1. What does Tommy want?
Tommy was looking for a change, especially since he just finished putting his third and last child through school. Tommy also operated a food section that served breakfast items (other than doughnuts) and hamburgers, which he claimed generated half of the sales. He was interested in buying out the franchise from Dunkin' Donuts. He would take down the Dunkin' Donuts sign and continue to operate the shop under a new store name of his choice. He also planned to negotiate direct lease with the landlord instead of leasing the building and land from Dunkin' Donuts. However, he mentioned to Dunkin' Donuts that he was not interested in pursuing this option. Tommy
seemed to be interested in selling the business to Dunkin' Donuts for $80000 after several negotiations. He also looked at the options of selling the business to Royce, another franchise owner, but turned them down because the deal would have fetched him a lower selling price. However, Tommy bought the store building and land from the current landlord and became its new landlord. He further doubled the price of selling the business to Dunkin' Donuts from $80000 to $160000. However, even after acquiring the business Dunkin' Donuts would have had to deal with Tommy as a landlord. Bill had mentioned that Tommy told him that buying the property made good accounting sense but he was not sure whether Tommy wanted to get out of business. So, according to me Tommy wants Dunkin' Donuts to pay a heavy price and suffer for all the "so-called" atrocities which Dunkin' Donuts has done to him such as making DSM visit his store at midnight and conduct CSG, no communication for 3 years, misuse of advertising money and rebates for own benefit and not for the franchise owners. Tommy knows that despite maintaining poor standards for Dunkin' Donuts he is achieving a steady business and Dunkin' Donuts would not want to lose the opportunity of maintaining the Randolph store. So, he wants to make things complicated for the franchisor to tap on this goldmine. This is a classical problem of Agency Theory wherein the desires or goals of the principal and agent are in conflict, and the principal is unable to verify what the agent is actually doing. (Asymmetric Information)
2. What does DD want?
DD knows that despite maintaining poor standards and having a disgruntled agent/franchise, the weekly sales increased by 12% over 2005. This is because the Randolph store had good visibility from both directions of traffic, good accessibility and ample parking space. The site had population and traffic counts higher than the Dunkin' Donuts norms. So, Dunkin' Donuts did not want to lose the opportunity of even increasing the sales and taking full control of the operations by ensuring that the standards are maintained. They tried to do this by convincing the disgruntled owner but faced issues during negotiations. With regard to the objective of maximizing revenues, DD wanted to purchase the business and operate a company-owned store or selling it to a new or existing franchise owner. DD did not want to disenfranchise him due to poor standards or avoid contract renewal after two years as it would lead to litigations. It also did not want to handle Tommy as a landlord after having purchased the business from him because Tommy had bought out the land of business directly from the landlord. So, DD wanted to retain control of the business at Randolph but wanted to avoid dealing with Tommy due to previous issues with him.
3. What options are there?
Dunkin Donuts has the following options available:
To Disenfranchise Tommy for maintaining poor standards but this would involve getting caught up in litigation thus increasing transaction costs. To wait for 2 years and avoiding contract renewal with Tommy but this would also lead to a possibility of getting involved in litigations. To buy out the franchise from Tommy at $160,000 and open a company-owned store at Randolph....
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