Baskin Robbins 2011 Annual Report Download - page 21

Franchise fees
In the U.S., once a franchisee is approved, a restaurant site is approved and a franchise agreement is signed, the
franchisee will begin to develop the restaurant. Franchisees pay us an initial franchise fee for the right to operate
a restaurant for one or more 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 $10,000 to $90,000, as shown in the table below.
Restaurant type
Initial franchise
fee*
Dunkin’ Donuts Single-Branded Restaurant ......................................... $40,000-80,000
Baskin-Robbins Single-Branded Restaurant ......................................... $ 25,000
Baskin-Robbins Express Single-Branded Restaurant .................................. $ 10,000
Dunkin’ Donuts/Baskin-Robbins Multi-Branded Restaurant ............................ $45,000-90,000
* Fees as of December 31, 2011 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 2011, 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 5.1%. 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 and our Korean joint venture partner have agreements
at a lower rate, resulting in an effective royalty rate in the Dunkin’ Donuts international segment in 2011 of
approximately 2.0%. 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 receive revenue from such franchisees as a result of our sale of ice cream products to
them, and in 2011 our effective royalty rate in this segment was approximately 0.7%. In 2010, we supplemented
and modified certain SDAs, and franchise agreements entered into pursuant to such SDAs, for restaurants located
in certain new or developing markets, by (i) reducing the royalties for any one or more of the first four years of
the term of the franchise agreements depending on the details related to each specific incentive program;
(ii) reimbursing the franchisee for certain local marketing activities in excess of the minimum required; and
(iii) providing 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 $316.3 million in contributions from franchisees in fiscal year 2011, are
almost exclusively franchisee-funded and cover all expenses related to marketing, 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.
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