Independent Joe Magazine June 2014 #26

Independent JUNE 2014

The Magazine for D D

Independent Franchise Owners

Issue 26

Campus Locations Making the Grade

DUNKIN’S MANY DONUTS DATA BREECHES The Canvas for Design and Flavor Innovation What does it mean for franchisees?

P lus What's Brewing • National Conference • Franchise Rights

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CAUTION: STORM CLOUDS AHEAD! Earlier this month, we celebrated the 70th anniversary of the greatest military operation ever attempted.

Students of history know the D-Day invasion on June 6, 1944 involved over 130,000 Allied troops and is recognized as the turning point in winning WWII. What is less well known, however, is that the invasion was originally planned for June 5, one day earlier, but, as fate would have it, bad weather was forecast for the Normandy beaches on June 5. That’s what prompted General Dwight D. Eisenhower to make the decision to delay the attack. History also tells us that good weather played a bit of a role as well. German military leaders anticipated a major Allied attack and were certain it would occur in late May, when there was a full moon, high tide and little wind. But, after the good weather came and Allied troops did not, the German military relaxed believing no attack was imminent. As a result of their complacency, Allied forces stormed the beaches and changed the course of history.

Complacency is often a byproduct of overconfidence— believing it’s okay to relax a bit when things are well.

Right now, many Dunkin’ Donuts franchisees I talk to say that business is good, revenue is coming in and there are few visible clouds on the horizon. There is no sense of urgency for contingency planning or strategic positioning. Life is good!

In actuality, this is the time to buckle down and prepare for the days ahead, for the inevitable time when we could be faced with new challenges and new issues. This is the time for diligence and discipline to ward off complacency and its potential risks.

Both the Qur’an and the Bible caution us about the dangers of complacency with the story of Joseph interpreting the King’s (Qur’an) or Pharoah’s (Bible) dream and storing food during the seven years of plenty. Egypt’s diligence and discipline planning for the worst during the best times saved the nation during its subsequent seven years of famine. Had they relaxed, had they become complacent during those good years of harvest, they likely would not have survived the famine.

It’s in that same context that I propose the importance of engagement and planning for Dunkin’ Donuts franchisees. Without question, leadership at Dunkin’ Brands has been cooperative and supportive vis-à-vis its franchisees; generally speaking, relations have been good. The Brand Advisory Council (BAC) is hearing and addressing issues of concern to franchise owners.

What’s more, the expansion is going well, supported by a healthy National DCP. Business has been improving

steadily. The weather, if you will, has been good; the harvest is plentiful.

Why wouldn’t it continue?

In the military context, it’s been said that great armies are not built during wartime, rather they are built during peacetime. That way they are ready when wartime arrives. DDIFO is mindful of the lessons of history and wants the Dunkin’ franchisee community to be equally diligent. During this stretch of “good weather” – this “plentiful harvest” – we are seizing the opportunity to prepare for the storm clouds. Today, DDIFO is better prepared to effectively respond to political, legislative and regulatory challenges across the country. We’ve developed better tools to communicate with our members and are in the process of creating new avenues through which our information flow can be even more efficient. We’ve installed a new database which allows us to manage our membership and readily facilitate direct communications among franchise owners.

At the same time, we are improving DDIFO’s National Conference and Hall of Fame Gala. Last year, we took the conference to Atlantic City to lend support to the midAtlantic region after the devastation of Hurricane Sandy.

This year – to mark 25 years since DDIFO was created to independently represent the interests of Dunkin’ Donuts franchisees, we’re bringing the conference to Las Vegas to support franchisees in emerging markets.

DDIFO’s board and roundtable are developing strategic goals and objectives to ensure that we will be best prepared to effectively represent your interests when the weather changes—when famine arrives.

In case you missed it, the City of Seattle recently passed the nation’s first $15 an hour minimum wage and, while it does not directly impact any Dunkin’ franchisees yet, we all know it will. For months, we have been following the developments and advising our members about the issue because these kinds of mandates tend to migrate from state to state. We won’t be surprised when it surfaces in a state or region heavy with Dunkin’ concentration.

History has a way of repeating itself and that tells us serious issues will likely arise again within the Dunkin’ community. The question for us today is: Are we taking advantage of our years of harvest to insulate ourselves from the inevitable famine?

Ed Shanahan DDIFO Executive Director

INDEPENDENT JOE • JUNE 2014 1

SUB HEADLINE

CONTENTS

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Photo by Joseph Ferraro

From the Executive Director: Caution: Storm Clouds Ahead!• • • • • • • • • • • • • • • 1 What’s Brewing: A Look at State Issues Around the Footprint• • • • • • • • 5 Campus Locations Making the Grade• • • • • 10 Through Six Decades the Adie Family Remains Connected to their Community• • • • • • • • • • 14 Dunkin’s Many Donuts • • • • • • • 18 Dunkin’ Shops are Hacker Targets Just Like the Big Stores • • • • • • • • 21 My Perspective: Summer Help • • • • • • • • • • • • • • • • • • • • • • • • • 24 Lisa on the Law: The NBA’s Game: Termination of Franchise Rights and Forced Sale of the Team • • • • • • • • • • • • • • • • • 26 Directory of Sponsors • • • • • • • • • • • • • • • 28 Keeping the Donut Category Fresh• • • • • 32

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Upon DIRECTV System activation and beginning in the second month, DIRECTV will credit the new customer’s account $17/mo. for 12 consecutive months for COMMERCIAL ENTERTAINMENT PACK, plus an additional $10/mo. when customer activates and maintains COMMERCIAL ENTERTAINMENT PACK and enrolls in Auto Bill Pay for 12 months with credit card at the point of sale. COMMERCIAL XTRA PACK PROGRAMMING/BILL CREDIT OFFERS: COMMERCIAL XTRA pack (regularly $133.99/mo.) includes local channels, COMMERCIAL XTRA ($74.49/mo.), SPORTS PACK ($12.99/mo.) and outlet fees for two receivers ($46.51/mo.). Additional outlet fees $15.00/mo. apply for the third and each additional receiver. Purchase of 24 consecutive months of COMMERCIAL XTRA Pack with local channels (if available in your market) required. Upon DIRECTV System activation and beginning in the second month, DIRECTV will begin to credit the new customer’s account $39.00/mo. for 12 consecutive months for the COMMERCIAL XTRA Pack with local channels packages, plus an additional $10.00/mo. when customer activates and maintains COMMERCIAL XTRA PACK and enrollment in Auto Bill Pay with credit card at the point of sale. Account must be in “good standing,” as determined by DIRECTV in its sole discretion, to remain eligible for all offers. IF BY THE END OF PROMOTIONAL PRICE PERIOD(S) CUSTOMER DOES NOT CONTACT DIRECTV TO CHANGE SERVICE THEN ALL SERVICES WILL AUTOMATICALLY CONTINUE AT THE THEN-PREVAILING RATES. IN THE EVENT YOU FAIL TO MAINTAIN YOUR PROGRAMMING AGREEMENT, YOU AGREE THAT DIRECTV MAY CHARGE YOU A NON-PRORATABLE EARLY CANCELLATION FEE OF $480. LIMIT ONE BILL CREDIT OFFER PER ACCOUNT. In certain markets, programming/pricing may vary. HD ACCESS OFFER: To access DIRECTV HD programming, HD Access fee ($25/mo.) and HD equipment are required. Number of HD channels varies by package. Upon DIRECTV System activation, DIRECTV will credit the new customer’s account $25/mo. for three consecutive months for HD Access, provided account is in “good standing,” as determined by DIRECTV in its sole discretion. In the fourth month, HD Access will automatically continue at the then-prevailing rate. LIMIT ONE HD ACCESS BILL CREDIT OFFER PER ACCOUNT. HARDWARE OFFER: Programming agreement, as defined by customer’s Commercial programming rate card, required. Up to four free HD or SD Receivers per BUSINESS INFORMATION or above commercial location. HD equipment also requires HD Access fee of $25/mo. Offer available to new Commercial customers in commercial structures no more than three stories high. No single-family residences allowed. Make and model of system at DIRECTV’s sole discretion. Offer void where prohibited or restricted. All DIRECTV Receivers must be continuously connected to the same land-based phone line. SONICTAP MUSIC CHANNELS OFFER: 24-month agreement to a Commercial base programming package required. Upon DIRECTV System activation, DIRECTV will credit the new customer’s account $35.99/mo. for three consecutive months for SonicTap Music Channels. Unless customer calls to cancel, in the fourth month SonicTap Music Channels will automatically continue at the then-prevailing rate.

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Independent

Banking Designed Around Your Business

The Magazine for DD Independent Franchise Owners

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JUNE 2014 Issue #26 Independent Joe® is published

by DD Independent Franchise Owners, Inc.

Our Financial Designers understand the complexities of today’s business environment.

Editors: Edwin Shanahan, Matt Ellis Contributors: Scott B. Van Voorhis, Karen Sackowitz, Cheryl Alkon Chad Leedy, Adam Goldman and Carl B. Lisa, Esq.

Using our unique LifeDesign® approach, we get to know you and your business to gain a clearer picture of your financial situation and to help you turn obstacles into opportunities.

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INDEPENDENT JOE®, INDY JOE®, and DDIFO® are registered trademarks of DD Independent Franchise Owners, Inc. Any reproduction, in whole or in part, of the contents of this publication is prohibited without prior written consent of DD Independent Franchise Owners, Inc. All Rights Reserved. Copyright © 2014 Printed in the U.S.A.

WHAT’S BREWING A LOOK AT STATE ISSUES

AROUND THE FOOTPRINT

By Scott Van Voorhis

W

hile you’ve been busy running your franchise and serving your customers, legislators, lawyers and union activists have busy doing what they do best—agitating non-issues into confrontations, passing new laws, formulating new regulations and filing new lawsuits. And, more often than not, these new rules and regulations are threatening to change how franchise owners run their business. As we do in each issue of Independent Joe, we want to provide you a look at what’s brewing around the country, from proposals to slap GMO labels on the food you sell to Styrofoam bans and even “wage theft” lawsuits, so you can be better informed.

Vermont Governor Peter Shumlin recently signed a bill making the Green Mountain state the first in the country to require labeling of food products made with genetic engineering. Given as much as 80 percent of prepared foods could fall into this category, according to one estimate, that is likely to involve a wide range of ordinary items people consume every day at Dunkin’ Donuts and other coffee shops and restaurants across the country.

Expensive new green regs, laws With climate change in the headlines, legislators and regulators around the country can’t resist the temptation to grandstand and propose all sorts of new requirements and restrictions, Unfortunately, more than a few of the new rules appear aimed at saving the environment by targeting franchise owners, especially quick service chains like Dunkin’ Donuts. And, one of the hottest new legislative fads involves requiring restaurants to label genetically modified foods.

He recalls having to pay hundreds of dollars to put up new signs when calories counts were required. He anticipates a similar hit when the GMO law takes effect.

The regulations won’t go into effect for two years in Vermont, but Damartin Quadros, who owns three Dunkin’ shops, including one in Montpelier, the state capital, is already anticipating headaches.

“We ate all the costs,” Quadros said of the new signage for calories counts. “It will be another one of those things we have to comply with.”

Both Maine and Connecticut have passed their own GMO labeling requirements, which kick into effect once a neighboring state passes a similar law.

INDEPENDENT JOE • JUNE 2014 5

WHAT’S BREWING

Activists are now pushing to get GMO labeling proposals on the state ballot in Oregon and Colorado, with proposals going down to defeat in California and Washington.

recyclables and food waste from their trash.

Meanwhile, Dunkin’ franchise owners like Quadros also now face new requirements that they recycle food waste instead of sending it out to the local landfill.

In 2011, Connecticut was the first state to ban commercial food wastes, requiring generators of two or more tons of food waste per week to recycle the materials rather than sending them to a landfill.

Vermont followed suit in 2012, but with a lower, one ton limit, which will gradually be lowered to cover all food waste by the end of the decade.

A similar ban is slated to go into effect later this year in Massachusetts, and is already in place in New York City. On the West Coast, Portland instituted a food waste ban in 2011. San Francisco put a waste ban in place in 2009 which forced businesses and residents to separate

We’ve watched as laws and regulations passed in one state are then introduced by lawmakers in neighboring states—sometimes with the argument that “if it worked there, it will work here.” Bans on Styrofoam cups and containers is one example.

San Jose followed San Francisco’s lead in the Bay Area banning Styrofoam cups and other food containers, with multi-state chains hit first, followed by an extension on Jan. 1, 2015 to all local restaurants and food trucks. The same thing happened with Seattle and Portland, which were early adopters of the ban. And, after Amherst, Mass. banned Styrofoam containers, Albany County, NY started its effort, which goes into effect this July and also includes packing peanuts.

Minneapolis is the latest big city to propose such a ban, which makes us wonder if its twin city St. Paul – or neighboring Midwest states like North Dakota, South Dakota and Wisconsin – will be next.

drive thru

Washington, D.C. Mayor Vincent Gray is also on the record pushing for a ban in the nation’s capital. Efforts at grabbing “green” headlines are everywhere and immediately impact quick-service restaurants largely because they are so visible in their communities. Dunkin’ franchisees have experienced how issues over cups for coffee can be such a local lightening rod.

“I am for maintaining our environment, but it’s easy to look at the franchise sector as being the culprit, it’s easy to attack,” says Udo Schlentrich, co-director of the Rosenberg International Franchise Center at the University of New Hampshire. (The center is named after Dunkin’ Donuts’ founder William Rosenberg, with money from his estate helping establish it.)

Wage theft lawsuits target franchisees Dunkin’ and other franchise owners across the country are also facing more direct hits to their bottom lines.

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McDonald’s employees at seven franchises across the country have sued their employers alleging wage theft—claiming they were forced to work extra hours off the clock. The suit didn’t stop at the franchise owners, with lawyers for employees also taking aim at McDonald’s Corporation, saying the company effectively encouraged the practices. Some McDonald’s employees allege they were forced to show up at a certain time, only to be clocked later when the first customer walked through the door.

A $1 million settlement was reached in a New York case which centered on similar allegations against Domino’s and Taco Bell. Similar complaints involving other restaurant chains have also been filed with National Labor Relations Board.

“Quick service restaurants are being targeted by a number of organizations,” according to Misty Chally, executive director of the Coalition of Franchisee Associations, of which DDIFO is a founding member. Chally believes the best

defense for Dunkin’ Donuts franchise owners, and owners in other chains, may be a good offense.

Unions often find fertile ground for recruiting and lawsuits in unhappy workplaces where rules are broken.

Schlentrich says franchise owners who do right by their employees will leave few openings for activists or labor organizers to exploit.

“Unions only get involved in extreme cases” where ‘abusive’ conditions prevail.”

INDEPENDENT JOE • JUNE 2014 7

Dennis Wieczorek, a partner and chair of the franchise and distribution practice at the Chicago law firm DLA Piper says it’s pretty clear that the union activists are “finding employees at the various locations and asking them to find reasons to complain. The end game here is not just focused on wage and hour issues, the end game here is to unionize.”

Minimum wage headed higher The big question now is not whether the minimum wage is headed up, because it is in many states, but rather, by how much?

While the wage debate is stalled on the federal level, cities and states across the country are taking matters in their own hands, mandating increases in the minimum wage business operators must pay their employees.

But activists, led by the giant Service Employees International Union, are back for more—staging rallies across the country pushing for an even steeper wage.

“To me, it’s making it really difficult for small business owners. Our biggest expense is payroll. It’s going to have a big impact on our bottom line...I believe there is not a single business system in America that has created more wealth than franchising.”

Seattle is testing the limits of a higher minimum wage, having approved a $15 per hour rate, to be phased in over seven years.

It will apply first to large businesses and then to those with fewer than 500 workers, though employees of franchised businesses have to be counted in the aggregate.

According to an interview International Franchise Association (IFA) President Steve Caldeira gave to CNN Money, that means a Subway shop that has eight workers will have to pay a $15 wage years before a non-franchised sandwich shop with the same amount of workers.

Momentum has gathered in other states for higher minimum wages. New York’s minimum wage is set to rise to $8.75 at the end of this year and to $9 at the end of 2015. The Speaker of the state Assembly, Sheldon Silver, says he supports legislation to accelerate these increases in the state’s minimum wage from $8 per hour to $9 and will press for passage before the current legislative session ends.

Overall, 38 states considered minimum wage issues in the 2014 session, according to the National Conference of State

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WHAT’S BREWING Legislatures, with Connecticut, Delaware, Maryland, Washington D.C., and West Virginia all enacting increases.

Lawmakers passed minimum wage bills in Vermont and Hawaii, with both awaiting final action by their respective governors. Vermont is poised to have the highest minimum wage in the country, with the state Legislature having voted to increase it over the next four years from $7.25 an hour now to $10.10 an hour by 2018.

Quadros, the Vermont franchise owner with three Dunkin’ shops and 50 employees, says even with the gradual escalation, the wage increases will hurt.

“To me, it’s making it really difficult for small business owners. Our biggest expense is payroll. It’s going to have a big impact on our bottom line.”

And while such proposals make for great political grandstanding, they don’t take into account the complexities and nuances of the franchise workplace,

notes UNH’s Schlentrich.

Franchising not only provides a path to the American dream for hard-working owners, it’s also a key institution for training young and low-wage workers in the basics of business: from showing up on time to properly servicing a customer, he says.

“I believe there is not a single business system in America that has created more wealth than franchising.”

Mandatory sick leave Both New York City and Newark, NJ recently passed laws requiring companies to provide paid sick time to their employees and paid sick leave proposals are now being debated by state lawmakers in Oregon, California, Vermont and Massachusetts.

However, there is pushback by some states as well. An array of southern and Midwestern states, including Florida, North Carolina, Mississippi, Louisiana, Kansas, Indiana and Wisconsin, have all passed

laws barring local city, town and county governments from mandating paid sick leave.

According to an article from attorney Jonathan Israel of Foley & Lardner LLP, “Battle lines have clearly been drawn by business interests who contend that such laws have a negative economic impact and drive employers to states and cities that are free of such regulation.”

A bumper crop of new regulations As state legislative sessions wind down for the summer, we see 2014 has produced a bumper crop of activist legislation—from Vermont’s potential trend-setting GMO labeling law to Seattle’s push to hike the minimum wage to $15 an hour. With a few exceptions, the trend we are seeing in states across the country is towards more rules, more regulation and more lawsuits targeted at small businesses, particularly high-visibility, quick-service chains like Dunkin’ Donuts. DDIFO will continue keeping an eye out for issues that threaten your ability to maintain a profitable business.

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INDEPENDENT JOE • JUNE 2014 9

Campus Locations Making the Grade

By Karen Sackowitz

T

hree days a week, Virginia Tech freshman Alex Hauser leaves his first class of the day and heads straight to his personal recharge station—the Dunkin' Donuts located within Owens Hall.

“It's easy to access between classes, the line is never too long, and the workers really put out the orders quickly and efficiently,” he says. “Most everyone I know uses it a few times a week just as I do.”

Dunkin' Donuts locations have been popping up on college campuses at a steady rate over the past five years as part of the brand’s strategy of opening alternative points of distribution— college campuses, train stations, supermarkets and military bases. In the past year, more than seven college campus locations flipped on their coffee-makers, including Wayne State University in Michigan, the University of Alabama-Huntsville and Norwich University in Vermont. Two locations opened at the University of Rhode Island and a second location opened at Westfield State University in Massachusetts. Two others – Brandeis University and Merrimack College – opened in Dunkin’s home state.

These institutions join other prominent colleges and universities which have welcomed Dunkin' Donuts franchisees to campus in the last two years, including Emory University and Georgia Tech University in Atlanta; the University of

10 INDEPENDENT JOE

JUNE 2014

North Carolina-Wilmington; the University of Baltimore, Virginia Tech and Bowling Green State University in Ohio.

“Universities are increasingly looking for more amenities to offer campus residents and visitors, and our brand's flexible design options couple convenience with great-tasting food and America's

favorite coffee,” Grant Benson, Dunkin' Brands’ vice president of franchising and business development said in a recent press release. “As we continue our expansion, both east and west of the Mississippi, we have a continued focus on recruiting qualified operators to grow our presence at colleges around the country.”

Photos by Joseph Ferraro

Whether a campus offers a full retail shop or centrally located express stations, the response from both students and faculty has been overwhelmingly positive.

“If the lines are any indication, people really appreciate having a Dunkin' Donuts on campus,” says Virginia

Tech senior James Dwight. “Most of my friends use it at least occasionally, and some use it almost daily. It's been a good addition to campus.”

At the grand opening of the Dunkin’ Donuts at Seton Hall University in New Jersey in August 2012, lines were out the door as both students and faculty

members checked out the new addition to Walsh Library. Living room style seating in the shop's indoor area offered the perfect welcome for those looking to socialize, while other students enjoyed the summer weather by sitting at the shop's outdoor tables.

When franchisee Mohammed Haque

INDEPENDENT JOE

JUNE 2014 11

DDIFO SPONSOR ADVERTORIAL

DUNKIN ON CAMPUS

TD Bank—and its legacy banks—has been a lender to franchise owners in the Dunkin’ Donuts system for more than a decade.

TD Bank provides real estate and business value term loans for refinancing existing debt and for new store acquisitions, as well as development lines of credit for remodels, equipment and new store development.

Outside of lending, TD Bank offers a full suite of Treasury Management Services, such as Internet solutions, remote deposit, disbursements, and liquidity and investment solutions.

Basically, TD Bank can meet a franchisee’s total banking needs.

“We’re knowledgeable about the restaurant industry and the demands and issues within the Dunkin’ system in general, but we evaluate each franchisee on an individual basis and provide him or her with a tailored solution. There’s no ‘one size fits all’ product offering,” said Brian Frank, head of Restaurant and Franchise Finance. “And we offer the convenience of 7-day-aweek banking with extended hours, which franchisees really appreciate.”

For more information, visit www.tdbank.com or contact Brian Frank at brian.frank@ td.com or 203-246-8035; or Michael Vallorosi at michael.vallorosi@td.com or 201-962-5187.

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opened his location at The Plaza at Blanton Place at Montclair State University in New Jersey, it couldn’t come quickly enough. While construction was wrapping up, Sodexo, the school's dining service provider, invited Dunkin' Donuts' mobile unit – The Great One – to set up nearby for six days, offering free coffee and munchkins as a means of introducing the new addition to the neighborhood.

At the University of Pennsylvania, the Dunkin' Donuts on Walnut Street in University City draws rave reviews, with reports of long lines, but incredible efficiency to get everyone in and out quickly. One Yelp reviewer gave the location an easy five out five stars.

“Our location accepts Dining Dollars,” says Dwight. “That adds to it being a convenient stop on the way to classes.”

At some schools, adding a Dunkin' Donuts location has provided an opportunity for giving back in a meaningful way. Such is the case at Providence College. Students at PC expressed a desire to purchase Fair Trade Certified™ coffee in order to promote economic justice and social responsibility (see sidebar).

“Quickest coffee on Penn's campus. I've been here at least 20 times over the past six months at many different times and I'm always in and out within three minutes,” she writes. “One of the few places I will go to directly before an exam when time is super tight.”

When someone at Providence College Dunkin’ buys an Espresso or Latte, they are supporting that effort because Dunkin’ Brands is a partner of Fair Trade USA, and buys Fair Trade Certified Espresso beans. When a Providence College customer purchases regular roasted coffee, a portion of the sales is donated to Catholic Relief Services Fair Trade Fund, which makes donations to local farmers in coffee-growing nations.

It’s been a win-win-win relationship for the students, the college and the farmers.

In addition to serving the student population, being on site at colleges and universities also offers a unique opportunity for franchisees to actively engage in student culture. Some Dunkin' Donuts shops, particularly at larger universities, choose to show their spirit by using school colors within their locations, or by incorporating school mascots into promotional events. Special touches like these make the shops perfect post-practice relaxation stations, or pre-game gathering spots.

Meanwhile, at least one college, Westfield State University, has had fun with their on campus location by building a specially created event around it. Participants in “The Dunkin' Dash” had the opportunity to win prizes by running one mile, eating six donuts, then running a mile back. Additional prizes were offered up for best donut-themed costume, prompting one student to – curiously - arrive dressed as Batman's sidekick Robin.

In terms of convenience, most campus shops encourage student customer loyalty by partnering with existing food service companies and tying into their meal plan structure, allowing customers to use prepaid accounts to purchase food and drinks, rather than requiring cash, which students tend to carry in smaller amounts.

The alternative points of distribution strategy is an important component to reaching the 15,000 domestic location level, which Dunkin’ Brands touts as part of its growth story. Already there are close to 600 non-traditional Dunkin’ locations around the country, with more on the way. So, while commuters carrying brief cases at

Photos courtesy of Mohammed Haque

Excellence and Fair Trade in a Coffee Bean In 2004, Dunkin’ Brands partnered with Fair Trade USA, the only independent certifier of Fair Trade products in the U.S., to purchase Fair Trade Certified™ coffee beans.

Fair Trade Certification sets standards for the way coffee is produced and how much a farmer/ farming cooperative earns per pound of coffee sold.

Dunkin' Donuts currently has nearly 600 nontraditional locations, including college campuses, mass transit stations, travel centers, supermarkets, and military bases.

Penn Station in New York City grab a coffee and breakfast sandwich to start their day, it’s clear the habit of incorporating Dunkin’ into the morning routine is starting even earlier—with co-eds carrying backpacks lining up at their campus center to begin their day running on Dunkin’.

•

The criteria are: • Fair prices for farmers and decent working and living conditions for workers; • Direct trade with farmers, bypassing middlemen; • Free association of workers and co-ops, with structures for democratic decision-making; • Access to capital; • Sustainable agricultural practices including restricted use of agrochemicals.

Fair trade efforts, like the Catholic Relief Services (CRS) Fair Trade Fund provide provide grants to farmers and artisans, which support a fair, sustainable trading system as well as the economic and environmental welfare programs of coffee-farming communities. Capital is provided, in part, from sales of Fair Trade Certified™ products purchased through CRS partners, like franchise owner James Lynch in Providence.

Dunkin’ Donuts was the first national brand to sell Fair Trade Certified Espresso beverages.

INDEPENDENT JOE • JUNE 2014 13

Through Six Decades the Adie Family Remains Connected to their Community

By Cheryl Alkon

L

ike many long-time franchisee families, the Adies have fond memories of Dunkin’ Donuts days gone by—when customers sat on 18 stools around a horseshoe countertop, drank six-ounce cups of coffee served in china cups with saucers and ate donuts and fancies.

Bill and Arleen Adie opened their first Dunkin’ Donuts in 1968 in Chelmsford, Mass. (about 30 miles northwest of Boston). Back then, women who worked at the Adie’s Dunkin’ wore uniforms consisting of dresses and a decorative pink covering for the hair that pinned to the top of their head. Men wore white pants and a pink shirt adorned with the original Dunkin’ Donuts logo.

At the time, Bill and Arleen were working alternate shifts at an area printing company known as the Courier Citizen company; Bill worked nights as a linotype operator, while Arleen worked days in administration.

They were hard working people, who believed that having their own business would pay off in the future. They accepted it was a lot of work.

“They had to plan for college for their four children back then,” says Tom Adie, who now runs the family business with his brother Don and his brother-in-law Andy Conway.

“When they opened the store, Dad

14 INDEPENDENT JOE • JUNE 2014

Top:(L-R) Don Adie, Tom Adie and Andy Conway, circa 1983 worked both jobs. Dad would start his day greeting customers at 6 a.m. and work at the Dunkin’ shop through the afternoon.

From there he worked the second shift at the Courier. Mom would end her day at the Courier at 4 p.m., head home to make dinner and be at the shop in the evening writing payroll checks, interviewing prospective employees and doing the weekly schedule.”

As Tom recalls, Mom and Dad’s shop was a community destination, serving coffee and donuts to a group of locals who all knew each other. It was 15 years before the television show Cheers popularized the idea that people would sit at a bar (or

Bottom: Don Adie, Andy Conway and Tom Adie photographed in 2014

counter) where “everybody knows your name.”

“People would sit together and meet their neighbors; business people would come in and get started for the day. Lawyers, postal workers, construction workers would all chat with each other while having their coffee and sitting on those pink stools. It was an interesting, dynamic and diverse crowd.” Adie remembers.

Bill and Arleen recognized that Dunkin’ was something special and, as it was for most franchisee families at the time, business was the focal point of family activity.

During the weekends the entire family

worked the shop. “Mom and my sister Janice waiting on the customers, brother Bob manned the finishing table while Don was on the baking table and Dad was on the Pitco fryer,” says Adie, who points out that at age 12, he was frosting 40 dozen chocolate donuts every Sunday in the restaurant’s back room, “all done by hand,” he notes proudly.

“I started working at Dunkin’ Donuts at a young age, and it gets in your blood,” says Adie, who is now 54-years-old. “You enjoy the interaction with the customers.

There’s also the thrill of slowly building a store, opening it, and taking it to the next level.”

After graduating with a business degree from Merrimack College in 1981, he joined the family business full time. By then, the interior of their Chelmsford shop had changed—reflecting a move away from the community destination and more towards individual relaxation. “We went with tables, chairs and booths to make the atmosphere more in time with that age,” said Adie. “We had hanging plants in the store and a more calming environment.”

Dunkin’ Donuts was evolving to fit fasterpaced culture and its customers’ desire for more choices and more convenience.

It was also developing a customer base that remains as loyal as any in the quick service restaurant world. Dunkin’ Donuts became connected to its communities through local owners – like the Adies – and through local sponsorships and advertising campaigns.

“When we saw the success in our Chelmsford location, we wanted to develop more,” Adie says. “We opened a second location in Lowell in 1978, and then we developed more locations from there.”

Today the company, known as Adie Conway, operates 31 Dunkin’ Donuts shops in Lowell, Chelmsford, Tewksbury, Dracut, Bedford, Tyngsborough and Westford—towns along the Interstate 495 corridor through north-central Massachusetts. Many of these shops now reflect Dunkin’s new designs and feature barstool cushioned seats, booths with soft seating, WiFi, satellite radio and plasma TVs. It is a different kind of décor than the

old pink and white Dunkin’s, but, in its 21st century way, it can still be the place where neighbors meet and “everybody knows your name.”

develop different platforms, some of our locations are now in gas stations, or in train stations. Our footprint can fit into a smaller package.”

That’s definitely the case in Adie’s home state—everybody knows the Dunkin’ name. He says there are many reasons why. “While we had the standalone store in the 1960s and ‘70s, we’ve since evolved to meet our customers’ needs. As we

Dunkin’s all-day menu of sandwiches and hot and cold beverage choices also keeps customers coming back. According to Adie, “The breakfast sandwich is one of the strongest products we have,” and that helps Dunkin’ stand up to competitors

INDEPENDENT JOE • JUNE 2014 15

" There has never been a more exciting time to be involved in the Dunkin’ Donuts brand."

“Our late-night business has grown from .04% to 4% of sales. It’s a HUGE increase.”

- Matthew Tenore Dunkin’ Donuts®, Brockton, MA

like Starbucks and McDonald’s and, even local coffee shops.

Dunkin’ Donuts is still a family business for the Adies, who are now in their sixth decade as operators. Tom’s wife, Lisa Guidoboni, is the company’s human resources and health coordinator. Tom Jr. attends Bentley University, but also found time to develop the AdieConway.com website. Eighteen year-old twins Will and Laura Adie have worked behind the Dunkin’ Donuts counter since they were 16. They are headed to college in the fall, but, Adie says, they will undoubtedly be back at work during school breaks and summer vacations.

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Working at Dunkin’ Donuts is a terrific way for people to learn business skills as they enter the workforce, says Adie. “Many people get their first jobs with Dunkin’ Donuts and it teaches them how to connect with people, how to handle money and how to get to work early in the morning.”

It’s not the easiest job, Adie says, but it is rewarding to work with a brand that is so connected with its community. “Our customers appreciate us for what we do, for our heritage, and our recipe of making fresh coffee by the pot and following strict recipe procedures,” said Adie.

They also appreciate the willingness of local franchise owners to support important initiatives. Recently, one of the Adie family’s shops provided – and served – 3,000 cups of coffee, 2,500 donuts, and 1,000 muffins for Lowell General Hospital’s annual cancer walk. It’s just one way of giving back to the communities that have supported the family’s shops for so long, says Adie. “We serve our communities, and we’ve been in the community for a very long time.”

And, through the years, the family has witnessed the evolution of Dunkin’ Donuts, from a local coffee shop to a dynamic global brand. The Adie Conway team believes Dunkin’ Brands is wellpositioned as a global franchise leader in the retail food industry.

“There has never been a more exciting time to be involved in the Dunkin’ Donuts brand as it evolves to deliver quality beverages and food to a new generation of customers,” Adie says.

•

Photo Courtesy of www.adieconway.com

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Dunkin’s Many D nuts Introducing new donut and Munchkin varieties is an important way to keep excitement in the product line. Chocolate Butternut Munchkins are one of the popular new flavors, which CML operators say are helping increase sales.

18 INDEPENDENT JOE • JUNE 2014

Photos by Caroline Cohen

By Matt Ellis

Photo by Ken Parry

O

n June 6, 2014 – also known as National Donut Day – customers flocked to their local Dunkin’ Donuts shop for a free treat.

Giving away free donuts on the first Friday in June is a tradition that goes back more than 70 years. In the years after World War I, the Salvation Army established the recognition to honor those who served donuts to soldiers in the Great War. “National Donut Day is a perfect opportunity to connect with our fans and celebrate the many ways donuts make any moment in a busy day much sweeter,” John Costello, President, Global Marketing and Innovation at Dunkin’ Brands said in a press release last year.

Look in the donut case of any Dunkin’ Donuts Brands and you’ll see old standards like the Glazed, the Chocolate Frosted and the Powdered Sugar. But, several times a year, new varieties like the Vanilla Peanut Butter Kreme, the Maple Frosted Cocoa and the Coconut Caramel are also carefully placed on pink paper in the case. Dunkin’ consistently introduces new donut varieties. Sometimes they are available for a limited time only; sometimes they become permanent favorites. In either case, the goal is to keep the category exciting and relevant—and drive sales.

“Donuts are timeless favorites, and are a great canvas for design and flavor innovation. Over the years, Dunkin’ Donuts has developed hundreds of varieties and flavors of donuts. Our fans really enjoy when we experiment with unique shapes and flavor combinations, and our commitment to donut innovation is a key reason why we remain the category leader, and why our donuts continue to be so popular

in the market,” according to Michelle King, Senior Director of Global Public Relations at Dunkin’ Brands.

Dunkin’ Brands says it sells 2.5 billion donuts and Munchkins® a year. Baked goods make great anytime snacks and some Dunkin’ customers love a sweet treat with their coffee. When asked about donut sales, franchisees say they can differ by day-part, by season and by geography.

People in the Southeast may see donuts as a special dessert for the family to share, while office workers in the Northeast may grab a dozen on their way to work to brighten the day for their colleagues. In either case, franchisees say, new varieties help catch the eye of donut aficionados.

“Generally speaking, remodeling and new product news are important sales drivers to the QSR space,” according to John A. Gordon, principal of Pacific Management Consulting Group and DDIFO’s restaurant analyst. “In the Dunkin’ environment, the introduction of many new manufacturing specs can produce challenges for the CML (central manufacturing locations) and for the shops that get new donut products.”

For franchisees and for operators of central kitchens, new products can require new baking and finishing procedures—as well as pre-ordering ingredients to make a lime green frosting or blue swizzle decoration. Sometimes that means allocating additional time for training and practice.

“It’s up to our plant manager to work on making sure end product meets specs and processes are followed. For new, somewhat unfamiliar varieties, we will usually institute a sample night just before

roll-out. We’ll practice manufacturing the new varieties to make sure we get the processes and end product specifications just right. That way, we can ensure proper quality products the very first day new varieties are made available for sale to our member shops,” says Mark Dubinsky who operates a Level 4 CML, serving 94 Dunkin’ Donuts shops in two states.

In New Jersey, Jolanta Halicki and her husband Dariusz run a Level 3 CML that produces 5500 dozen donuts a week. The kitchen employs 50 people and all of them need to know the specs for all new donut varieties.

“We have a very good crew with many employees working with us for a long time.

When they come up with new shapes, you have to spend time watching over all the processes like proofing and frying. It might take time to get the perfect shape.

You have to watch carefully to be sure it’s made with good quality,” she says.

One example of a recent limited time only (LTO) donut was the flower-shaped shell decorated with pastel pink or green icing and topped with a pink or yellow PEEPS® Marshmallow Chick.

“PEEPS are synonymous with fun and happiness, and we are excited to combine two American favorites to create unique flower-shaped donuts adorned with a marshmallow chick that will sweeten any spring or Easter celebration,” according to Stan Frankenthaler, Dunkin’ Brands’ Executive Chef and Vice President of Production Innovation.

The PEEPS® donut was a huge success.

Franchisees say it gave Dunkin’ a “huge

INDEPENDENT JOE • JUNE 2014 19

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marketing pop” and created “vitality and excitement for the whole line.” Franchisees use words like “pretty and exciting” to describe how LTO varieties, especially those that bring new color schemes and shapes into the donut case, are a strong driver of donut sales.

But, at the same time, these varieties can also require additional labor at the kitchens and at the individual shops. The marshmallow chicks on top of the PEEPS® donuts, for example, were done by hand at local Dunkin’ locations. Some shops are better equipped to handle donut finishing on site than others.

As far as kitchens are concerned, Jolanta Halicki in New Jersey says keeping up with the new varieties and their procedures is not a problem, even at her Level 3 CML. “We just follow the same procedures for frosting and filling and cut the dough into different shapes,” and Halicki says the effort is definitely worth it. “New varieties help the business do better. We’re selling more donuts now than we have in the 15 years that I’ve been doing this.”

“We factor in a small drop in productivity for the first few days.

As windows keep changing we know in the first few days of that window we are not going to have maximum efficiency,” Dubinsky says. “We are used to the change. It’s become the new normal.”

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At the Advisory level, franchisees are intimately involved with the process to ensure new donut varieties will be well received and, hopefully, good sellers. The strategy of introducing new donut varieties has now extended to Munchkins. Popular donut flavors like blueberry cake and chocolate butternut are now being made as Munchkins to invigorate that category as well.

“It seems to be working; from a sales standpoint, it’s a 25-30% increase in sales by adding new vitality,” says Dubinsky.

Dunkin’s donut (and Munchkin) recipe seems to be working.

New varieties like the new Blueberry Cobbler Donut, a yeast shell donut with delicious blueberry filling, white dipping icing and coffee cake streusel topping, which was introduced for this year’s National Donut Day, may wind up a memory next year. On the other hand, it might soon join the Glazed and Chocolate Frosted as a mainstay of a category that, despite its limited nutritional value, remains a surefire way to put a smile on someone’s face.

•

Photo by Caroline Cohen

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Dunkin' Brands introduces new donut varieties several times a year. Many are variations on existing themes, but CML operators must ensure each new donut is made according to brand specifications.

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SHOPS are Hacker

Targets Just Like the Big Stores

By Chad Leedy

e

Bay is the latest retail business to fall prey to online hacking.

Reports say hackers were able to obtain employee credentials in order to access an estimated 145 million passwords and e-mail addresses of eBay sellers and customers. And, while eBay was hacked “in the cloud,” plenty of brick and mortar businesses have also fallen victim.

The arts and crafts retailer Michaels reported the theft of credit card information from three million customers over eight months. There was also Neiman Marcus, the most upscale victim, with an initial estimate of 1.1 million customers getting snared victims. The biggest headlines so far went to Target, when hackers stole the card numbers of more than 40

INDEPENDENT JOE • JUNE 2014 21

PCI COMPLIANCE million customers and the personal information of another 70 million.

" We can’t underestimate the impact negative publicity from data breaches can cause."

We can’t underestimate the impact negative publicity from data breaches can cause. Would you want to give your credit card to a business publicly known not to protect it? According to a recent study by Javelin Strategy and Research, one-third of shoppers say they will take their business to a competitor if their favorite retailer suffers a breach. That’s why Target’s revenue, earnings and stock price all plummeted after the company disclosed the breach—as did sales at Michaels and Neiman Marcus.

When you consider the cost of legal expenses and new security monitoring measures, the losses to a company can be staggering.

In its fourth-quarter earnings release in February, Target reported incurred expenses of $61 million related to the breach, with additional charges likely to come.

What does it mean for Dunkin’ Donuts franchisees?

Like all businesses that use web enabled point of sale (POS) systems, Dunkin’ Donuts is just as vulnerable as any other retailer.

Verizon’s 2014 Data Breach Investigations Report says that while “Recent highly publicized breaches of several large retailers have brought POS compromises to the forefront … from a frequency standpoint, this largely remains a small-and-medium business issue.”

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Specific example include: transfer of ownership of 100 locations in Northeast, Southeast and other parts of the United States; sale of 48 locations in NY; purchase of 15 stores in the Northeast; acquisition of multi-shop networks in Florida (18), Vermont (20) and Cape Cod, MA (20); Store Development Agreements (SDA’s) throughout the country; and formation of cooperative Central Production Locations (CPL’s).

Lisa & Sousa Ltd. is general counsel for the Dunkin Donuts Independent Franchise Organization (DDIFO) with a membership of approximately 2000 Dunkin Donuts franchise units nationwide.

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That’s because thieves scan the Internet with automatic scripts looking for vulnerable POS devices. These auto-scripts issue likely access credentials to those they locate then install malware that collects and extracts payment card information. In fact, what makes Dunkin’ franchises vulnerable is its large number of POS devices. While an individual Dunkin’ Donuts getting hacked won’t generate the number of headlines that Target did, the franchisee could still expect it to negatively affect his or her local reputation—not to mention the breach-related charges, which could total $80,000 or more.

Merchant responsibilities Like every other business that accepts credit card payments, the responsibility of complying with the Payment Card Industry Data Security Standard (PCI DSS) rests with the local merchant. While nothing can make a business 100 percent invulnerable to hackers, PCI compliance is the best protection against credit card data theft. Your merchant bank or ISO doesn’t cover your for PCI DSS compliance; it is always the merchant’s responsibility.

PCI DSS is very clear about what’s required to be compliant. You must address these key PCI DSS requirements: •B uild and maintain a secure network. Make it extremely difficult for hackers to get to your POS device.

•P rotect card holder data. The best measure is to store all credit card data off-premises for access through a secure gateway.

•M aintain a vulnerability management program. Build in business practices that give you a proactive posture to quarterly vulnerability scans, rather than a reactive one.

• I mplement strong access control measures. Make sure that

PCI COMPLIANCE

only personnel with an absolute need to access card-holder data are able to; then carefully monitor access.

• Maintain information security policy. The least-informed employee can be the weakest link when it comes to PCI compliance. Make sure every employee who accesses sensitive data on your network understands your store’s security measures and the reasons for them.

•

Chad Leedy is director of Retail Compliance for ANX eBusiness Corporation

PCI compliance can seem like an overwhelming burden for any small business owner, which is why many seek the help of professionals. In 2009, hackers stole credit card data from approximately two thousand restaurants. In the world of data theft, the thieves are rarely caught but the damage they leave behind can last for years.

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www.KensingtonCompany.com INDEPENDENT JOE • JUNE 2014 23

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“We began processing payroll through Ovation at the beginning of 2013 and have been very satisfied,” says franchisee and BAC representative Sid Mody. “Our representative, Jim Ferreira, is always reachable and prompt in resolving issues for us. We are very comfortable recommending Ovation to other Dunkin’ franchisees.”

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M

other Nature played some cruel tricks on us this spring and, for a time, some fellow NJ franchisees and I wanted to drive out to Punxsutawney PA and have a "discussion" with that groundhog Phil. Nevertheless, the warm weather is upon us, schools are letting out for summer and kids are out in force looking for summer jobs.

Conservatively, I will estimate there are 40 job applications and a dozen emails from friends looking to put their kids to work at just one of our shops. Like most franchisees, I’ve been working since junior high school, and I always feel an obligation to hire kids that want summer jobs. It can teach them great lessons and can help us juggle schedules when full-time employees enjoy their summer vacation.

In the past, we’ve had fantastic success with teens on summer break. We’ve been able to develop some teenagers into hardworking, and dedicated employees. Some have stayed with us after graduation from high school as they attend local colleges. But, there are times I question whether these altruistic motives are beneficial to the business, particularly now that new product offerings have become more complicated to prepare and customers appear more crunched for time than ever before.

New employees – regardless of their age and experience – need a significant amount of time that we must invest in training. After all, they represent our brand and are responsible for maintaining proper food and personal procedures. Does it make sense to hand over your million dollar investment to a couple of teenagers on some summer Saturday night? Is it worth it?

There are days I’m on the fence. Still we press on—while keeping a keen eye on both the rules for having young, sometimes inexperienced, workers behind the counter and the potential risks.

For one, there are specific rules governing when and how 16 and 17-year-olds can work. The state enforces the number of hours a teen works per day and the number of hours they work per week. There are also restrictions over when teens can start and end their work day. In New

Jersey, some of these restrictions change once the school starts again in the fall.

Perhaps the most challenging rule with which to comply centers on breaks. A minor is required to have a 30 minute, uninterrupted break after he or she has been on the clock for five hours.

These breaks have to be logged because the state can make us prove that we gave the break and exactly when the employee took it. New Jersey will fine operators thousands of dollars for violating this rule, which is why we made sure to put a system in place.

The way we see it, teens we hire to work at our shop during the summer should be 100 percent dedicated to the job, but that’s not really the way it is. We recognize that for today’s teens, working the counter at the local Dunkin’ shop is just a job and there are many other important things that will compete for their full attention. Text messages, Facebook posts and unread Tweets can interfere with serving the customer. We have known many high school students whose schedules are so packed with athletics, band practices and other social events that showing up to work on time – if at all – can seem optional. We would never expect a full-time employee, or an entire night crew, to suddenly come down with some rare 24-hour disease so they could go to the Jersey Shore with their friends for the evening. But, that is a risk we run with summer teens.

Then there is the training. My general manager, whose tight grip on the purse strings may have something to do with how his bonus is calculated, would rather not have to pay for a training shift. Sadly, we can’t get away with that, even though it seems some teens have trouble learning the right way to do simple tasks like putting butter on a bagel.

When it comes to training, we’ve noticed that this generation of teens is more comfortable learning by doing than by reading about it in a manual. And, while Dunkin’ Brands’ new OnlineU is a vast improvement over the prior tool, our most successful training regimen is the hands-on version, where a newbie works with a seasoned buddy to learn the proper methods of making an Blue Raspberry Coolatta or a Big N’ Toasted sandwich, or a large coffee with cream and sugar. Training means sometimes making a mistake on a customer’s order and having to

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Today’s summer workforce also comes with an appendage: their mobile phone. Unlike regular employees who understand that phones should be put away for their shift, teens can feel like you’ve kidnapped their puppy when you tell them to leave their phones in the back room. And, because this generation prefers to communicate via text message, it is sometimes necessary to explain to them the importance of eye contact and face-to-face communication—especially when it comes to dealing with customers.

Of course, teens tend to perk up when their friends and family come into the shop. Many want to show their parents or older siblings how well they perform their new job. Others think it’s perfectly okay to give away drinks, sandwiches and baked goods to their visitors. As we all know, these unauthorized discounts can be costly, not only in terms of revenue, but also in terms of the time needed to track down orders that were improperly entered into the POS system.

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But, it’s not all messes and mistakes. Over the years, we have had several summer workers who have become outstanding employees, who others truly enjoy working with, and who effectively serve our customers.

We have one employee who has been working for us since he was 16. He has moved up the ladder from a part-time crew member to an assistant manager covering evenings and weekends. This fall he will begin college and expects to eventually be the first college graduate in his family.

Another employee, who has already earned his college degree, is planning on returning to school part-time to get another degree.

He has been such a great worker that we are going to elevate him to the role of manager for one of our new stores when it opens in 4Q14. We are committed to working around his class schedule to make sure the shifts we need filled fit his timeframe.

Because we are small business owners, we are often forced to wear multiple hats: CEO, Sales Manager and HR Director.

That can mean filling the role of parent or advisor to a teenage employee. While there can be personal and professional rewards for the operator who hires teenagers to fill summer shifts, it’s not right for all franchisees. In our experience, if you’re going to take the chance and hire a teenager to work the counter, you’ve got to expect some miscommunication, missteps and mistakes.

If that doesn’t sound acceptable to you, then just say no when those applications cross your desk.

•

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INDEPENDENT JOE • JUNE 2014 25

DDIFO SPONSOR ADVERTORIAL

Exchange Authority (EA) is a wholly owned subsidiary of Fidelity Bank and is managed by a team of experts with extensive industry experience.

EA has been providing 1031 exchange services to Dunkin’ Donuts franchise owners nationwide since 2009.

A 1031 exchange (also called a like-kind exchange) is a powerful tool for deferring capital gains taxes on investment property or property used in trade or business.

With Exchange Authority, Dunkin’ franchisees can count on unparalleled service, security and experience. EA facilitates all types of 1031 exchanges and consults with a franchise owner’s tax advisors and attorneys to ensure success. Funds are 100% insured with both FDIC and SIF insurance. Plus, EA signature reports come complete with calculations, analysis and a completed sample Form 8824—a musthave come tax time.

CPA Robert Costello says, “Our Dunkin’ Donuts clients have greatly benefited from Exchange Authority’s expertise.

In the complex exchange area, they have been a very positive resource.”

Exchange Authority is offering a $300 discount to all Dunkin’ franchisees through 9/30/14.

For more information, visit www.exchangeauthority.com or email 1031@ exchangeauthority.com.

26 INDEPENDENT JOE • JUNE 2014

Lisa on the Law

By Carl B. Lisa, Esq., Lisa & Sousa, Ltd. DDIFO General Counsel

The NBA’s Game: Termination of Franchise Rights and Forced Sale of the Team

T

he National Basketball Association recently fined Los Angeles Clippers owner Donald Sterling $2.5 million dollars and suspended him for life from League activity.

This arose from racist remarks Sterling allegedly made in a private taped conversation between him and his girlfriend. The League has taken the extreme step of appointing an interim CEO for the Clippers, until sale of the team is completed.

This case creates fascinating issues in the franchise realm and should be of interest to all franchise owners.

Sterling’s remarks have drawn criticism from media, fans, players and league and team sponsors. Subsequent remarks to the media – including one in which he blamed NBA Hall of Famer Magic Johnson for not doing “everything he can to help minorities,” – have only made the situation worse. According to the League, some of Sterling’s remarks were in violation of rules set forth in his franchise agreement.

The NBA claims Sterling’s conduct has undermined its promotion of diversity and impaired League relations with marketing and merchandising partners and community leaders. The League is on notice that the players, its essential product, stand ready to take extreme action if Sterling is not disenfranchised. This may be basketball, but it is still a classic case of alleged injury to the franchise brand.

Franchise rights and incurable defaults Before agreeing to sell the team, Sterling sought to contest the fine and suspension. Interestingly, NBA rules say three-fourths of the teams’ 29 owners must vote to terminate Sterling’s franchise rights. The rules differ from other franchise systems, but Sterling’s case is a cautionary tale of how franchise rights and incurable defaults can be handled.

Owners of franchised businesses generally must be terminated by their franchisor, which precipitates legal action in federal or state court.

Sterling is bound by the NBA’s Constitution and other agreements giving him franchise rights.

For Sterling – or any other owner – to fight the League, it must happen in the NBA’s arena before a jury of his owner-peers.

At the time Sterling and his wife, who is a 50 percent partner, decided to sell their interests, the NBA had charged multiple violations of the NBA Constitution and related agreements and was moving toward termination of their franchise rights. At least one owner spoke out against the severity of termination under these circumstances. The matter involves California’s community property law governing marital assets as well, raising the question: Can these rights be waived especially by an apparent innocent party?

Impact by a partner’s conduct The NBA has contended that the conduct of one franchisee-partner is the conduct of all. This is a critical issue for the League and the owners. To what degree are one’s franchise rights impacted by the conduct of one’s partners?

The same issue can arise in the context of the Dunkin’ franchisee/franchisor relationship.

Consider what could happen if the premises is used for an illegal purpose by one franchisee.

Dunkin’ – or any franchisor – could claim imputed knowledge of all franchisees, which essentially means: if one knew then all involved in that franchise should have known.

The makeup of the NBA is such that franchisees also wear the hat of the franchisor. In that context we wonder if an impartial decision or the right decision issue from one in a dual role? Can a person act in the best interest of the brand or according to his or her personal interest? Is this process practically and legally flawed?

That example does not extend to Dunkin’ Donuts—except in those rare situations where Dunkin’ Brands owns restaurants. Consider what would happen in that context if Dunkin’

Photo Credit: astroot via photopin cc

raised franchisee fees or advertising costs: the franchisees loss would really be the franchisor’s gain. It’s the classic no-lose scenario.

The NBA as a Franchise Business NBA owners sign documents requiring them to uphold and enhance the goodwill and proprietary interest of the brand and not injure its reputation. These clauses are found in all franchise agreements.

Franchise terminations most often are initiated through the court system.

They arise from violation of criminal or civil laws, and immoral conduct, fraud, violation of health and safety standards, nonpayment of fees and similar behavior.

In most cases a franchisee may contest termination in court with the franchisor having the burden of proof.

Contrary to the NBA’s Constitution and agreements, franchisees in other systems generally are not prohibited from seeking outside relief through either arbitration or the court process.

Franchisors see themselves as the creator

and protector of the “brand.” If the franchisor is a public company, failure to act may bring pressure from its investor shareholders. The NBA set up has the owners as franchisees and sole investors in the brand. As a result, pressure to act comes from players, fans and sponsors, who are greatly affected by the court of public opinion.

What’s ahead?

Cases like this expose loopholes and prompt challenges to existing rules. They also represent a black eye to the image and reputation of a brand. The NBA has tried to avoid drawn out litigation and bad publicity.

Leagues have rarely used their power to force a franchise sale; suspensions and fines are the more common penalties.

Recent examples of owner sanctions are the bankruptcy and resulting sale of the Los Angeles Dodgers and the Cincinnati Reds by owners McCourt and Schott respectively. Neither sale was forced by the League in spite of the surrounding controversies. Note also the suspension and fining of Yankee owner George Steinbrenner

due to hiring of private investigators to check on David Winfield. The McCourt matter contained the similar issue of his wife’s property rights in the franchise.

The general public saw more than a glimpse of dirty laundry in this case, but the push for a sale and an end to this case took place behind the scenes—out of view of cameras and reporters. At the end of the day, the League wanted to avoid injury to the brand and declare a measure of victory. In that way, the NBA is just like any other franchise system.

•

This publication is not intended to constitute legal advice. If legal advice is required the services of a competent legal professional should be obtained.

INDEPENDENT JOE • JUNE 2014 27

Directory of Sponsors Please Visit The DDIFO Sponsor Directory online at www.DDIFO.org Trane HVAC

EF Cost Recovery

Adrian A. Gaspar & Company, LLP, CPAs

Jonathan Ralys 225 Woldwood Avenue, Woburn, MA 01801 781-305-1335 • Jonathan.Ralys@Trane.com www.Trane.com/commercial

Bederson LLP - CPAs and Consultants

Devon Mourer 217-442-0611 • devon.mourer@watchfiresigns.com 1015 Maple Street, Danville, IL wwwwatchfiresigns.com

Jeff Hiatt 508-878-4846 • jdh@revenuebanking.com 87 Lafayette Road, Suite 11, Hampton Falls, NH 03844 www.revenuebanking.com

BUSINESS BROKER

ENERGY

Ellen Hui 949-428-0498 • eh@Nationalfranchisesales.com 1601 Dove Street, Suite 150, Newport Beach CA 92660 www.nationalfranchisesales.com

Lourilynn Throgmorton • 340-201-4323 Lourilynn.throgmorton@glacialenergy.com 24 Route 6A, Sandwich, MA 02563 www.glacialenergy.com

ACCOUNTING

Robert Costello 617-621-0500 • cpas@gasparco.com 1035 Cambridge Street, Suite 14, Cambridge, MA 02141 www.gasparco.com Robert Fischbein, CPA 973-530-9100 • rfischbein@bederson.com 100 Passaic Avenue, Fairfield, NJ 07004 www.bederson.com

Cynthia A. Capobianco, CPA

Cynthia Capobianco 401-822-1990 • cynthia@capobianco.necoxmail.com 60 Quaker Lane, Suite 61, Warwick, RI 02886-0114

Neovision Consulting Inc.

Nish Parekh 609-531-4444 • info@neovisioncpa.com 1246 South River Road, Suite 101 Cranbury, NJ 08512 www.neovisioninc.com

WatchFire Signs

National Franchise Sales

COMMUNICATIONS Charter Business

Mary Ewals • 303-267-9964 • mary.ewals@charter.com 6399 South Fiddlers Green Circle Suite 600 Greenwood Village, CO 80111 www.charter.com

Comcast Business Services

Rubiano & Company, CPA’s

Comcast National Sales • 866-407-6338 Dunkin_National_Sales@comcast.com 500 South Gravers Road, Plymouth Meeting, PA 19462 www.business.comcast.com/internet

Sansiveri, Kimball & Co., LLP

Neil Doshi 1-877-999-7668 • neil@sonusatellite.com 430 Commerce Lane, Suite F, West Berlin, NJ 08091 www.sonusatellite.com

Thomas Colitsas and Associates, CPA

Heath Stone 603-793-2129 • heath.h.stone@sprint.com 3 Van De Graaff Drive, Burlington, MA 01803 www.sprint.com/ddifomembers

Daniel J. Rubiano, CPA 401-949-2600 • dan@rubianocpa.com 5 Austin Avenue, Suite 1, Greenville, RI 02828 www.rubianocpa.com Michael A. DeCataldo 401-331-0500 • mdeca@sansiveri.com 55 Dorrance Street, Providence, RI 02903 www.sansiveri.com Tom Colitsas 609-452-0889 • tcolitsas@tcacpa.com 103 Carnegie Center, Suite 309, Princeton, NJ 08540

BACK OFFICE

Jera Concepts

Wynne Barrett 508-686-8786 • wynne@jeraconcepts.com 17 Fruit Street, Hopkinton, MA 01748 www.jeraconcepts.com

BUILDING

Poyant Signs

Bill Gavigan 125 Samuel Barnet Blvd, New Bedford, MA 02745 508-717-4930 • bgavigan@poyantsigns.com www.poyantsigns.com

Sonu Satellite

Sprint

Time Warner Cable Business Class

Tricia Petway (919) 654-4115 • tricia.petway@twcable.com 4200 Paramount Parkway, Morrisville, NC 27560 www.twc.com/business

COST RECOVERY

Bedford Cost Segregation, CPAs

Bill Cusato 978-263-5055 • bcusato@bedfordcostseg.com 60 State Street, Suite 700, Boston, MA 02109 www.bedfordcostseg.com/who_we_serve/ddifo.asp

DDIFO® does not endorse or recommend commercial products, processes, or services. A DDIFO® sponsor is paying to advertise, and it is not to be considered a product or service endorsement by DDIFO®. Furthermore DDIFO® does not control or guarantee the currency, accuracy, relevance or completeness of information provided by sponsors in their advertising.

28 INDEPENDENT JOE • JUNE 2014

Ed Craig 774-263-7388 • ecraig3@efcostrecovery.com PO Box 79361 North Dartmouth, MA 02747 www.efcostrecovery.com

Performance Business Solutions, LLC

Glacial Energy

Plotwatt, Inc.

Marc Bodner 919-614-2293 • marc@plotwatt.com 1715 Six Gables Road, Durham, NC 27712 www.plotwatt.com

FINANCE Bank RI

Tom Fitzgerald 401-574-1119 • tfitzgerald@bankri.com One Turks Head, Providence, RI 02903 www.bankri.com

BMO Harris Bank N.A.

Angelo Maragos 949-293-0152 • angelo.maragos@bmo.com 7700 Irvine Center Drive, Suite 510, Irvine, CA 92618 www.bmoharris.com/franchisefinance

Brendon Pierson

Jeffrey Kotch 732-681-4800 • jkotch@brendonpierson.com 6333 North State Highway 161, 4th Fl., Irving TX 75038 www.brendonpierson.com

Business Financial Services

Scott Kantor • 954-509-8019 skantor@businessfinancialsservices.com 3111 N. University Dr, Suite 800 Coral Springs, FL 33065 www.businessfinancialservices.com

Centrix Bank & Trust

Deborah Blondin 603-589-4071 • dblondin@centrixbank.com 1 Atwood Lane, Bedford, NH 03110 www.centrixbank.com

Direct Capital Franchise Group

Robyn Gault 603-433-9476 • rgault@directcapital.com 155 Commerce Way, Portsmouth, NH 03823 www.franchise.lendedge.com

Thank You to Our Sponsors!

Fidelity Bank

Directory of Sponsors

Santander Bank

Sally Buffum 508-762-3604 • sbuffum@fidelitybankonline.com 465 Shrewsbury Street, Worcester, MA 01604 www.fidelitybankonline.com

www.santanderbank.com 508-890-6880 • mmcgwin@santanderbank.com 446 Main St., Worcester, MA 01608 www.santander.com

First Franchise Capital

TCF Franchise Finance

Bill.com

Becky Riffis 650-353-3301 • briffis@hq.bill.com 3200 Ash Street, Palo Alto, CA www.bill.com

Granite Payroll Associates

Karen Johnson 402-562-5111 • karen.johnson@firstfcc.com 2715 13th Street, Columbus, NE 68601 www.firstfranchisecapital.com

Bill Johnson & Brittney Weber 952-656-3268 • bjohnson@tcfef.com 11100 Wayzata Blvd., Ste. 801, Minnetonka, MN 55305 www.tcfef.com

Marco Schiappa 401-263-7921 • marco@granitepayroll.com 176 Granite Street, Qunicy, MA 02169 www.granitepayroll.com

GE Capital, Franchise Finance

TD Bank

Gulpfish.com

Christine Keating 203-229-1804 • christine.keating@ge.com 201 Merritt 7, 2nd Floor, Norwalk, CT 06851 www.gefranchisefinance.com

Brian Frank 203-761-3818 • brian.frank@td.com 40 Danbury Road, Wilton, CT 06857 www.tdbank.com

Joyal Capital Management Franchise Development

United Capital Business Lending

Daniel Connelly 508-747-2237 • dconnelly@joycapmgt.com 50 Resnik Road, Plymouth, MA 02360 www.jcmfranchise.com

Trey Grimm 410-771-9600 • tgrimm@ucbl-inc.com 215 Schilling Circle Suite 100, Hunt Valley, MD 21031 www.unitedcapitalbusinesslending.com

NFA Restaurant Finance

FOOD PRODUCTS

Larry Howard 205-871-8450 • lhoward@nfaloans.com 400 E. 22nd Street, Suite A, Lombard, IL 66148 www.nfaloans.com

Pacific Premier Franchise Capital

Sharon Soltero 402-562-1801 • ssoltero@ppbifranchise.com 3154 18th Avenue, Suite 3, Columbus, NE 68601 www.ppbifranchise.com

Priority Capital

Brian Gallucci 800-761-2118 ext. 14 • bgallucci@priotiycapital.com 174 Green Street, Melrose, MA 02176 www.prioritycapital.com

CSM Bakery Products

Marla Cushing 770-723-2083 • marla.cushing@csmglobal.com 1901 Montreal Road, Suite 121, Tucker, GA 30084 www.csmbakeryproducts.com

Quaker Oats A Division of PepsiCo

Ed Bowes 610-948-8309 • Ed.bowes@pepsico.com 402 Kilarney Way, Royersford, PA 19468 www.pepsico.com

HUMAN RESOURCES ADP

John Stefko 908-625-7966 • john.stefko@adp.com 99 Jefferson Rd. MS 322, Parsippany, NJ 07054 www.adp.com

Ilya Reikhrud 800-974-4514 ext. 101 • ceo@gulpfish.com 1005 Main Street, Pawtucket, RI 02860 www.gulpfish.com

Heartland Ovation Payroll

Jim Ferreira 203-530-3512 • jferreira@ovationpayroll.com 90 Linden Oaks Suite 110, Rochester, NY 14625 www.ovationpayroll.com

HK Payroll Services, Inc.

Laurie Fleming 563-556-0123 ext.1190 • lfleming@honkamp.com 2345 JFK Rd, PO Box 3310,Dubuque, IA 52004 www.hkpayroll.com

INSURANCE

Insurance World Agency Inc.

Anil K. Sharma 630-654-6067 • info@iwainsurance.com 100 E Ogden Avenue Suite 203, Westmont, IL 60559 www.iwainsurance.com

KK Insurance Agency

Ashish Vadya 866-554-6799 • ashish@kkinsuranceagency.com 541 Broadway, Long Branch, NJ 07740 www.kkquote.com

INDEPENDENT JOE • JUNE 2014 29

Directory of Sponsors Please Visit The DDIFO Sponsor Directory online at www.DDIFO.org Delphi/Fast Track 2+2 Drive-Thru Timer

Mike Pierce 714-850-1320 • mike@phaseresearch.com 3500 West Moore Ave., Suite M, Santa Ana, CA 92704 www.fasttracktimer.com

DTT Surveillance

Mira Diza 800-933-8388 • mdiza@dttusa.com 1755 North Main Street, Los Angeles, CA 90031 www.dttusa.com

Dunbar Security Products

Dustin Gosewisch • 800-766-9145 dustin.gosewisch@dunbararmored.com 8525 Kelso Drive, #L, Baltimore, MD 21221 www.dunbarsecurityproducts.com

Ecolab

Arliene Bird arliene.bird@ecolab.com 8300 Capital Drive, Greensboro, NC 27409 www.ecolab.com/Businesses

Sinclair Insurance Group - Risk Management

Matt Ottaviano 203-284-3235 • mottaviano@sinclair-insurance.com 4 Tower Drive, Wallingford, CT 06492 www.srfm.com

Starkweather & Shepley Insurance Brokerage, Inc.

Sabrina San Martino 800-854-4625 ext. 1121 • ssanmartino@starshep.com 60 Catamore Boulevard, East Providence, RI 02914 www.starkweathershepley.com

Wells Fargo Insurance Services

Mark Stokes 813-636-5301 • mark.stokes1@wellsfargo.com 2502 North Rocky Point Drive, #400, Tampa, FL 33607 wfis.wellsfargo.com

LEGAL

Lisa & Sousa Attorneys at Law Ltd.

Carl Lisa, Sr. 401-274-0600 • clisa@lisasousa.com 5 Benefit Street, Providence, RI 02904 www.lisasousa.com

Paris Ackerman & Schmierer LLP

David Paris 973-228-6667 • david@paslawfirm.com 101 Eisenhower Parkway, Roseland, NJ 07068 www.paslawfirm.com

Vernis & Bowling of Palm Beach, P.A.

Tammy Bouker • 561-775-9822 • 561-775-9822 tbouker@national-law.com 884 US Highway One, North Palm Beach, FL 33408 www.national-law.com

Zarco, Einhorn, Salkowski & Brito, PA

Robert Salkowski, Esq 305-374-5418 • rsalkowski@zarcolaw.com 100 SE 2nd Street, 27th Floor, Miami, FL 33131 www.zarcolaw.com

OPERATIONS

eTemp

James O’Neill 800-974-1006 x326 • james.oneill@getetemp.com 5 Cold Hill Road, Building 20, Mendham, NJ 07945 www.getetemp.com

Green Turtle Americas

3M Company

Eric Hancock 704-295-3964 • ehancock@greenturtletech.com 2709 Water Ridge Pkwy Charlotte NC 28217 www.greenturtletech.com

3 Wire Group, Inc.

Gary Hanna 508-624-7479 • gary@hitechsound.com 19 Brigham Street, Unit 10, Marlboro, MA 01752 www.hitechsound.com

Bill Muenkel 952-484-4875 • wemuenkel@mmm.com Bldg. 223-2N-20 St. Paul, MN 55144 www.3M.com/communications Derek Knapp 518-563-3200 • derek.knapp@3wire.com 101 Broadway Street West, Osseo, MN 55369 www.3wire.com

Belshaw Adamatic Bakery Group

Fran Kauth 206-718-3573 • fran_kauth@belshaw.com 814 44th Street NW, Suite 103, Auburn, WA 98001 www.belshaw-adamatic.com

Bunn-O-Matic Corporation

Todd Rouse 800-637-8606 • Todd.Rouse@bunn.com 1400 Stevenson Drive, Springfield, IL 62703 www.bunn.com

Cardtronics

Doug Falcone 973-599-0600 • dougf@cardtronics.com 628 Route 10 - Suite 8, Whippany, NJ 07981 www.cardtronics.com

Hi-Tech Sound

HME Drive-Thru Headsets

Brady Campbell 858-535-6034 • bcampbell@hme.com 14110 Stowe Drive, Poway, CA 92064 www.hme.com

Jarrett Services ATM, Inc.

Eric Johnston 732-572-0706 • ej@jarrettforcash.com 1315 Stelton Road, Piscataway, NJ 08832 www.jarrettforcash.com

KD Kanopy

John Behrens 303-650-4707 • john@kdkanopy.com 1921 E. 68th Ave. Denver, CO 80229 www.kdkanopy.com

DDIFO® does not endorse or recommend commercial products, processes, or services. A DDIFO® sponsor is paying to advertise, and it is not to be considered a product or service endorsement by DDIFO®. Furthermore DDIFO® does not control or guarantee the currency, accuracy, relevance or completeness of information provided by sponsors in their advertising.

30 INDEPENDENT JOE • JUNE 2014

Directory of Sponsors Macdonald Restaurant Repair Service, Inc.

Mark & Debi Macdonald 508-384-9361 • debi@macdonaldcompany.com PO Box 61, 83 Pond Street, Norfolk, MA 02056 www.macdonaldcompany.com

Mint-X Corporation

Amie Yee 877-646-8224 • ayee@mint-x.com 2048 119th Street, College Point, NY 11356 www.mint-x.com

New England Drive-Thru Communications

Angela Bechard 888-966-6337 • angela@nedrivethru.com 12 Wildwood Road, Auburn, NH 03032 www.nedrivethru.com

New England Repair Service

Jerry Brown • A Division of New England Coffee Co. 781-873-1536 • jerry.brown@necoffeeco.com 100 Charles Street, Malden, MA 02148 www.nerepairservice.com

Paramount Restaurant Supply Corp.

Jeffrey Cartier 401-247-6500 • jcartier@pararest.com 101 Main Street, Warren, RI 02885 www.pararest.com

Payless Shoe Source

Matt Lemke 785-368-7530 • matt.lemke@payless.com 3231 SE 6th Avenue, Topeka, KS 66607 www.payless.com

Pentair Filtration & Process

Jeannine Gaine 630-240-1298 • jeannine.gaine@pentair.com 1040 Muirfield Dr., Hanover Park, IL 60133 www.everpure.com

Pier Cleaners

Larry Fish 401-789-2333 • piercleaners@piercleanersri.com 50 High St. Wakefield, RI 02879 www.piercleanersri.com

R.F. Technologies

Jennifer Morales 618-377-4063 ext. 121 • jenm@rftechno.com 542 South Prairie Street, Bethalto, IL 62010 www.rftechno.com

QualServ

Becky Dubose 800-643-2980 ext. 256 • bdubose@qualservcorp.com 7400 28th Street, Fort Smith, Arkansas, 72906 www.qualservcorp.com

Shoes For Crews

Paola V. Kerns 877-437-6176 • paolak@shoesforcrews.com 250 S. Australian Ave. West Palm Beach Fl 33401 www.shoesforcrews.com

SKAL East, Inc

The Wifi Company

Kevin Huerth 508-238-0106 • kevin@skaleast.com PO Box 303, 31 Eastman Street, Easton, MA 02334 www.skaleast.com/index.cfm?keyword=dunkin

John J. Bailey 877-949-9434 • jbailey@thewificompany.com 190 Pine Rd., Golden, CO 80403 www.thewificompany.com

TredSafe/WalMart

TAX DEFERRED EXCHANGE

Ted Travis 909-949-0495 • ttravis@esoriginals.com 450 West 33rd Street, New York, NY 10001 www.walmart.com

UAS Security Systems

Chris McGurk 800-421-6661 • chris.mcgurk@uas.com 700 Abbott Drive, Broomall, PA 19008 www.uas.com

Wentworth Technology

Lisa Keslar 207-571-9744 • jlisakeslar@wentworthtechnology.com 77 Industrial Park Road Saco Me 04072 www.speedthruheadsets.com

Exchange Authority

Marie Dias 978-433-6061 • mdias@exchangeauthority.com 9 Leominster Connector, Suite 1, Leominster, MA 01453 www.exchangeauthority.com

Thank You to Our Sponsors!

INDEPENDENT JOE • JUNE 2014 31

Historians say the Dutch created donuts, which they called "olykoek," meaning oily cake.

According to the Smithsonian, Elizabeth Gregory, the mother of a 19th century ship's captain, mixed nutmeg, cinnamon and lemon rind into her fried dough pastries, making a tasty treat that could be stored on board the ship for long voyages.

Dunkin' Donuts proudly lists over 100 donut varieties on its website.

Of all the varieties, the traditional Glazed, Chocolate Cake, Boston Kreme and Jelly are the best sellers.

At the 1934 World's Fair in Chicago, donuts were billed as, "The food hit of the Century of Progress."

Thanks to the latest advancements and efficiencies, central kitchens can bake over 150,000 dozen per week.

Dunkin' Brands says it sells 2.5 billion donuts and Munchkins every year.

32 INDEPENDENT JOE • JUNE 2014

Photo Credits: Caroline Cohen

Keeping the Donut Category Fresh

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Total Plan Integration and

Commitment to Client Service Since 1990 we have enjoyed amazing personal relationships with Dunkin’ Donuts Franchisees.

$6 Billion

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Find out how JCM can help you grow and plan today. We have helped many Dunkin’ Donuts franchisees and we can do it for you.

BOSTOn

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B O C a R aT O n

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B e v e R ly H I l l S

Start a Relationship Today: 1-800-56-JOYAL Gary F. Joyal

Richard P. Joyal, Jr.

Stephen M. Stabile

Managing Partner gjoyal@joycapmgt.com

Managing Director rjoyal@joycapmgt.com

President ss12@att.blackberry.net

Daniel F. Connelly

Kathy Rebello

Sean O’ Brien

Managing Director dconnelly@joycapmgt.com

Managing Director krebello@joycapmgt.com

Chief Financial Officer sobrien@joycapmgt.com

PROUD TO Be:

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