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Cheryl Hall: To former Zale execs, Dunkin' Donuts is a gem
Sprinkles sparkle as Zale family members, partners plan Dunkin' shops08:08 AM CST on Wednesday, March 5, 2008
Valet parkers are an instant giveaway that this is no ordinary opening of a doughnut store. The well-heeled guests inside this new Dunkin' Donuts in Far North Dallas are further proof.
They've braved lousy weather Monday evening at the invitation of the doughnut shop's proud owners: Donald and Barry Zale, whose family founded Zale Corp., and a small cast of successful Dallas business types, including software millionaire Larry Lacerte.
Partygoers sheepishly down glazed, iced, jelly- and cream-filleds and sample pizza and flatbread sandwiches. And they leave toting doughnuts by the dozens.
I'm thinking I deserve diet hazard pay.
Donald Zale, the 74-year-old former chief executive of the jewelry chain, plays jovial host while his son, Barry, works to keep up with the mounting horde of friends and family.
Barry, who's 52, has had gastric bypass surgery. So he supervised the baking of 850 dozen confections for the pre-opening but didn't sneak even one bite.
And all but one of the six limited partners are Jewish, yet a key new menu item they're introducing to the Dunkin' Donuts chain is a sausage and cheese kolache.
"Hey, so we're not exactly kosher," quips George Tobolowsky, the 58-year-old chief executive of Texas Donuts LP and the elder Zale's son-in-law.
This organized chaos marks the official launch of Canton, Mass.-based Dunkin' Donuts' rapid charge into Texas. Plans call for three large Dallas-based franchise operators, including Texas Donuts, to build 160 units in Dallas-Fort Worth and a total of 80 in the San Antonio and Austin markets by 2015. The rights for Houston are still up for grabs.
Even though the brand is universally known, there were fewer than 50 Dunkin' Donuts west of the Mississippi when its Western expansion was announced last year. That included a grand total of three here. There are more than 5,700 east of the river.
When the store at Preston and Campbell roads opens today, it will be the first of 70 that Texas Donuts plans in Dallas County and eastern Tarrant County, including Arlington. It will open 30 shops in the Alamo City market.
So why are these former jewelry moguls betting on doughnuts?
Sitting in their offices on Maple Avenue, the four key guys – all past Zale executives – make their latest investment sound like the greatest thing since sliced bread.
Since the buyout of Zale in the late 1980s, the Zales, Mr. Tobolowsky and Billy Gutow, previously senior vice president of Zale real estate development, have made millions building and selling Blockbuster Entertainment franchise stores in the Washington, D.C., area and Palm Beach Tan salons in Las Vegas.
So who came up with the idea of doughnuts?
"It's a collective, accusatory guilt," Donald Zale says. "We were looking for something else to do after selling our tanning salons, and Dunkin' Donuts popped up on our radar screen."
He and Mr. Gutow regularly travel on business to Boston, where there are more Dunkin' Donuts per capita than any place else on Earth.
There was an article in the paper there about Dunkin' Donuts' expansion plans, says Mr. Tobolowsky. "Donny threw it at me and said, 'Find out about this.' "
Texas Donuts will spend about $500,000 apiece on its 100 units, Mr. Tobolowsky says. It expects a favorable return, since a typical shop generates about $1 million in annual sales.
Don Kivowitz, who runs a chain of nursing homes based in Victoria, Texas, had such fun with the tanning salons that he's in for a second round. This is Mr. Lacerte's first foray with the group.
The biggest player in the Texas expansion is Richard Gussoni, owner and chief executive of Culinaire, a $75 million Dallas catering company. He plans to build 110 Dunkin' Donuts stores – 60 in Collin and northern Tarrant counties and 50 in Austin.
Mr. Gussoni has opened a small, limited-menu store inside the Wal-Mart superstore at the Dallas North Tollway and Park Boulevard in Plano.
But it's atypical of what he plans for Plano, where Northeastern transplants abound.
Most of his stores will be drive-throughs, including one slated for the upscale Shops at Legacy in Plano. He plans to open eight here and four in Austin by year-end.
"I know you're laughing," Mr. Gussoni says, "but the big investment firms here have called because they want to fund it all. They love the brand and this concept."
The third franchise company is D3FW Operating LLC, led by Dallas businessman Michael Weinberg. The group, primarily investors from Florida, plans 30 stores in Denton County and the southwestern part of Tarrant.
Why?
"It's a nationally known brand that isn't national," says Mr. Weinberg, a 42-year-old former hedge fund executive.
Coffee accounts for more than 60 percent of Dunkin' Donuts' sales at existing U.S. units. Ingredients are cheaper, margins are higher and there's less spoilage than with baked goods.
"Dunkin' sells 2.7 million cups of coffee a day. That's over a billion cups of coffee a year," says Barry Zale.
Mr. Weinberg and Mr. Gussoni came to Monday's party to show support for their Dunkin' counterparts. They're depending on each other to make Dunkin' Donuts the coffee brand of choice in North Texas, where there's a Starbucks, McDonald's, 7-Eleven or some other contender along every busy route.
The elder Zale goes ah-shucks polite when Starbucks is mentioned. "We have nothing but the greatest respect for those guys. They don't have anything to worry about with us."
Yet his company's second location at Preston and Alpha roads, which opens in two weeks, sits directly across from a clubby Starbucks.
His drive-through-only Dunkin' is on the going-to-work side of Preston, has no interior and stands beneath a huge sign with a cup of plain Joe.
Therein lies the difference in corporate strategies, Mr. Gussoni says. "Dunkin' separates Dunkin' Donut coffee drinkers and Starbucks people as two different tribes. The Starbucks tribe likes all the lingo of venti and grande. Then there's a Dunkin' guy who goes, 'Hey, give me a regular.'
"They tell us to watch McDonald's. They say that's our competition, not necessarily Starbucks."
Mr. Weinberg wants to give the folks in Seattle a run for their money. "There is no alternative to Starbucks right now, and there needs to be one. We're going to fight McDonald's for that honor."
Dunkin' Donuts plans to nearly triple in size to 15,000 units in the next 10 to 15 years. A big part of the expansion will take place in Texas, with Dallas-Fort Worth as its initial key foothold.
Growth plans: Dallas and Phoenix are Dunkin' Donuts' top growth cities nationwide. The company plans to open 15 locations in D-FW this year, 20 in 2009 and 20 in 2010.
Units here by 2015: 160
Who will build them? Three Dallas-based franchise operators will open stores in D-FW, San Antonio and Austin:
•Texas Donuts LLC: 70 stores in Dallas and eastern Tarrant counties, 30 in San Antonio.
•Culinaire: 60 stores in Collin and northern Tarrant counties, 50 in Austin.
•D3FW Operating LLC: 30 stores in Denton and southwestern Tarrant.
Name of the game: Coffee. On an average day, Dunkin' Donuts sells 30 cups of coffee per second.
SOURCES: Dallas Morning News research; Dunkin' Brands
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