Franchising in New England

The Boston Globe reports that Quincy grocery chain Stop & Shop will drop Dunkin’ Donuts stores from inside 130 supermarkets next year and likely replace them with rival java giant Starbucks, according to a Dunkin’ franchisee executive and a supermarket union official.

Mark Dubinsky, president of the Dunkin’ Donuts Independent Franchise Owners Association, yesterday said Stop & Shop is not going to renew its master lease with Dunkin’ when it expires early next year.

“For some reason, Stop & Shop didn’t want to continue. A lot of Dunkin’ franchises are sad to see the relationship end,” Dubinsky said. “Franchises liked the ability to access supermarket customers that may not frequent traditional stores. It was a good deal while it lasted.”

Most of the supermarkets with Dunkin’ Donuts shops are in Massachusetts and Connecticut.

Now, Stop & Shop appears poised to expand a relationship with Starbucks it first began two years ago. Starbucks has 93 coffee stands operating inside Stop & Shop and its sister grocery chain Giant Food. Mark Espinosa, president of UFCW Local 919 in Connecticut that represents Stop & Shop employees, yesterday said he had been told by the grocer’s labor relations executives that Starbucks would be taking over the Dunkin’ sites.

“It was a challenging relationship,” Dubinsky said. “Dunkin’ had to use Stop & Shop employees because of the union and had difficulties managing employees because they technically weren’t their own.”

Espinosa said the setup led to a lot of confusion. Stop & Shop, he added, had a relatively hands-off approach to the Dunkin’ shops, while the union expressed concerns that Dunkin’ was staffing the stores only with management positions to avoid complying with staffing levels and other provisions of the union contract.

Advertising Age reports that while Starbucks is closing stores and McDonald’s is focusing its expansion efforts abroad, Subway, by far the largest fast-food chain, with 22,000 U.S. locations, is adding 800 this year.

Don Fertman, director-development for the sandwich shops, said there’s now about one Subway for every 13,800 people in the U.S., although some markets, such as Philadelphia and Boston, are “under-served.” He said he thinks Subway can take the ratio to one restaurant for every 12,000 people in the U.S. while revving up growth overseas, where it now has 8,000 outlets.

A major factor helping Subway sprawl is its low overhead. The shops don’t need room for large kitchens, so there are outlets in hospitals, appliance stores, a smelting plant and even a church where the pastor wanted to provide job training for neighborhood kids. Subway is also the largest chain within Wal-Mart.

Mr. Fertman, who joined Subway in 1981, when there were 166 stores, said franchisee applications are up again this year and he credits the chain’s advertising for sparking renewed interest. He said that when he joined the company, most people thought he worked for New York mass transit. Now when he says he works for Subway, people chant “Eat Fresh.”

Subway is “possibly out of all restaurants, by consumer perception, the healthiest restaurant out there through a combination of marketing and product,” said Darren Tristano, exec VP at Technomic. “Because of the amount of marketing dollars put forth by the company and brand recognition, they have a great opportunity to be successful.”

Mr. Tristano said Subway still has room to grow — within its existing stores. He noted that the average McDonald’s brings in more than $2 million a year, while the average Subway earns closer to $375,000. And since Subway has about 50% more U.S. stores than McDonald’s 14,000 locations, he said they can do more. “They’ve just started to get deep into breakfast,” he said. “I still think there’s opportunity for growth.”

Papa Gino’s is launching another ad campaign featuring New England Patriots Linebacker Tedy Bruschi.

The new “Papa Time” campaign, created by Boston ad shop Connelly & Partners, highlights Papa Gino’s pizza, fast delivery and overall convenience.

The television ads will begin airing in late-July in the Boston and Providence markets, where the Dedham, Mass.-based pizza chain has its highest concentrations of restaurants.

In addition to the new advertisements, Papa Gino’s will launch an online sweepstakes that will offer weekly chances to win free pizza for a year and will also include instant food prizes.

Papa Gino’s Holdings Corp. is the parent company of Papa Gino’s and D’Angelo Grilled Sandwiches; the company operates more than 370 company-owned and franchised Papa Gino’s, D’Angelo and dual-location restaurants and employs more than 5,000 people.

The Boston Business Journal reported Au Bon Pain plans to add a total of 100 units over the next two years in India. The Boston-based bakery and cafe chain has signed a master franchise agreement with Spencer’s Retail Limited, the retail arm of RPG Enterprises, a $3 billion Indian conglomerate with 20 companies operating in six business sectors, including retail, power, entertainment, technology, transmission and tires. The announcement comes at a time when Au Bon Pain, earlier this year, announced a recapitalization by LNK Partners in March, the introduction of smaller portions and store openings in Kuwait and Dubai next month.

Au Bon Pain’s menu in India will include a line of vegetarian sandwiches as well as other vegetarian items to accommodate cultural traditions and religious dietary needs.

Seven Massachusetts Starbucks stores are are among the 600 stores nationwide slated to close. Those stores are located on the Middlesex Turnpike in Burlington, the Dartmouth Mall in Dartmouth, 70 Union St. in Newton Centre; Emerald Square Mall in North Attleborough; Five Post Office Square in Sharon; 425 Washington St. in Stoughton; and Shrewsbury Market Place in Worcester.

Starbucks said it is closing 600 company-operated, underperforming stores as part of a strategy given the challenging economy. It also announced it expects to open fewer than 200 new U.S. company-operated stores in fiscal 2009.

Both full-time and part-time retail positions will be eliminated, but the company said it expects to place many of the employees into available positions at nearby Starbucks stores.

The closings will begin this month and continue through the first half of 2009.