Around the Corner to Around the World

A Dozen Lessons I Learned Running Dunkin Donuts

Robert Rosenberg

• Publisher: HarperCollins Leadership
• Year: 2020
• ISBN:
  9781400220496
• Topic: Business
• Subtopic: Business History
• Index: Business

Learn twelve key lessons from Dunkin' Donuts former CEO Robert Rosenberg that offer critical insights and a unique, 360-degree perspective to business leaders and managers on building one of the world's most recognized brands.

For entrepreneurs fighting for survival and leaders in growing businesses facing critical strategic decisions, competition is always fierce and the future is never certain. Throughout all the chaos, you need a mentor that has seen a business through the ins and outs and can offer guidance that will exponentially tip the odds in your favor to succeed.

Robert Rosenberg took over as CEO of Dunkin' Donuts in 1963, 13 years after the first restaurant was founded by his father William. In his remarkable 35-year run, he grew the company from $10 million in sales to over $2 billion with more than 3, 000 outlets. Through his tenure, Robert learned important lessons on running and scaling a family business.

Rosenberg shares his insider perspective on all the dramatic highs and lows that are part of the Dunkin' Donuts story to guide you to your own success story.

In Around the Corner to Around the World, Rosenberg helps you as he:

• Distills the characteristics of a successful company through all phases of growth.
• Provides a new perspective on the dramatic story behind the rise of one of the world's most iconic brands.
• Tells the first-hand account and essential lessons learned from the tenure of one of the most successful CEO runs in modern business history.
• Reveals some of the dramatic and surprising plot turns in the story of Dunkin's rise to global prominence.

Around the Corner to Around the World tells a compelling story of lessons gleaned over a 35-year career building a small business into the iconic Dunkin' brand it has become.

The harrowing twists and turns and sometimes existential threats to the business will enlighten anyone starting or running a business.

ERA 1: 1963–68

HALCYON DAYS

BACKGROUND

On a beautiful sunny June day in 1963, I had a conversation with my father, William Rosenberg, that would change the trajectory of my life. At the time, I was a newly minted MBA, just twenty-five years old, barely two weeks postgraduation from Harvard Business School. On that life-changing day, my forty-seven-year-old father asked me to become president of his business, Universal Food Systems, a daunting responsibility for more reasons than you might guess.

He sat me down in his office, slipping immediately into full sales mode. “Look,” he said, “I’ve observed you over the years, and whether it be school, camp, or the army, you’ve always come out on top—a leader—and I’m sure you can do this as well.”

Wonderful words to hear from my dad; still, I took a huge breath and asked for some time to think.

UNIVERSAL FOOD SYSTEMS

Universal Food Systems comprised a portfolio of eight small food service divisions¹ with annual revenues of $6 million and earnings of $93,000. Up until that point in my life, the only thing I had managed were a couple of donut shops—replacing managers for their summer vacations—and a short stint supervising a cafeteria. My father’s request was breathtaking and anxiety-producing, but not all that surprising. A few months previous, while still in business school, I had accompanied him to a meeting in New York City where he was trying to sell the business to a small private equity investor for $1.5 million. He quickly passed on our offer. I had the distinct impression that this prospective New York buyer was only one of many who had already passed on the deal.

My father’s one goal—the sale of the enterprise that would become Dunkin’ Donuts—was to be a millionaire after taxes.

An eighth-grade dropout and product of the depression, my father had seen his father lose his small market in Boston to bankruptcy during the depression of the 1930s. These are trials I had not gone through, so I could only imagine how they must have scarred him as well as shaped every decision he made. I loved and respected my dad. I had sought his approval and approbation throughout my life.

From my earliest recollections, he had shared his business experiences with me. I vividly recall the day in 1947—I was just nine years old—when he took me on my first airplane ride. It was a DC3 and we flew to Albany, New York, from Boston. His company was providing the industrial catering for the thousands of employees at the Watervliet Arsenal in Watervliet, New York. It seemed the employees were up in arms over the fact that he had raised the price of a cup of coffee from a nickel to a dime. My dad’s mission was to try to explain his reasoning and calm them down in hopes of saving his largest and most important account.

I remember sitting in the rear of the union hall with hundreds of grumbling workers as my dad took the stage. A normal man would be a bit addled in this situation, but not my dad. He was fearless. He held forth for the better part of an hour as he explained that the price of coffee had escalated, and he believed they were better served by raising the price rather than reducing the quality. At the conclusion of the meeting, a vote was taken and a majority of the attendees were swayed, now in support of quality over price. That commitment to quality was, I believe, baked into the DNA of every business he started and lives on in the products Dunkin’ Donuts and Baskin-Robbins serve to this very day.

My father was a self-made man with an eighth-grade education. Well-built and handsome, he stood a good six feet and weighed in at a solid 220 pounds. The kind of guy who walked into a room and dominated it; someone impossible to ignore. He was bigger than life. And he had the knack—an entrepreneurial zeal that defined and drove him. He was a world-class salesman who could sell sand on the beach. But the more I observed him, the more I came to know that his strengths were tempered by weaknesses.

On the plus side, his timing was great. Returning servicemen and -women entering the workforce after World War II would put a tailwind in the food-away-from-home industry, which grew at a healthy clip for the next fifty years.

My dad also proved to be quite adaptable. When his initial industrial food service business began to falter because of changing competitive conditions, he searched and experimented with other business formats to keep his dream of business success alive. Unfortunately, he didn’t know when to stop diversifying.

He had also fallen prey to some of the common mistakes many self-made people make, suffering from an almost unfillable need for recognition. This weakness was exacerbated not only by his upbringing, but—plain and simple—by his personality. His worldview was formed by what I came to understand as a “scarcity mentality.” He saw life as: I win, you lose—or, just as starkly—you win, I lose. Nothing in between. If he didn’t feel himself the winner, he was utterly miserable. There was no model on earth for him to see life as a win-win for all parties. Even worse, he believed he was infallible, that his success in one area or activity made him an expert and invincible in all others. Worst of all was his habit of taking every last dram of credit for what worked out well while syndicating the blame to others for what didn’t. This was his modus operandi.

But after laboring for fifteen years with his business, my father was weary and wanted out. His oft-repeated refrain was that he started supporting his family when he was a boy and had already worked a lifetime. All the males in his family had died young, so he saw hard work as a sure road to an early death. Conversely, he viewed free time as fun and life-extending, so I knew he had that in mind when he made his offer to me.

At that time, in 1957, my parents had begun to spend their winters in Florida. The rest of the year, when my father did come to work in Boston, he had the habit of working out mornings at a downtown health club, arriving at the office by noon, then keeping his staff at work quite late into the evening. He had already turned over the day-to-day management of Universal Food Systems to a former Montgomery Ward² executive, S. Joseph Loscocco.

Even before that fateful day when my father turned to me to take over day-to-day management, profits had stalled and he was stymied. He had grown his business from an industrial catering company with trucks serving factory workers—a business he knew well—to a highly diversified portfolio of food service businesses. Profits began to stagnate—averaging between $96,000 and $200,000 yearly. Larger food service competitors, like Canteen Corporation, were winning vending and cafeteria accounts in our region from his Industrial Cafeteria and Menu Mat Vending division.

Our small chain of fifteen hamburger stores, Howdy Beef n’ Burger, was suffering at the hands of McDonald’s. Our pancake houses had maxed out at just three—Providence, Rhode Island, Coral Gables, Florida, and Burlington, Vermont. Willie’s, Our New York-style deli in Providence, turned out to be a major cash burner. And the crown jewel of Universal Food Systems—Dunkin’ Donuts? Yes, our hundred-store, mostly franchised, chain was in extremis as well.

Exacerbating the problem, Dunkin’ management began to lose faith that a limited menu, based solely on coffee and donuts, was sufficient to profitably support a store, so they tinkered with the format and offerings. The last twenty-six stores they had opened varied in size from eighteen to ninety-six seats and served full breakfasts as well as an assortment of grilled foods, such as hot dogs and hamburgers. The operation was complicated and store profits suffered. Franchisees were complaining and failing. Many wanted to spend their 2 percent advertising contractual commitment on their own stores in their own region rather than contribute to the general advertising fund—a potentially ruinous decision.

The ad fund was the essential resource allocated to building our brand and keeping the franchise healthy and expanding. Siphoning off those monies was, in effect, giving up control of where, when, and how the brand would be communicated to the consumer. Despite knowing better, management was beginning to accede to these franchisee requests.

A FAMILY SPLIT

I think the most galling reason my healthy forty-seven-year-old father turned to me to take the reins of his business was the publicity and recognition his former partner and brother-in-law, Harry Winokur, had been garnering as founder of my father’s major competitor, Mister Donut. For my dad, this was the most frustrating and damaging set of events imaginable.

To truly understand how corrosive this crisis was for my father and his stalled business, I have to go back to the founding and early history of our company. Our original business, Industrial Luncheon Service, was founded in 1946 after my father had broken up with two partners in Bridgeport, Connecticut. The partnership lasted but six months.

My father returned to Boston, and with a few thousand dollars, opened an exact clone of the Bridgeport operation—same two-toned blue trucks, same name, same menu, and identical method of operation. Out of a small storefront on the corner of Quincy Street and Columbia Road in Dorchester, my uncles, mother, and I rehabbed a commissary. My father, great salesman that he was, nailed the accounts, while my uncles ran the route trucks and served coffee, donuts, and sandwiches to office, construction, and factory workers at local businesses. My mother made sandwiches while I, at nine years old, washed out the coffee urns after school.

As the business grew, my father approached his brother-in-law, Harry Winokur, to become his partner. Harry was a CPA and my father admired his judgment, business know-how, honesty, and way with people. At the time, my father considered Harry his mentor and advisor.

Harry turned his accounting practice over to his partner, invested $2,500, and became a full partner with my father in 1948. The business, then known as Industrial Luncheon Services, grew rapidly; by 1950, a hundred and fifty route trucks were servicing customers from six depots around New England. But the business began to falter as vending machines appeared on the scene, making lunch truck stops outside of a business less convenient.

The head baker in the commissary in Quincy told my father and uncle that the nearby donut shop—for which he had once worked—was making more money from their one retail store than from all twelve of their trucks delivering wholesale donuts throughout the Boston area. As my dad and uncle’s own business was being weighed down by the rising costs of truck distribution, the overhead from a commissary, and many far-flung truck depots, they realized a retail donut shop might be just the business diversification they needed.

They rented, for $75 a month, a closed awning shop on the Southern Artery in Quincy, a road connecting Boston and Cape Cod. They opened a donut and coffee shop called Open Kettle in 1948. Disappointingly, the results for this little donut shop were no different from the other fifteen hundred or so donut shops that operated throughout the state at that time: a modest sales take of $1,500 per week—clearly not the panacea they had hoped for.

The Open Kettle had been in operation just a few months when it was rumored a nearby food service operator planned to add a competitive donut shop to his lot. The competitor was Maury Pearl, a former band leader who had made his musical mark with a hit song titled “The Sheik of Araby.” My father and uncle moved quickly to head Maury off at the pass—they hired his intended architect, Bernard Healy.

It was Healy who took one look at the windowless stucco shop and declared, “I have to tell you guys: this design isn’t doing your operation any favors.” According to Healy, consumers were looking for something that would “knock their socks off”—a new California-style fishbowl building where consumers could see what was going on inside. For initial layout ideas, my dad turned to Providence, Rhode Island, equipment supplier Dave Friedman and his firm, Paramount Restaurant Supply. Dave designed a question mark–shaped counter that accommodated twenty stools. This layout served, for better or worse, as our service delivery system for the next thirty years. In addition, Healy remarked that the name “Open Kettle” simply didn’t signify what was being offered to the consumer.

So, my dad, Healy, and Friedman had a brainstorming session. Healy asked, “What do you do with a donut?” He soon volunteered, “You pluck a chicken and you dunk a donut.” My father said, “That’s it!”

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He soon volunteered, “You pluck a chicken and you dunk a donut.” My father said, “That’s it!”

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The finer points of dunking a donut were made famous by a noted comedian of the era, Red Skelton. Red was well known for creating a comedic skit demonstrating the etiquette and proper technique for dunking a donut in a cup of coffee. Soon after the skit aired, on Memorial Day weekend in 1950, a newly constructed Dunkin’ Donuts³ store opened on the Southern Artery that stopped Maury in his tracks. It generated not $1,500 per week but a whopping $5,000 per week, with coffee selling for a dime and donuts at fifty-five cents per dozen. Same location, same menu, same pricing, same management running the store; but a testimony to the importance of both presentation and serendipity—a revitalized store design. This novel donut-based skit by a wildly popular comedian transformed a middling me-too operation to a retail success and the foundation of an empire.

The success of the Quincy location spawned four additional openings around Boston over the next few years. But the success of the donut shops was overshadowed by a growing rift between the brother-in-law partners, who owned the business fifty-fifty.

It was 1951. I clearly recall nearly every family dinner at that time dominated by my father railing to us about his partner. He claimed that my aunt Etta, Harry’s wife, was jealous of the fame and publicity my father was garnering. According to him, she felt my uncle Harry wasn’t getting his due. Coronet magazine and the Saturday Evening Post had published stories about the “meals on wheels” operation, and my father’s up-from-the-bootstraps history figured prominently. But letters I have from Harry to my dad suggest his real concern was not public recognition but rather lack of inclusion on important business decisions and meetings; no mention was made about the occasional company write-ups.

My father increasingly saw Harry less and less as a well-educated mentor who added value to the enterprise and more and more as an unimaginative bean counter, a dull weight around his neck. He claimed Harry was holding him back from great success. In his letters, Harry would request that my father refrain from berating him in front of other members of the management team when Harry was not present. He asked that my father not make unilateral decisions but include him. The breakdown became so severe that the partners actually came to blows: my dad took a poke at Harry. Their fights were so frequent, loud, and disruptive that the two men eventually decided to move out of their offices in the commissary in Quincy to separate offices at 25 Huntington Avenue in downtown Boston.

At this point, Harry communicated to my father in the form of handwritten, certified letters sent from his personal residence rather than from his nearby office. Not surprisingly, they both retained lawyers and started negotiations as how to best dissolve the partnership; this continued for months. Just when they were about to throw the matter into court and ask a judge to decide the equities, they reached an agreement in which either party could exercise the option to buy the other out for the 1955 book value of the business, at the time $350,000.

I’ll never forget the moment my father was about to go to his attorney’s office to make his election. I was seventeen, a senior in high school preparing to enroll at the School for Hotel and Restaurant Administration at Michigan State.⁴

I vividly remember that fateful day my dad had to decide if he would sell his 50 percent of the business to Harry or if he would buy it. It was Wednesday, May 18, 1955. The sun was shining brightly. ...