuts off-site and brings them to the stores, where they get glazed and sprinkled.

Rando said he almost ran out again, but another batch came just in time around 6 p.m. By the end of the day, locals had consumed more than 14,000 doughnuts.

In between doughnut deliveries, Rando served up a key feature of Dunkin's national strategy -- pizzas, sandwiches, and hot dogs wrapped in bagels -- to make Dunkin' more than just a breakfast place. But it's the highly profitable, smooth-tasting coffee that Dunkin' wants to push the most.

It's the kind of coffee that inspires people like Kathy Visconte , originally from Hampton Beach, N.H., to kneel on the parking lot and bow down to Rando on opening day, yelling, ``I've been waiting 10 years for this."

But among new customers, there's little passion -- at least initially -- for Dunkin' brew. In Franklin, 17-year-old Kathryn Price didn't even consider Dunkin' for coffee. She stopped first at the Starbucks for her iced white chocolate mocha and then headed across the street for some doughnuts.

Getting new customers to order more than just doughnuts is the biggest challenge, and that may determine whether Dunkin' can replicate its success nationwide, franchisees say.

``Up North, we are spoiled. Everyone knows our products, and we don't have to think twice," said Mike Silva , who moved last year from Taunton to open stores in Tampa. ``It's just so different down here. Even a year later, people don't know the difference between our lattes, iced coffees, and Coolattas. They just want doughnuts."

Orders for dozens of doughnuts also mean big waits at drive-throughs and counters.

``We're not in it to get rich overnight. We're in it for the long haul," said John Coughlin , who operates 25 stores in Connecticut, and just began opening stores outside Charlotte, N.C. ``I've already seen the future coming off New England. That future is going across the country and building the Dunkin' brand."

Jenn Abelson can be reached at abelson@globe.com.