Dunkin’ Donuts franchisee dips into bankruptcy
Kainos to close four area stores
The largest local franchisee for Dunkin’ Donuts has filed for Chapter 11 bankruptcy, and will close four area stores and a baking facility as it restructures.
Kainos Partners Holding Co. will continue to operate 13 stores in the Buffalo Niagara region after the four locations are shut down this weekend, said Bart Thorne, its president and chief operating officer.
The stores that will close are: inside the Boulevard Mall; at a Delta Sonic at 1355 Niagara Falls Blvd. in Amherst, near the Boulevard Mall; 5090 Genesee St. in Cheektowaga, west of Transit Road; and 3650 Broadway in Cheektowaga, between Union and Dick roads. Saturday will be the last day of business for each location.
“For whatever reason, those sites weren’t accepted well,” he said.
Thorne said Kainos wants to transfer as many of the affected employees as possible into stores that will remain open.
Meanwhile, its doughnut-making operation on Broadway, which employs 78 people, will close in three to four months. New technology will allow stores to make doughnuts on site, Thorne said. The franchisee hopes to move displaced workers from the site into new jobs, as well.
Aside from the stores run by Kainos, Dunkin’ Donuts has 24 other locations in the Buffalo area. Those stores are run by six other franchisees, and they are not involved in the bankruptcy filing.
Kainos operates a total of 56 stores in New York, South Carolina and Nevada. Another eight stores are under construction, according to bankruptcy court documents filed in Delaware. Kainos said it has about 700 employees, 560 of whom are part-time workers.
Kainos entered the Buffalo area three years ago with ambitious plans, acquiring the rights to develop 40 of the doughnut and coffee chain’s stores in the region. When it opened its first local store in 2006, Dunkin’ Donuts already had 14 stores in the area run by other franchisees.
Kainos bought a former Stroehmann Bakeries distribution center on Broadway in Cheektowaga and turned it into a doughnut manufacturing operation to serve its stores, as well as those run by other Dunkin’ franchisees.
While he was disappointed by the closings, Thorne said Kainos still intends to grow in the Buffalo area once it resolves its financial problems. He was hopeful Kainos could start looking at new sites as soon as late 2010.
“The reality is, we learned a lot,” he said. “We went fast [with expansion].”
Kainos has learned more about site selection, Thorne said. “We are going to continue to develop sites in the future,” he said.
Jon Luther, executive chairman of Dunkin’ Brands, the Massachusetts- based parent company of Dunkin’ Donuts, said the company remains committed to the Buffalo market, noting that two other stores in the area are opening soon.
Luther said he believed Kainos can still achieve its 40-store target in the area, though it might take longer than initially planned.
He views the store closings as a byproduct of a weak economy. “When the economy is tough as it is, you can’t wait for those revenues to grow,” said Luther, who is a graduate of Kenmore East High School.
If Kainos undergoes a successful restructuring, he said, it will emerge stronger and more aggressive, with a better financial structure.
He noted that Kainos was just one of 1,200 Dunkin’ Donuts franchisees in the United States, operating 6,500 stores. “This is sort of a microcosm of a large brand that continues to do well.”
Kainos’ bankruptcy court filing describes a franchisee missing its sales targets and beset by other problems.
The company said the doughnut-making plant has been “a major cash drain on Kainos from its inception.” The site produces 26,000 doughnuts per week for about 125 customers in the Buffalo and Rochester areas, according to a court document. The project in 2006 was granted $64,000 in sales tax breaks, related to machinery and equipment purchases, by the Erie County Industrial Development Agency.
Kainos estimated in 2008 it needed revenues from average weekly store sales of $15,000 in order to meet its loan obligations. But by spring of this year, the franchisee said, its average weekly store sales had declined to $9,500.
Kainos said it owes its largest creditor, CIT Group, nearly $25 million. Plans call for CIT to agree to accept a reduced amount in exchange for a 72.5 percent stake in the reorganized company, according to court documents.
Kainos’ problems weren’t limited to its reduced store revenues. In late January, Kainos said it discovered its then-chief financial officer had “engaged in certain financial transactions involving the unapproved use of company assets for personal purposes.” Kainos estimated the value of the transactions at $420,000. The executive was fired in early February.
Outside of Buffalo, Kainos has 21 stores in South Carolina and 18 stores in the Las Vegas area. The Las Vegas Sun in April reported on the frustrations of contractors there who were collectively owed $1 million by Kainos for four stores under construction. Like in Buffalo, Kainos had been aiming to open 40 stores in the Las Vegas area.
Kainos previously scrapped a plan to expand into Houston.
Kainos in 2007 received the Dunkin’ Brands Rising Star of the Year award and in 2008 received the Developer of the Year award.
Two other Dunkin’ Donuts franchisees, one in the Nashville, Tenn., area and one in Florida, also filed for bankruptcy recently.
Log into MyBuffalo to post a comment
MyBuffalo is the new social network from Buffalo.com. Your MyBuffalo account lets you comment on and rate stories at buffalonews.com. You can also head over to mybuffalo.com to share your blog posts, stories, photos, and videos with the community. Join now or learn more.
Reader comments