Dunkin' Donuts 2015 Annual Report Download - page 14

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franchised brands. The franchisee is required to pay all or part of the initial franchise fee upfront upon execution of the
franchise agreement, regardless of when the restaurant is actually opened. Initial franchise fees vary by brand, type of
development agreement and geographic area of development, but generally range from $25,000 to $100,000, as shown in the
table below.
Restaurant type
Initial franchise
fee*
Dunkin’ Donuts Single-Branded Restaurant $ 40,000-90,000
Baskin-Robbins Single-Branded Restaurant $ 25,000
Dunkin’ Donuts/Baskin-Robbins Multi-Branded Restaurant $ 50,000-100,000
* Fees effective as of January 1, 2016 and excludes alternative points of distribution
In addition to the payment of initial franchise fees, our U.S. Dunkin’ Donuts brand franchisees, U.S. Baskin-Robbins brand
franchisees, and our international Dunkin’ Donuts brand franchisees pay us royalties on a percentage of the gross sales made
from each restaurant. In the U.S., the majority of our franchise agreement renewals and the vast majority of our new franchise
agreements require our franchisees to pay us a royalty of 5.9% of gross sales. During 2015, our effective royalty rate in the
Dunkin’ Donuts U.S. segment was approximately 5.4% and in the Baskin-Robbins U.S. segment was approximately 4.9%. The
arrangements for Dunkin’ Donuts in the majority of our international markets require royalty payments to us of 5.0% of gross
sales. However, many of our larger international partners, including our South Korean joint venture partner, have agreements at
a lower rate, resulting in an effective royalty rate in the Dunkin’ Donuts international segment in 2015 of approximately 2.3%.
We typically collect royalty payments on a weekly basis from our domestic franchisees. For the Baskin-Robbins brand in
international markets, we do not generally receive royalty payments from our franchisees; instead we earn revenue from such
franchisees as a result of our sale of ice cream products to them, and in 2015 our effective royalty rate in this segment was
approximately 0.5%. In certain instances, we supplement and modify certain SDAs, and franchise agreements entered into
pursuant to such SDAs with certain incentives that may (i) reduce or eliminate the initial franchise fee associated with a
franchise agreement; (ii) reduce the royalties for a specified period of the term of the franchise agreements depending on the
details related to each specific incentive program; (iii) reimburse the franchisee for certain local marketing activities in excess
of the minimum required; and (iv) provide certain development incentives. To qualify for any or all of these incentives, the
franchisee must meet certain requirements, each of which are set forth in an addendum to the SDA and the franchise agreement.
We believe these incentives will lead to accelerated development in our less mature markets.
Franchisees in the U.S. also pay advertising fees to the brand-specific advertising funds administered by us. Franchisees make
weekly contributions, generally 5% of gross sales, to the advertising funds. Franchisees may elect to increase the contribution
to support general brand-building efforts or specific initiatives. The advertising funds for the U.S., which received $400.6
million in contributions from franchisees in fiscal year 2015, are almost exclusively franchisee-funded and cover all expenses
related to marketing, research and development, innovation, advertising and promotion, including market research, production,
advertising costs, public relations, and sales promotions. We use no more than 20% of the advertising funds to cover the
administrative expenses of the advertising funds and for other strategic initiatives designed to increase sales and to enhance the
reputation of the brands. As the administrator of the advertising funds, we determine the content and placement of advertising,
which is done through print, radio, television, online, billboards, sponsorships, and other media, all of which is sourced by
agencies. Under certain circumstances, franchisees are permitted to conduct their own local advertising, but must obtain our
prior approval of content and promotional plans.
Other franchise related fees
We lease and sublease properties to franchisees in the U.S. and in Canada, generating net rental fees when the cost charged to
the franchisee exceeds the cost charged to us. For fiscal year 2015, we generated 12.4%, or $100.4 million, of our total revenue
from rental fees from franchisees and incurred related occupancy expenses of $54.6 million.
We also receive a license fee from Dean Foods Co. (“Dean Foods”) as part of an arrangement whereby Dean Foods
manufactures and distributes ice cream and other frozen products to Baskin-Robbins franchisees in the U.S. In connection with
this agreement, Dunkin’ Brands receives a fee based on net sales of covered products. For fiscal year 2015, we generated 1.2%,
or $10.1 million, of our total revenue from license fees from Dean Foods.
We distribute ice cream products to Baskin-Robbins franchisees who operate Baskin-Robbins restaurants located in certain
foreign countries and receive revenue associated with those sales. For fiscal year 2015, we generated 14.2%, or $115.3 million,
of our total revenue from the sale of ice cream products to franchisees primarily in certain foreign countries.