February/March 2016
Award-Winning Magazine
Two Words that Changed Franchising
for D D Independent Franchise Owners
Food Safety in the Spotlight
A Dunkin’ Family Affair
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PSP Franchising, LLC, 17197 N. Laurel Park Drive, Suite 402, Livonia, MI 48152 1 This advertisement is not an offer to buy a franchise. An offer to buy a franchise can be made by prospectus only. Item 19 of PSP Franchising, LLC’s 2015 FDD provides that $3,675,560 is the average gross sales achieved by the “top third” of PSP franchisees (measured by gross sales), which consists of 40 franchised PSP stores during the measurement period beginning 12/29/13 and ending 1/3/15. Your results as a new franchisee may differ. Of the 40 “top third” franchise PSP stores, 15 PSP stores, or 38%, exceeded the average “top third” annual gross sales. 2 Item 19 of PSP Franchising, LLC’s 2015 FDD provides that $506,874 is the average EBITDA reported by the “top third” of affiliate-owned PSP stores (measured by gross sales), which consists of 38 PSP stores during the measurement period beginning 12/19/13 and ending 1/3/15. Your results as a franchisee may differ. Of the 38 “top third” affiliate-owned PSP stores, 12 stores, or 32%, exceeded the “top third” average EBITDA. 3 According to the APPA: http://www.americanpetproducts.org/press_industrytrends.asp. ©2016 Pet Supplies Plus. All rights reserved.
I CR EAT D E MA N E YO U D.
CA S H I N
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SKATING IN A NEW DIRECTION Over the course of the past month or so, we’ve watched three of America’s major sports present All-Star games, where their sport’s premier players are recognized and fans can witness the best of the best competing for all-star bragging rights. Most of these contests fail to live up to the hype, but in one case, a league broke the mold and created something truly compelling—if not actually successful. And, it is a lesson that has not been overlooked by DDIFO. The 2016 NHL All-Star Game featured something fans rarely see in a regular season or playoff contest: a 3-on-3 format. For those of you who may not know, hockey is played with six players: five skaters and one goalie. If a player is penalized, he is removed from competition and a team can play with a man advantage. On rare occasions, major penalties can lead to 3-on-3 play for a limited time, but never for the duration of the game. For the All-Star Game, the league instituted 3-on-3 tournament play, consisting of 20-minute games. It was thrilling to see and notable for how it reinvented a model that, until now, wasn’t working so well. The example struck me as parallel to how DDIFO has changed its mission over the past couple of years. So many people have used the phrase, “the anti-Dunkin’” to describe to me how they – and others – view this independent franchisee organization. And it is true that, for a time, DDIFO was focused on serving as a shield protecting the Dunkin’ Donuts franchisee community against the excesses of its brand. As the brand seemingly tightened the noose around the necks of many of its franchisees, DDIFO countered the aggression with effective legal representation, solid research, and strong public relations. That was then. Today, the brand is a publicly traded international giant, focused on opportunities for growth and expansion. Under its current leadership, Dunkin’ Brands is working more effectively with its franchise owners and has removed the need for those franchisees to carry a shield. That’s why DDIFO has shifted its emphasis to providing enhanced services designed to help its members become better Dunkin’ operators and more
successful business people. If you’ve followed the pages of this magazine, or read our weekly newsletter, or attended our meetings, you’ve seen the change. This issue of the magazine features a lengthy article on DDIFO’s role in the historic passage of California’s Fair Franchising legislation. Our recent National Conference featured renowned franchise attorney Robert Zarco explaining why the joint employer ruling can be good for franchise owners. Right now, we are still working out the kinks on a captive insurance program designed to save you money. These initiatives are designed to provide value for your membership and position DDIFO as a resource for improving your bottom line. Our newest value-add is really a big deal, especially in light of the pressure QSR operators are feeling to ensure food safety in their restaurants. DDIFO is now collaborating with the National Restaurant Association’s ServSafe® program and offering their certification exams at every DDIFO meeting for the remainder of this year. What’s more, we are eliminating the proctor cost for our members and offering a significantly reduced proctor cost for non-members. This is a good deal on a program every franchise owner and manager needs. It is critical to your operations and your continued success. (Read more about Food Safety and the exams on page 16.) Like an NHL all-star sharply pivoting to set up a scoring opportunity on empty ice, DDIFO is well positioned to enhance the operations of its members. And, it should go without saying, if the circumstances dictate the agile skater transform himself into an enforcer capable of protecting his teammate’s business interests, DDIFO is always prepared to shift back into shield mode. Ed Shanahan DDIFO Executive Director
INDEPENDENT JOE • FEBRUARY/MARCH 2016 1
SUB HEADLINE
CONTENTS
From the Executive Director: A New Year’s Call to Action • • • • • • • • • • • • • • • • • 1 What’s Brewing: A Look at State Issues Around the Footprint • • • • • • • • 5 Two Words that Changed the Face of Franchising • • • • • • • • • • • • • • • • • • 8 All-Day Breakfast Stokes Competition • • • • 12
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Chipotle's Troubles and What it Means for Dunkin' Operators • • • • • • • • • • • • • • • • • • 16 Franchisee Profile: Bruce MacDonald• • • • • • • • 19 Directory of Sponsors • • • • • • • • • • • • • • • 24 Legal: Sign At Your Own Risk-The Sequel• • • • • • • • 28
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What Matters To You?
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Independent The Magazine for DD Independent Franchise Owners
倀爀漀瘀椀搀椀渀最 唀渀瀀愀爀愀氀氀攀氀攀搀 䌀漀瘀攀爀愀最攀ᤠ猀Ⰰ 倀爀椀挀椀渀最 ☀ 匀攀爀瘀椀挀攀 昀漀爀 伀瘀攀爀 ㌀ 夀攀愀爀猀
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February/March 2016 Issue #36 Independent Joe® is published by DD Independent Franchise Owners, Inc. Editors: Edwin Shanahan, Matt Ellis Contributors: Cheryl Alkon, Cathy Cassata, Mike Hoban, Debbie Swanson, Scott Van Voorhis Business Member Coordinator: Joan Gould Creative Director: Caroline Cohen
䌀漀渀琀愀挀琀 匀愀戀爀椀渀愀 匀愀渀 䴀愀爀琀椀渀漀 㠀 ⴀ㠀㔀㐀ⴀ㐀㘀㈀㔀 砀 ㈀ 眀眀眀⸀猀琀愀爀猀栀攀瀀⸀挀漀洀
4 INDEPENDENT JOE • FEBRUARY/MARCH 2016
Direct all inquiries to: DDIFO, Inc. 2 First Avenue, Suite 127 – 3, Peabody, MA 01960 978-587-2581 • info@ddifo.org • www.ddifo.org DD Independent Franchise Owners, Inc. is an Association of Member Dunkin’ Donuts Franchise Owners. 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 © 2015 Printed in the U.S.A.
WHAT’S BREWING A LOOK AT STATE ISSUES
AROUND THE FOOTPRINT By Scott Van Voorhis It may seem hard these days for Dunkin’ Donuts franchise owners to catch a break, with everyone from the federal government down to the local city council taking aim at the quick service restaurant industry. But Dunkin’ and other franchise owners got a big reprieve recently when the Food and Drug Administration gave the boot to a looming deadline that would have required calorie counts beside each and every menu item. The step back from the calories counting craziness comes at a crucial time, with restaurant owners across the country scrambling to keep up with a flood of new government mandates that will only intensify as we head deeper into 2016. Franchise owners face growing proposals by city and state governments to boost minimum wages, mandate paid sick leave, micromanage workplace schedules and require the disclosure of sodium as well as calories. “It is very difficult for any single operator to absorb a lot of these mandates that are coming down the road,” according to David Henkes, advisory group senior principal for Technomic, a Chicago-based
restaurant consulting group. Calorie labeling on ice Menu labeling isn’t exactly popular among Dunkin’ Donuts owners, not only because baked goods can contain high calorie counts, but also because the Dunkin’ menu has so many options. The cost quickly escalates for redoing a menu board that has the complexity of a Dunkin’ menu. Quick service and other restaurant owners across the country have been gearing up for the imminent launch of calorie labeling regulations for years now, only to see deadlines come and go. When Obamacare passed Congress in 2010, it mandated that quick service restaurants and others post calorie counts next to menu items. But the devil as always is in the details. Faced with a backlash from the restaurant industry, the Food and Drug Administration (FDA) has yet to fully hammer out the rules – or critical guidance for restaurant operators – through which the new law would work. Last summer, the FDA pushed off the deadline yet again, announcing that restaurants, supermarkets, convenience stores and others would
not be required to begin posting calorie counts until Dec. 1, 2016. Now, thanks to a bill passed by Congress and signed by President Obama, that deadline is likely to be pushed out to 2017 and possibly beyond. Tucked into the recently passed federal budget is a provision that bars the FDA from spending any money to enforce calorie labeling until one year after “the Secretary of Health and Human Services publishes Level 1 guidance with respect to nutrition labeling and standard menu items in restaurants and similar food establishments,” writes Valerie Haber of Florida law firm RobinsonGray, citing the text in the otherwise obscure budget provision. It is expected to take some time for federal health officials to publish the guidance document, which, in turn, is now needed to trigger the countdown towards the final launch of the new menu labeling rules. To sum up, all that means the deadline has likely already slipped into 2017, if not beyond, Haber notes. Given the uncertainty surrounding which party will occupy the White House next term, the delay could very well become permanent should the Republicans win.
INDEPENDENT JOE • FEBRUARY/MARCH 2016 5
WHAT’S BREWING
“Congress has substantially extended the time line for the U.S. Food and Drug Administration’s enforcement of the agency’s new rules on standard restaurant menu labeling,” Haber writes. “At this point, there is no date certain as to when compliance will be required.” Minimum wage hikes challenged Opponents battling a pair of high-profile minimum wage hikes in Seattle and New York are taking their cases to court. The National Restaurant Association (NRA) says it plans to go to court to challenge a controversial Empire State minimum wage law targeting quick service restaurants. Last spring, New York Governor Mario Cuomo proposed a $15 an hour minimum for fast food workers, which was soon rubber-stamped by a three member fastfood wage board made up of a top official of the Service Employees International Union (SEIU) – which is trying to unionize quick-service restaurants – a big city mayor, and an online retailer.
6 INDEPENDENT JOE • FEBRUARY/MARCH 2016
The restaurant association failed in December to convince the Cuomo-appointed Industrial Board of Appeals to scrap the new wage rules, but that cleared the way for NRA to file suit against Cuomo in state court. “We are committed to helping the restaurant community continue to grow and create jobs across the state and plan to take legal action against this arbitrary mandate which is contrary to law,” the NRA says in a statement. In fact, the restaurant group is already in court challenging a move by New York City to require chain restaurants to label items that are high in sodium. Meanwhile, the International Franchise Association (IFA) hopes to take its case against Seattle’s $15 an hour minimum
wage law all the way to the U.S. Supreme Court. The IFA contends franchise businesses are being required to raise their pay faster than other businesses. In particular, Seattle gave small businesses seven years
to comply with the new $15 an hour wage, while ramping up that timetable to three years for firms with more than 500 employees. But the new rules include a twist the IFA contends is unfair to franchise owners. Local franchises that are part of larger chains must ramp up to $15 an hour in three years, not the seven given to other small businesses. As the IFA notes in its plea to the Supreme Court, the per-employee cost to a small franchise owner who has only five employees but is part of a national brand is $160 more a week. Compare that to the mom-and-pop restaurant who can continue to pay its employees $11 an hour for years more. “Our appeal to the Supreme Court will be focused solely on the discriminatory treatment of franchisees under Seattle's wage law and the motivation to discriminate against interstate commerce,” association President Robert Cresanti said in a statement, which states the IFA’s appeal
has “never sought to prevent the City of Seattle's wage law from going into effect.” Scheduling madness Washington, D.C. is the latest to toy with workplace schedules. The District of Columbia City Council is debating whether to require employers to post shifts three weeks in advance while also forcing businesses to pay workers for four hours if the schedule changes at the last minute. The proposal would require a written schedule within 24 hours of any changes being made. Franchise owners would have to keep records of each shift for up to three years and offer work to current staff before hiring anyone new or bringing in subcontractors. The new law would apply to restaurant chains with 20 or more locations nationally or retail outlets with five or more stores.
San Francisco became the first and to date only city to pass shift scheduling rules, making that leap in November, 2014. Since then, similar proposals have been made in 13 cities and states, Bloomberg BNA has reported. A challenging year ahead Quick service restaurant owners are popular targets right now for activists and politicians of all stripes. And 2016 is likely to see more government proposals that would do everything from dictate how you schedule your shifts to how much you pay your employees. Add to that a tightening labor market that can make it difficult to fill jobs and you have a recipe for a challenging year ahead. It all adds up to an urgent need to be prepared. David Henkes from Technomic sums it up this way, “[Franchisees] need to be making plans now on how to deal with some of these things.”
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INDEPENDENT JOE • FEBRUARY/MARCH 2016 7
Two Words that Changed the
Face of Franchising
By Matt Ellis
F
Monetized Equity
or four years – between 2011 and 2015 – a group of business owners representing the biggest names in franchising joined with a team of lawyers and consultants to amend the California franchise law and level the playing field in a sector of the U.S. economy responsible for nearly $500 billion in gross domestic product.
Keith Miller is a long-time Subway franchisee and chairman of the CFA. He boils the battle down to these words: Monetized Equity. Miller has said them so many times, but when he repeats them it’s with a trace of epiphany, as if he had just thought of it that very moment.
It wasn’t easy. There were many losses and too few victories in the early stages, but the group never lost hope. Last fall, their countless hours of unpaid work paid off. For the first time in a decade, a state law was changed to offer new protections to franchise owners.
“The term came directly from the IFA’s [International Franchise Association] statement of guiding principles. We took the paragraph from there and inserted it into our bill. It said, basically, ‘If you terminate someone they have the right to monetize the equity they have invested in their franchise,’” he says.
DDIFO played a significant role in the effort. As a charter member of the Coalition of Franchisee Associations (CFA), DDIFO was one of the entities providing capital and resources for the group, which secured a bi-partisan bill that was signed into law by a governor who had earlier vetoed a similar measure.
The language fit perfectly. It didn’t hurt that the words came directly from the CFA’s chief opponent. For years, IFA had vigorously opposed any attempts to change franchise laws, anywhere. Now, Miller and the group thought they might have the leverage necessary to get the IFA to the bargaining table and identify some common ground where they could work together to change the law.
This bill’s back story is filled with dates and details; meetings and memos; negotiators and naysayers. But, what it ultimately came down to was the perseverance of the group and the idea that two words could change everything.
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CFA Vice-Chairman Rob Branca, a trained attorney, who also operates a network of Dunkin’ Donuts locations and serves on the Brand Advisory Council (BAC), thought the IFA language
dovetailed beautifully with the Universal Franchisee Bill of Rights, a 2011 fairness doctrine adopted by the CFA, which states, “Termination shall not occur without good cause, and termination shall not compel payments of liquidated damages or early termination fees.” Branca saw the opportunity to engage directly with the IFA and build a consensus for a bill that would satisfy IFA’s interests while also providing stronger protections of franchisee equity during transfers or terminations. Branca had good relationships with IFA leaders and believed that there were several core principles on which both groups commonly agreed, and could be the foundation for negotiation. “For us, the bill had to have language that allowed for franchisees to monetize their equity,” says Branca. “We also strongly believe that franchisors need the power to protect the integrity of the trademark as well as the business equity built by its franchisees. We all should be on the same page about that—and we were. They’re protecting our business equity as much as their own intellectual property.” “It’s a property rights issue,” says Miller. “Why does a franchisee’s possessions become the franchisor’s possessions if he gets legally terminated? Aren’t property rights a basic tenant of the free market system?” Miller questions rhetorically.
asking a panel of franchisors, “Would you ever sign your own franchise agreement?”
“ It’s a property rights issue. Why does a franchisee’s possessions become the franchisor’s possessions if he gets legally terminated? Aren’t property rights a basic tenant of the free market system?” — Keith Miller
That question stuck with John Gordon, principal of Pacific Management Consulting Group and DDIFO’s restaurant analyst. Gordon, who lives and works in California, was one of the key members of the team that included Miller, Jas Dhillon, the chair of the political action committee created by 7-Eleven franchisees and Branca.
“We saw this as a non-partisan issue because Democrats and Republicans agree on the importance small businesses play in California’s economy and society,” Gordon says. “But, a potential franchisee may say, ‘How can I invest in this business and then have it taken away from me?’” Indeed, as Branca points out, franchising has changed—and now attracts more very large multi-unit owners and institutional investors, financed with capital from private equity funds. Many of those people were in attendance at the 2012 Multi-Unit Franchising Conference when, as Branca recounts the story, Bill Hall, a Dairy Queen franchise owner and former IFA board member, publicly criticized franchise agreements as unfair, at one point
“This was the first time that the previously unspoken controversy was voiced in such a prominent forum populated by both franchisors and franchisees. Pointedly, this conference was held as Miller was shuttling back and forth from the conference to Sacramento to testify in committee hearings on the bill, resulting in an early defeat to CFA’s efforts,” Branca says.
Talks with the IFA Branca recalls a warm, September day in 2015, when he visited the K Street offices of the IFA to meet with its then-President and CEO Stephen Caldeira, who Branca knew well from his days as head of global communications at Dunkin’ Brands. Also at the meeting was Robert Cresanti, who had recently joined IFA to run government relations and would eventually replace Caldeira. Branca says it was a “breakthrough meeting,” and credits his colleague Aziz Hashim for getting everyone to the table. At the time, Hashim was vice chair of the IFA. “We agreed on several core principles. We saw eye to eye on a number of topics and knew we had to continue conversations,” Branca says. Over the years, Branca was one of several franchise owners who had an ongoing constructive dialogue and shared lobbying efforts with IFA over issues like minimum wage and sick leave pay.
“The collective work we did on these issues built a foundation of trust. So you knew the people you were dealing with were reasonable human beings,” he recalls. “We knew one another’s positions and could discuss them amicably even where we were not aligned.” That explains, at least in part, how the monetized equity language found its way from the IFA’s core principles into a bill that group had been fighting for three years. In 2014 – despite fierce opposition from IFA – a Fair Franchising bill passed both the California legislative houses, only to get vetoed by Governor Jerry Brown.
Refining the Language Keith Miller has spent his entire life in California. His career as a franchise owner began after Brown’s first term as the Golden State Governor (1975-1983); but he found himself in Brown’s crosshairs when, on September 29, 2014, the governor vetoed Senate Bill 610. Miller says certain language in that bill didn’t sit well with Gov. Brown, in part because it was not represented in any other franchising laws in any other states.
INDEPENDENT JOE • FEBRUARY/MARCH 2016 9
FAIR FRANCHISING “We understood from the Governor and Assembly members that any language in the bill had to appear in laws in other states. They didn’t want to break new ground,” Miller says. Branca, Gordon, Miller and the others saw a silver lining in that dark cloud. They felt if they could refine the language to address Brown’s concerns, they could refile the bill in 2015. They found a new champion for the effort, a former Subway franchisee who was now the California Assembly Floor Leader. Chris Holden, a Democrat from Pasadena, had agreed to be the primary author of the new bill (AB 525). Another Democrat, Bill Dodd of Napa signed on to be a joint author; then Speaker of the Assembly, Toni Atkins, signed on as a joint author. Gordon called that “a big time development.” “Governor Brown gave us good guidance. One of his concerns was that both sides (IFA and CFA) were not aligned. He also wanted them to tone down the rhetoric. That provided a good starting point that none of the previous bills had,” according to Holden. Inside the state capitol there had been a sense that a new franchising law was too contentious. IFA poured enormous lobbying resources into defeating the bill.
“ In Sacramento the legislative agenda is big labor, big business and bigger government. The little guy gets crushed. Having owned three businesses in my lifetime, I am very pro-small business. I thought my party should be leading the charge on this issue” — Scott Wilk
“We had to overcome that, and everyone worked hard to show that we had given up many of our requests. We had taken many amendments through the Assembly committees, yet it didn’t seem to slow the opposition.” And Miller says Holden himself had been targeted by the IFA because of his support.
The irony, Miller says, is that Holden, who is known around Sacramento as a lawmaker who will compromise – and, in the case of AB 525, actually accepted over 30 compromises – was being painted as someone who would not compromise and would rather rush votes through. The strategy backfired. “After that, it became difficult for the opposition to maintain credibility on franchise issues inside the General Assembly.” Throughout the process the volunteers, known loosely as the California franchisee legislative reform team, had been holding weekly conference calls to keep their campaign on track. Once Holden and his legislative team came onboard, Gordon says, those calls took on an even more urgent tone. While his team was focused on making sure all i’s were dotted and all t’s were crossed, Holden was busy securing support from Democrats and Republicans. In a key move, Holden stepped across the aisle to ask Assemblyman Scott Wilk, a Republican from Simi
10 INDEPENDENT JOE • FEBRUARY/MARCH 2016
Valley, to be a joint author of the bill. Wilk agreed. “In Sacramento the legislative agenda is big labor, big business and bigger government. The little guy gets crushed. Having owned three businesses in my lifetime, I am very pro-small business. I thought my party should be leading the charge on this issue,” Wilk says. The issue was also a bit personal. Wilk recalls an incident that happened to one of his close friends who owned a number of franchised restaurants and then branched out to open a wine bar. As Wilk tells the story, his friend was pressured by his franchisor to sell the wine bar, even though it didn’t directly compete with his franchises. “He was informed to sell the wine bar or risk losing his five stores. When you are a franchisee you should be a partner with the franchisor, not an indentured servant,” Wilk says.
Cautious Optimism
With Holden, Atkins and Wilk all signed on as co-authors, Miller and his team were cautiously optimistic. As the 2015 legislative session unfolded, AB 525, was introduced, complete with language reflecting other state laws. Leaders in both houses sent the bill to committee for discussion. The Assembly Judiciary Committee was first to approve the bill; then the conservativeleaning Assembly Business & Professions Committee passed it along. All of a sudden, the team was taking notice that they were no longer the underdog in this fight. Gordon remembers the realization that there was now a very good chance this bill could get all the way through and become a law. That realization was crystallized on May 14, 2015—the day the bill first came to the Assembly for a floor vote. It was the second of two key moments Miller says changed the course of the battle. Heading into the vote, Wilk was certain he could deliver five Republican votes. With his vote added on, he told Miller they could count on six GOP votes. Miller remembers thinking the bill could squeak by. He was understandably excited when the final votes were tallied and it passed 56-12. “That was the day the tide turned, and the opposition knew they were in trouble,” he says. After that vote, the IFA stepped up negotiations with the CFA group. Later, the oil companies, who are franchisors to local gas stations but do not hold franchise agreements for the
convenience stores that are paired with various gas brands, agreed to support the bill.
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As the bill moved through the Senate side of the building, optimism grew. Soon, the bill passed through two Senate committees on its way to a successful floor vote. Additional amendments were added, setting the stage for a final Assembly vote. On the day the bill would either live or die, Branca says he and the others were confident they had enough support to get a majority YEA vote. Still they were a bit surprised when AB 525 passed the Assembly 79-0, with one abstention. “It was extremely sweet to have it passed unanimously and with support from both parties in both houses,” Gordon says. “We never thought we would be unanimous. To pass what a year ago was probably the most contentious bill in the state capitol, where opposition paid millions to fight it, was so unexpected,” says Miller.
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A Pendulum Swing On October 11, 2015, California Jerry Brown signed Assembly Bill 525, which amended key provisions of the California Franchise Relations Act.
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Branca calls the bill “a reasonable compromise,” and credits the collaborative efforts of the CFA and IFA to securing its passage. “We mutually have a duty to protect the franchising business model; it’s incumbent on both sides. We all deeply believed that and that helped us find common ground for those issues about which we disagreed,” he says. “We frequently talked about this as we were crafting the language amending the bill. If not us, who? There were several other players that did not have any stakes in franchising’s success and we knew that we had to be the ones driving the bus, not them.” Franchise industry watchers say this bill, at its core, tightens the rules which allow a franchisor to terminate an owner’s franchise agreement. And, in a nod to Miller’s theory on property rights, the law requires a franchisor to repurchase the franchisees’ assets upon termination. Even though the IFA spent years fighting changes to the California law, it now accepts the new regulations. “The legislature cannot be in a position to change the rules for franchise businesses every year and we hope that the signing of this bill into law marks a long-term resolution and that we won't see similar bills for many years,” Dean Heyl, IFA’s vice president of government relations, said in a statement. Miller has a slightly different view of the fight that took four long years. “It’s not going to solve all problems in the world, but the pendulum was stopped and even swung back a little.”
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INDEPENDENT JOE • FEBRUARY/MARCH 2016 11
By Cathy Cassata
I
f there’s an extra glow to the Golden Arches of McDonald’s these days, you could say it’s because the morning sun is shining all day. Last spring, McDonald’s was reporting “negative guest traffic” as a cause of its 33 percent drop in net income. This year the world’s largest food chain is basking in the glow of positive earnings: U.S. same store sales jumped 5.7 percent in the 4th quarter of 2015, driven by its introduction of all-day breakfast. A week after McDonald’s report, Dunkin’ Brands CEO Nigel Travis reported a 0.8 percent drop in U.S. same store sales and identified “recently revitalized quick service restaurant brands, which were actively discounting,” as one cause. He specifically denied McDonalds is to blame for the slowdown. “We’ve analyzed this to death, and our analytics show that the impact of McDonald’s all-day breakfast is marginal,” Travis told analysts and investors in a conference call early in February. Be that as it may, millions of Americans saw a shiny, new TV advertisement during the lead up to Super Bowl 50 called “Good Morning,” promoting McDonald’s all-day breakfast.
12 INDEPENDENT JOE • FEBRUARY/MARCH 2016
Breakfast bonanza?
Dunkin’ franchisees have long known that people will eat a sausage, egg and cheese sandwich anytime of the day. The question on franchisees’ minds now is: Has McDonald’s changed the playing field permanently, or is this just a temporary blip? McDonald’s is hoping for the former. After initiating a company wide restructuring, the chain’s new CEO, Steve Easterbrook, announced McDonald’s would start serving breakfast foods after 10:30 a.m. Now, in the wake of positive headlines, Easterbrook says the launch exceeded their expectations. “It will settle down a little from its launch phase, but we believe that building these other platforms of growth on top of that will keep us competitive in the marketplace and taking share.” The Q4 results proved what the market research firm NPD Group found when it analyzed 27,000 customers who visited McDonald’s before and after the launch of all-day breakfast last October. It said McDonald’s received a “sizeable lift” in breakfast orders throughout the day, with a third of the people who purchased breakfast items in the afternoon and evening identifying themselves as first-time McDonald’s customers, which experts say is indicative of the menu attracting new customers instead of cannibalizing existing ones. “Any time McDonald’s makes a move it’s a consequence to everyone because of their size, scope and advertising pool,” says John Gordon, principal of Pacific Management Consulting Group and DDIFO’s restaurant analyst. “There’s only so much demand to eat out in the U.S. There are only so many people and so many calories we can consume. Everyone competes for your stomach, and the stakes at breakfast are high, given competitive pressure.” However, Gordon wonders even with its latest bump, if McDonald’s will still need to mount an ad blitz for all-day breakfast once the hoopla dies down. “We’re all busy and clouded with information overload, so it takes customers time to adapt their habits and preferences.” Laura Hallow, associate editor of concept analysis at the foodservice research firm Technomic Inc., agrees, but says that because all-day breakfast was an advantage for Dunkin’, the brand will need to differentiate itself in the face of competition from McDonald’s and other quick service restaurants. (Taco Bell breakfast transactions were up 6% through its December quarter.)
INDEPENDENT JOE • FEBRUARY/MARCH 2016 13
ALL-DAY BREAKFAST
“McDonald’s is saying all-day breakfast is working for them since it’s bringing back customers who haven’t been there in a while and who want to experience the all-day breakfast trend,” Hallow says. In these early stages, she adds, it is possible Dunkin’ Donuts franchisees are seeing an impact on their sales. “However, I think that excitement will die down and Dunkin’ won’t see that much of an effect on their sales as long as it still promotes and emphasizes the variety of options they have as opposed to McDonald’s limited menu,” Hallow says.
Limitations of a Limited Menu
Both Gordon and Hallow point out that Dunkin’s varied menu choices are a key advantage for the brand. Dunkin’ has a great
head start in serving breakfast sandwiches or hash browns all day. Equipment and systems are in place so even a complicated breakfast order can flow through the drive-thru quickly. It’s not really that way at McDonald’s; which is why not every breakfast item is available at every restaurant after 10:30 a.m. When it first reported McDonald’s all-day breakfast plan, The Wall Street Journal said the company would need to invest between $500 and $5,000 per restaurant into new equipment in order to handle the increased breakfast hours. Across the system, operators are paying for new equipment installation and training to manage the process of serving eggs or McGriddles all day. Simply put, McDonald’s have not been built to cook a large breakfast and lunch menu simultaneously. That is why, in some locations, operators have to choose between selling French fries or hash browns throughout the day. Since the brand is leaving it up to specific locations to make these changes, offerings will vary depending on which McDonald’s you visit. Dennis Gramm, owner of four Dunkin’ Donuts restaurants in Illinois says this only means good things for Dunkin’ franchisees. “It’s not like McDonald’s is launching an array of variety of p.m. breakfast products,” he says. “It’s really about carrying over a small portion of the products that they offer in their a.m. line into the afternoon, so the more noise they make around all-day breakfast and the more they grow and create that p.m. demand for breakfast, the more it’ll play right into our strengths and will have the effect of growing that segment for us, moving new users directly our way.”
Store Level Response
While Dunkin’ Brands considers how to use its marketing and branding muscle to counter McDonalds’ moves, Gordon believes it will take some time to see if and how consumer habits change based on a more crowded breakfast field. In the meantime, Hallow says franchisees can control a few things, including reminding customers that the Dunkin’ menu offers a variety of choices to satisfy different dayparts. “This could be their time to shine and show customers that while other chains are showing all-day breakfast, Dunkin’ has all-day
14 INDEPENDENT JOE • FEBRUARY/MARCH 2016
everything: breakfast, lunch, dinner,” she says. Going further, Hallow says Dunkin’ should remind its customers that they’re veterans in all-day breakfast. There’s no learning curve for Dunkin’ Donuts and no changes in its day-to-day operations, compared to the significant adjustments all 14,000 U.S. McDonald’s locations are making. Gordon adds that small in-store changes can have a big impact too. “A weakness McDonald’s has is that they refer to customers by number rather than by name. If Dunkin’ Donuts can call customers by name, it could have a positive impact that differentiates them from other brands,” he says. Hallow notes that other concepts besides McDonald’s could pose a possible threat to Dunkin’, especially those offering all-day breakfast with healthier options such as cage-free eggs, locally grown meat, and more. Eastman Egg Company with locations in Chicago and Eggslut based in Los Angeles are two she points out. “Eggslut has hour-long lines for people to get their breakfast
sandwiches,” she says. “Even though they only have a handful of locations, it’s something for Dunkin’ to keep an eye on. I know Dunkin’ is going to offer cage-free eggs over the next few years, but it’s good to see what else others offering all-day breakfast are doing.” As time goes on, Dunkin’s response to McDonald’s all-day breakfast will become clearer. Until then, Gramm leaves one final thought. “Think of it as a tremendous growth opportunity for us. We’re a big player in the morning breakfast segment; it’s our strength. We’ve worked real hard on the Dunkin’ side to expand transitional breakfast offerings into our daypart three – or midday – and we’ve had success here, but our real opportunity for growth still remains within this part of the day,” he says. That’s why he’s all for McDonald’s latest move. “I’m kind of a cheerleader for McDonald’s messaging from the standpoint of ‘you go, McDonald’s. Make as much noise as you want,’ because I do believe we will benefit significantly.”
•
INDEPENDENT JOE • FEBRUARY/MARCH 2016 15
Restaurant Closures
put Food Safety in the
Spotlight who have been sick stay away from food preparation for at least 48 hours after their symptoms stop.
By Debbie Swanson
J
ust three months after the muchanticipated opening of its first New York City restaurant, Chick-fil-A voluntarily closed the Manhattan store. Citing “restaurant maintenance and facility updates,” the restaurant remained shuttered from December 30, 2015 until the morning of January 5, 2016, while it responded to a total of 59 violations, ranging from fruit flies to improper sanitation of wiping cloths. Last fall in the Pacific Northwest, Chipotle restaurant was linked to an outbreak of Escherichia coli (also known as E. coli), which sickened 53 people, 20 of whom were hospitalized. Forty-six of those sickened had previously dined at a Chipotle restaurant. The chain responded by closing all 43 of its restaurants in Oregon and Washington in early November, during which time they sanitized the locations and searched for the source of the outbreak. That followed outbreaks of norovirus at Chipotle locations in Minnesota and southern California last summer. Then, after Thanksgiving, a Chipotle restaurant in Boston was cited as the cause of food borne illness. The Boston Public Health Commission confirmed that 91 cases of norovirus were connected to the Brighton, Massachusetts restaurant. A large population of students from nearby
16 INDEPENDENT JOE • FEBRUARY/MARCH 2016
Boston College were among those who fell ill, leading to posts like this on social media: “Boston College warns students to avoid #Chipotle after a ‘veritable epidemic’ sickens…” Food safety is serious business to a restaurant; one infected employee can sicken hundreds of people and can result in closures, lawsuits and even criminal investigations—not to mention the damage it causes to a brand’s reputation, as Chipotle has learned. At the height of its popularity, Chipotle stock sold at $750 a share; it has dropped 40 percent since the outbreaks began. Chipotle’s troubles are a cautionary tale for Dunkin’ Brands, which has never had a major food safety issue. Here is a look at lessons to be learned from other closures, and the factors contributing to Dunkin’s successful safety record.
Focus on Health and Hygiene
Vigilance about employee health and hygiene is critical to avoiding problems. According to the Center for Disease Control (CDC), norovirus – the culprit at one of Chipotle’s closures – is the leading cause of food related illness outbreaks. This gastrointestinal disease is spread when infected workers are handling food, particularly leafy green vegetables, fruits, or seafood. The CDC recommends people
Jessica Möller, Vice President of Retail Operations for Riverside Management Group, LLC, with twenty Dunkin’ Donuts franchise locations throughout Massachusetts, says that the importance of hand washing can’t be stressed enough. “While it’s a business that emphasizes speed, we make sure all members understand that speed is never at the expense of food safety,” she says. “People naturally look for ways to take shortcuts, but we never want someone to try to save 30 seconds by not stopping to wash their hands.” Employee health is held to an extremely high standard at every Dunkin’ location, says Everett Gasbarro, senior director of Operating Systems at Dunkin' Brands. “All franchisees review with their employees the Dunkin' Brands Employee Health and Hygiene Standards. They can review the Employee Health Placard, discuss the importance of not coming to work when sick, and refresh training on the brand standards for effective hand washing on a routine basis,” he says.
Lessons Learned
Gasbarro notes that the multiple outbreaks of 2015 serve to reinforce the importance of food safety at every restaurant, and throughout the industry. “No business is immune to food safety incidents and we cannot emphasize enough the importance of protecting the guest, and the brand, with a robust food safety system,” he says. “Dunkin' Brands Food Safety System includes an integrated set of components that focuses on areas
such as sanitation, time and temperature, good retails practices, and employee health. When not managed correctly, (these) are all contributing factors to a food borne illness outbreak.” Dunkin’ Brands comprehensive food safety systems, standards and requirements are based on Hazard Analysis and Critical Control Point (HACCP) principles, as well as government regulations, global industry best practices, and the brand’s own high standards. As defined by the U.S. Food and Drug Administration, HACCP is a management system based on seven principles that manage every step of food storage and preparation. This includes the analysis and control of biological, chemical, and physical hazards from the point of raw material production, procurement and handling, to manufacturing, distribution and consumption of the finished product. Members of Dunkin’s food safety system monitor each product throughout its life cycle. If a product fails to meet standards at any point, quality assurance will recall or withdraw it. For franchise owners, the outbreak serves as a reminder to check and double check the systems in place. Möller says that the need to take a deeper look at everything – from systems, to equipment, to staff procedures – has been the topic of many recent meetings. “We have excellent systems and equipment in place, but it served as a reminder to not just assume everything is running as it should be,” she says. “It’s important to spot check everything.”
throughout the distribution process is a reliable supply chain. The National DCP has been an integral factor in ensuring food safety for more than 30 years. Roland Ornelas, chief procurement officer at NDCP in Atlanta, credits a proactive relationship between NDCP and Dunkin’ Brands for the consistent cleanliness and safety of its food products. “Dunkin’ approves all manufacturers, sets standards and guidelines, and is responsible for all QA,” he says. “As a distributor, NDCP is responsible for factors including maintaining temperature control, managing shelf life, ensuring that the product remains undamaged, and maintaining traceability back to the supplier.” NDCP keeps rigid protocols in place to link back to each supplier, important should a question arise. “If a franchisee comes to us with a problem, we’ll tell them to contact Dunkin’s hotline to log the problem,” explains Ornelas. “Dunkin’ will investigate and look for systemic issues and follow up with the supplier. They’ll let us know to either pull the lot, or release it.” The DCP originated in 1983 as a membership cooperative created by Dunkin’ Donuts franchisees in the Northeast. In 2012, when DCP’s five regional entities merged into one national entity, NDCP secured a new contract with Dunkin’ Brands giving it responsibility for sourcing, purchasing, and distribution of business solutions regarding food, beverages, supplies, packaging, technology and healthcare.
The role of good documentation, both electronic and manual, has also been elevated in importance. “For example, if a refrigerator goes down, we have a short window of time to work with,” says Möller. “We need to know the exact minute it goes down. Everyone, from crew members on up, needs to understand the importance of procedures, such as documenting temperatures in log books, so that we can backtrack.”
National DCP’s focus on improving business processes, launching best practices, and cross-functional collaboration yielded a 22 percent increase in their perfect order service metric in 2014. As defined by the Warehouse Education and Research Council, the perfect order metric measures if the product is delivered complete, on time, damage free, and with the correct documentation.
Reliable Supply Chain
In a business that strives to constantly satisfy customer trends and preferences,
Another key to safeguarding food
Continuing Education
With the recent national focus on food safety, DDIFO is now offering franchisees and their managers the opportunity to take nationally accredited food safety certification exams at DDIFO meetings, in collaboration with the National Restaurant Association’s ServSafe® program. The ServSafe® Food Protection Manager Certification Exam is accredited by the American National Standards Institute (ANSI)-Conference for Food Protection (CFP). ServSafe® training and certification is recognized by more federal, state and local jurisdictions than any other food safety certification. ServSafe® is a Dunkin’ Brands approved vendor and has certified more than six million managers since issuing the first ServSafe® Certificate in 1972 under what was then known as Applied Foodservice Sanitation. According to ServSafe®, “The program blends the latest FDA Food Code, food safety research and years of food sanitation training experience. Managers learn to implement essential food safety practices and create a culture of food safety. All content and materials are based on actual job tasks identified by foodservice industry experts.” DDIFO Executive Director Ed Shanahan says offering the exams is now an added benefit for association members. Joan Gould, DDIFO’s business member coordinator, has been trained as a proctor and is available to help guide franchisees through the process.
INDEPENDENT JOE • FEBRUARY/MARCH 2016 17
FOCUS ON FOOD SAFETY
“ The Dunkin' Brands Food Safety System continues to manage the full range of menu items that are offered. This includes ongoing education on new products and those areas where the food must be safely managed to provide wholesome quality products to the guest.” Dunkin’ Brands continually updates is menu offerings. This adds another layer of complexity to the process of food safety because new products require new standards and fresh updates to food prep procedures. “The Dunkin' Brands Food Safety System continues to manage the full range of menu items that are offered,” Gasbarro says. “This includes ongoing education on new products and those areas where the food must be safely managed to provide wholesome quality products to the guest.” Franchisees and their employees are able to access up-to-date training programs and support materials online via
Learn more at watchfiresigns.com/donuts
18 INDEPENDENT JOE • FEBRUARY/MARCH 2016
Dunkin' Brands’ Online University. Beyond training programs, Möller says she’s a firm believer in leading by example to constantly stress the importance of adhering to procedures. In a business with many younger employees, this approach can be particularly effective. “When I walk in a store, I emphasize how important each element is to me, from washing hands, to wearing the right gloves for handling trash,” she says. She cites an example of ice handling. “I can hear the difference when someone is scooping ice with a cup, instead of the ice scoop. It may seem like a small thing, but
ice is food, and if that cup is dirty, you’ve contaminated all that ice. Whether it’s learning how to work with a new product, or keeping existing standards in place, relaying the right message is a constant process, says Möller. “It’s a culture across the board, that food safety is the most important.” Earning and maintaining customer loyalty is crucial to success in today’s competitive marketplace. Maintaining a clean food safety record is a critical component. Dunkin’ continues to meet this challenge by learning from current events and constantly enforcing its extremely high standards.
•
Bruce MacDonald’s Franchising Story is a
Family Affair By Mike Hoban
INDEPENDENT JOE • FEBRUARY/MARCH 2016 19
Bruce MacDonald and his wife Kathy
F
or many American families living in the northeast, Dunkin’ Donuts has been a part of their daily routines for decades. Whether it’s starting the day off with a trip through the drive thru or picking up a dozen donuts on the way to a social gathering or on the way home from church, that iconic pink and orange logo is deeply etched into the psyches of millions. But for one family from Maine, Dunkin’ has played a much larger role in their lives for over half a century. When Bob MacDonald first took a job as a baker in 1965 at the original Bangor Dunkin’ Donuts location, he probably never envisioned that he would be blazing a career path for his family that would span three generations. But he soon progressed from baking to managing, and in 1973 purchased his first franchise from his boss. And a family business was born. “Dunkin was what we grew up with, so we never knew anything different,” says his son Bruce MacDonald, whose family now owns and operates seven franchises. “My parents had five kids when they bought the store. My brother was 15 and I was 14, so we went right to work, sweeping, mopping floors, and cleaning. Bruce’s mother Doris also got into the act right from the start, doing everything from counter work to running the office (but no baking). “He couldn’t afford to pay other people, so he told us, ‘You’re coming to work with me.’ And we just stuck with it. So in my lifetime, it has always been Dunkin’ Donuts,” MacDonald remembers. In 1974, having been bitten by the franchise bug, Dad bought a second location in Presque Isle—a two-and-ahalf hour drive (160 miles) north from Bangor. In 1978, he looked south and bought a franchise in Brunswick—90 minutes and 110 miles away “This was during the early days of Dunkin’, before you would ever think of putting two or three stores in one small area,” explains MacDonald. “The State of Maine didn’t have a lot of Dunkin’s in the 1970’s, so if you wanted to open another one, you had to [space them out]. Now there’s one on every corner. Three of my five stores are within a 10 minute drive of Bangor and the other two are 45 minutes to an hour away. And there are two other franchise groups in Bangor, so there might be 15 stores in the Bangor area.” Dad eventually sold those distant franchises to the respective store managers, which allowed him to turn his expansion focus to locations closer to home. He built a store from the ground up in the neighboring (and aptly named) City of Brewer in 1982, then followed suit with additional nearby locations in Bucksport (a 20 minute drive), Holden (10 minutes) and Belfast (45-50 minutes). In the meantime, the boys had worked their way up the ladder, becoming bakers,
20 INDEPENDENT JOE • FEBRUARY/MARCH 2016
FRANCHISEE PROFILE: BRUCE MACDONALD
Bob MacDonald's Dunkin' career started as a baker at the original Bangor, Maine store in 1965.
then store managers. Bruce’s older brother Mark began managing the Bangor and Holden stores, and after completing the six weeks of intensive training at Dunkin’ Donuts University (DDU). Bruce took the keys to the new Brewer store in 1982, which he managed until his father and mother retired in 1995.
Brother Scott also worked in the business until 1994, while his sister Lynn worked at the stores until she completed college. Now she’s back managing human resources for the seven store network. MacDonald’s wife Kathy – who has worked for the family business since 1980 – still manages the office.
“I was 21-22 years old and it was a learning experience to go from baking to running the complete operations of the store,” he recalled. “I had an idea of what it meant [to be a manager of a store], but what you think it means versus what it really means is a completely different story.”
The family involvement continues into the third generation as well. Mark has two daughters that worked at Dunkin’s through high school and college; Lynn has a daughter in college and a son in high school, both of whom are now working at the stores, in addition to Craig’s high school age son. MacDonald’s grown sons Robert and Joe are co-General Managers of the entire operation.
While all five of the MacDonald children have been involved in the family business, Bruce is the only one who has remained involved from the start. “Some of my other family members worked through school but left and found different careers. And my brother Craig was a franchisee with us for a while, but it just wasn’t his thing. He sold it off in 2008 and has since passed away.”
But it almost didn’t turn out that way. In the mid-2000’s, MacDonald sold a couple of the shops, “I was going to downsize and go to one store, but then my kids got out of school and decided that they wanted to work in the business.”
"Dunkin was what we grew up with, so we never knew anything different. My parents had five kids when they bought the store. My brother was 15 and I was 14, so we went right to work, sweeping, mopping floors, and cleaning." INDEPENDENT JOE • FEBRUARY/MARCH 2016 21
“There are people who want it for compost, but I’ve invested in a machine that converts coffee grinds into home heating pellets, which we’re testing in my home. You can heat your house with coffee pellets and, combined with what we’re doing with the compost, we think it will be a big win for us.” So he went back into rebuild mode, developing a second Brewer location in 2005, and then locations in Orrington and Eddington in 2007. In 2012 he opened a store in Milo, and three years ago opened the Blue Hill store, which was built specifically for MacDonald by local supermarket and convenience store owner Chuck Lawrence, who envisioned Dunkin’ Donuts as the anchor tenant for the new plaza situated across from his Tradewinds Market grocery store. “I have set up three locations with the Tradewinds owner over nine years,” says MacDonald. “One is in a convenience store, one is in a grocery store and the third is this endcap in a strip mall, where the owner built the building from the ground up to accommodate my franchise. He told us ‘We’ll build the building and you’ll be our major tenant.’” The MacDonald network now consists of a mix of standalone buildings, endcaps, and kiosks within C-stores—a handful of which are located in towns with populations of roughly 2,500. One of his most successful franchises began as a kiosk in a variety store.
Bruce MacDonald's sons, Joe (left) and Robert (right) are co-GM's of the family business.
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FRANCHISEE PROFILE: BRUCE MACDONALD “The Holden store was a convenience store with no drive thru, and the owner ended up tearing it down almost five years ago and building a humongous grocery store,” says MacDonald. “So we got a full-blown Dunkin’ in there with a seating area and a drive-thru, and sales have gone up 120 percent since then. It was built on the same lot, right behind it, so we were only down for about two weeks.”
MacDonald also began to recycle the coffee grinds at his stores. “There are people who want it for compost, but I’ve invested in a machine that converts coffee grinds into home heating pellets, which we’re testing in my home. You can heat your house with coffee pellets and, combined with what we’re doing with the compost, we think it will be a big win for us.”
That store also achieved LEED-certification from the U.S. Green Building Council. It was one of the first environmentally friendly restaurants in the Dunkin’ chain and came online before Dunkin’ Brands introduced its DD Green certification program in 2014. Late last year, MacDonald remodeled the original Brewer store (one of two standalones in the city) that his father had built in 1982 and earned DD Green Elite status.
MacDonald’s pioneering spirit was passed down from his father, who was instrumental in the formation of the DCP, Dunkin’ Donuts’ supply chain cooperative. Bob MacDonald was also an original member of the DDIFO board of directors, which formed in 1989. Bruce now serves on the ad committee for the State of Maine and was also one of the driving forces behind the leasing of a 15,000 square foot commercial kitchen in 2000 that serves the baking needs of a seven member co-op of owners within a three-hour radius.
“I just believe it was the right thing to do, and there is a long term payoff that will hopefully work out for us,” MacDonald explains. They instituted a program that recycles 65 percent of the store’s waste and installed energy-efficient LED light fixtures, mechanical units and water-saving plumbing fixtures, as well as an electric car charging station. Taking it one step further, MacDonald now provides financial incentives to employees who ride their bikes to work.
“My father was a big influence, because he went from having nothing – he didn’t graduate from high school – to a good life. He worked very hard and he taught us to do the same. As franchisees, we’re all trying to make money, but I don’t want the money to drive me. If I do the stuff that does drive me, I’ll make money, and I’m happy with that."
•
INDEPENDENT JOE • FEBRUARY/MARCH 2016 23
BUSINESS MEMBER
Directory of Business Members Please Visit The DDIFO Business Member Directory online at www.DDIFO.org
ACCOUNTING
Adrian A. Gaspar & Company, LLP, CPAs
Robert Costello 617-621-0500 • cpas@gasparco.com 1035 Cambridge Street, Ste. 14, Cambridge, MA 02141 www.gasparco.com
Cynthia A. Capobianco, CPA
Cynthia Capobianco 401-822-1990 • cynthia@capobianco.necoxmail.com 60 Quaker Lane, Ste. 61, Warwick, RI 02886-0114
Marcovich, Mansour & Assoc. Inc.
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Tom Colitsas 609-452-0889 • tcolitsas@tcacpa.com 103 Carnegie Center, Ste. 309, Princeton, NJ 08540
BACK OFFICE
Jera Concepts
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Neovision Consulting Inc.
BUILDING
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Homeland Builders
Steven & Brian Ribeiro 465 Sykes Rd, Fall River, MA 02720 508-677-0401 • brianr@homelandbuilders.com www.homelandbuilders.com
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Trivanta, LLC
Mark Wheeler 512-473-8322 • mark@trivanta.com 807 Nueces St., Austin, Texas 78701 www.trivanta.com
COMMUNICATIONS
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2015
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Time Warner Cable Business Class
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Scott Kantor • 954-509-8019 skantor@businessfinancialsservices.com 3111 N. University Dr, Ste. 800 Coral Springs, FL 33065 www.businessfinancialservices.com
City National Bank
Dave Skinner 425-468-2851 • dave.skinner@cnb.com 10900 NE 4th St. Suite 1920, Bellevue, WA 98004 www.cnb.com
Direct Capital Franchise Group
Douglas Solomon 603-433-9413 • DSolomon@directcapital.com 155 Commerce Way, Portsmouth, NH 03823 www.franchise.lendedge.com
Eastern Bank
Deborah Blondin 603-606-4724 • D.Blondin@Easternbank.com 11 Trafalgar Square, Suite 105, Nashua, NH 03063 www.easternbank.com
Fidelity Bank
Pacific Premier Franchise Capital
Sharon Soltero 402-562-1801 • ssoltero@ppbifranchise.com 3154 18th Avenue, Ste. 3, Columbus, NE 68601 www.ppbifranchise.com
Santander Bank
Sally Buffum 508-762-3604 • sbuffum@fidelitybankonline.com 465 Shrewsbury Street, Worcester, MA 01604 www.fidelitybankonline.com
Peter J. DiFilippo 401-752-1060 • peter.difilippo@santander.us One Financial Plaza, Providence, RI 02903 www.santanderbank.com
First Franchise Capital
TCF Franchise Finance
Richard Riecker 201-326-4021 • Richard.riecker@firstfcc.com 2715 13th Street, Columbus, NE 68601 www.firstfranchisecapital.com
Bill Johnson 952-656-3268 • wjohnson@tcfef.com 11100 Wayzata Blvd., Ste. 801, Minnetonka, MN 55305 www.tcfef.com/franchise
Joyal Capital Management Franchise Development
TD Bank
Daniel Connelly 508-747-2237 • dconnelly@joycapmgt.com 50 Resnik Road, Plymouth, MA 02360 www.jcmfranchise.com
Marlin Franchise Finance Group
Chris Holland 856-505-4206 • cholland@marlinfinance.com 300 Fellowship Rd, Mount Laurel, NJ 08054 www.marlinfinance.com
Michael Vallorosi 201-962-5187 • michael.vallorosi@td.com 535 East Crescent Avenue, Ramsey, NJ 07446 www.tdbank.com
United Bank
Mark McGwin 508-793-8342 • mmcgwin@bankatunited.com 33 Waldo St., Worcester, MA 01642 www.bankatunited.com
INDEPENDENT JOE • FEBRUARY/MARCH 2016 25
2015
BUSINESS MEMBER
Directory of Business Members Please Visit The DDIFO Business Members Directory online at www.DDIFO.org 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
York Risk Services Group
Lori Ross • 337-230-5437 Lori.Ross@yorkrsg.com 99 Cherry Hill Road, Suite 102, Parsippany, NJ 07054 www.rfcp1.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 103 Eisenhower Parkway, Roseland, NJ 07068 www.paslawfirm.com
OPERATIONS
3M Company
Bill Muenkel 952-484-4875 • wemuenkel@mmm.com 3M Center, 220-12E-04, St. Paul, MN 55144 www.3M.com/communications
United Capital Business Lending
William Wildman 844-848-4739 • WWildman@BankUnited.com 101 W. Ohio Street, Suite 2000, Indianapolis, IN 46204 www.unitedcapitalbusinesslending.com
HUMAN RESOURCES First Advantage
Suzanne Cormier 317-245-1665 • Suzanne.Cormier@fadv.com 9800 Crosspoint Blvd., Ste. 300 Indianapolis, IN www.fadv.com
Paychex
Diana Devivo 212-239-9400 x5142182 • ddevivo@paychex.com 911 Panorama Trail South, Rochester, NY 14625 www.paychex.com
Snagajob
Chris Wirt 804-433-2761 • chris.wirt@snagajob.com 4851 Lake Brook Drive, Glen Allen, VA 23060 www.snagajob.com/employers
INSURANCE
Access Development
Colton Henderson • 801-954-2172 colton.henderson@AccessDevelopment.com 1012 West Bearsley Place, Salt Lake City, UT 84119 www.accessdevelopment.com
Alarm Grid
Joshua Unseth 954-933-5095 • support@alarmgrid.com 2510 NE 47th St, Lighthouse Point, FL 33064 www.alarmgrid.com/alarm-monitoring-dunkin-donuts
Bunn-O-Matic Corporation
Marco Schiappa 401-263-7921 • marco@granitepayroll.com 176 Granite Street, Qunicy, MA 02169 www.granitepayroll.com
Insurance World Agency Inc.
Anil K. Sharma 630-654-6067 • info@iwainsurance.com 100 E Ogden Avenue Ste. 203, Westmont, IL 60559 www.iwainsurance.com
Todd Rouse 800-637-8606 • Todd.Rouse@bunn.com 1400 Stevenson Drive, Springfield, IL 62703 www.bunn.com
Heartland Ovation Payroll
Jim Ferreira 203-530-3512 • jferreira@ovationpayroll.com 90 Linden Oaks Ste. 110, Rochester, NY 14625 www.ovationpayroll.com
IOA Insurance Services
Angela Newman 909-786-3645 • Angela.Newman@ioausa.com 3281 E. Guasti Rd., Suite 400, Ontario, CA 91761 www.ioausa.com
Tom Spooner 973-452-4131 • tspooner@Cardtronics.com 628 Route 10 - Ste. 8, Whippany, NJ 07981 www.cardtronics.com
HIRETech
Starkweather & Shepley Insurance Brokerage, Inc.
Bob Eckweiler 973-222-6742 • Bob.Eckweiler@carrier.utc.com 3 Hollyhock Way, Newton, NJ 07860 www.carrier.com
Granite Payroll Associates
Lindsay Conderman 281-558-7100 x123 • lconderman@hiretech.com 1500 S. Dairy Ashford Rd. Ste. 240, Houston, TX 77077 www.hiretech.com
Sabrina San Martino 800-854-4625 ext. 1121 • ssanmartino@starshep.com 60 Catamore Boulevard, East Providence, RI 02914 www.starkweathershepley.com
Cardtronics
Carrier Corp
DDIFO® does not endorse or recommend commercial products, processes, or services. A DDIFO® Business Member 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.
26 INDEPENDENT JOE • FEBRUARY/MARCH 2016
2015
Directory of Business Members
BUSINESS MEMBER
Davis Bancorp
Richard Davis 847-998-9000 X4466 • rdavis@davisbancorp.com P.O. Box 1690, Barrington, IL 60010 www.davisbancorp.com
Delphi/Fast Track 2+2 Drive-Thru Timer
Mike Pierce 714-850-1320 • mike@phaseresearch.com 3500 West Moore Ave., Ste. 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
Ecolab
Arliene Bird arliene.bird@ecolab.com 8300 Capital Drive, Greensboro, NC 27409 www.ecolab.com/Businesses
Green Turtle Americas
Eric Hancock 704-295-1733 • ehancock@greenturtletech.com 2709 Water Ridge Pkwy Charlotte NC 28217 www.greenturtletech.com
HME Drive-Thru Headsets
Brady Campbell 858-535-6034 • bcampbell@hme.com 14110 Stowe Drive, Poway, CA 92064 www.hme.com
Hockenbergs
Tom Schrack Jr. 402-609-5111 • tomjr@hockenbergs.com 7002 F St., Omaha, NE 68117 www.hockenbergs.com
KD Kanopy
John Behrens 303-650-4707 • john@kdkanopy.com 1921 E. 68th Ave. Denver, CO 80229 www.kdkanopy.com
MCD Innovations
Will Knieper 214-883-5656 • wknieper@mcdinnovations.com 3303 N.McDonald St., McKinney, TX 75071 www.mcdinnovations.com
New England Drive-Thru Communications
Angela Bechard 603-475-2046 • angela@nedrivethru.com 999 Candia Rd. Suite 7, Manchester, NH 03032 www.nedrivethru.com
OnsiteRIS, Inc.
Joey Agee 404-952-2745 • joey.agee@onsiteris.com 2010 Avalon Pkwy, Ste 400, McDonough, GA 30253 www.onsiteris.com
Pentair Filtration & Process
Jeannine Gaine 630-240-1298 • jeannine.gaine@pentair.com 1040 Muirfield Dr., Hanover Park, IL 60133 www.everpure.com
R.F. Technologies
Michael Murdock 847-495-7350 • michaelm@rftechno.com 330 Lexington Drive, Buffalo Grove, IL 60089 www.rftechno.com
QualServ
Becky Dubose 800-643-2980 • bdubose@qualservsolutions.com 7400 28th Street, Fort Smith, Arkansas, 72906 www.qualservsolutions.com
Shoes For Crews
Rebecca Tharp 877-437-6176 • rebeccat@shoesforcrews.com 250 S. Australian Ave. West Palm Beach FL 33401 www.shoesforcrews.com
SKAL East, Inc
Kevin Huerth 781-806-3139 • kevin@skaleast.com PO Box 303, 31 Eastman Street, Easton, MA 02334 www.skaleast.com/index.cfm?keyword=dunkin
Staples Advantage
Joe Shea 508-238-0106 • joseph.shea@staples.com 31 Commercial St. Sharon, MA 02067 www.staplesadvantage.com
safeTstep by Payless Shoesource
Kyle Clendennen 785-295-6664 • kyle.clendennen@safetstep.com 3231 Southeast Sixth Ave, Topeka, KS 66607 www.payless.com/safetstep-1/
Thank You to Our Busin ess M embers!
INDEPENDENT JOE • FEBRUARY/MARCH 2016 27
A LOOK ON THE LAW
BY KAREN ABRAMS, PARIS ACKERMAN & SCHMIERER, LLP
Sign At Your Own Risk
Critical Lease Provisions to Negotiate or Avoid …The Sequel
I
n our last issue of Independent Joe, we discussed some of the critical lease provisions contained in a franchisee’s lease which, if not identified and properly negotiated, could have a material impact on the viability of a business. The provisions addressed in that issue – exclusive use protection, landlord’s consent to assignment and continuing liability thereafter, and the landlord’s right to participate in the sales proceeds – only scratched the surface. In this issue, we present three more highly important provisions, which are often mistakenly (or sometimes even intentionally) overlooked in the rush to finalize a lease and get it signed.
1. NON-COMPETE Landlords who own multiple properties within certain geographic proximity often seek to include a covenant in their leases which restricts the tenant’s ability to open a same or similar business within a certain radius—all in an effort to limit the ability of a tenant in one plaza to impact sales of a competing tenant in another plaza. From the landlord’s perspective, they don’t want a tenant to open another location that might adversely affect that tenant’s sales in the landlord’s shopping center which could adversely impact the tenant’s ability to meet its rental obligations under the lease. This provision, however, can have a detrimental impact on a tenant’s ability to expand, especially a franchisee tenant who may have a development agreement. Such language may even place a franchisee in violation of his/her franchise or development agreement. For instance, we have seen leases with five mile restrictions on the sale of baked goods and coffee. This would severely impact a Dunkin’ Donuts franchisee’s ability to develop and
28 INDEPENDENT JOE • FEBRUARY/MARCH 2016
optimize its market.
2. TERMINATION/RECLAMATION UPON ASSIGNMENT Landlords like to include language in their leases which gives them the ability to terminate the lease and recapture the premises if the tenant seeks the landlord’s consent to assign the lease. Landlords will argue that if the original tenant no longer wants or needs the premises, then the landlord should have the right (but not the obligation) to take the premises back and relet it to whomever they choose. This language can make a tenant’s pending assignment a risky, if not impossible, proposition. It is in the franchisee’s best interest to completely delete this language or, at a minimum, provide that the landlord doesn’t have the right to recapture if the lease is assigned to the tenant’s franchisor or to another franchisee. This is yet another reason why tenants want the right to assign the lease without the landlord’s consent in the first place. If the landlord doesn’t have the right to consent (or not), then it also doesn’t have the right to recapture the premises.
3. GUARANTY The majority of franchisee tenants form single purpose entities (“SPE”), which have no assets other than that particular store. If you default, your landlord wants to have someone from whom they can collect rent. This is why the majority of landlords require a franchisee (and, oftentimes, her/ his spouse) to sign a personal guaranty. It is rare that a landlord will sign a lease with an SPE and not require a personal guaranty. If you must sign one, the key is to ensure that one or more of the following limitations are in your guaranty: (a) a stated cap on your maximum financial exposure (it can be a fixed dollar amount
or, more commonly, limited to X months of rent at the then current rental rate, also known as a “rolling X month guaranty”); (b) a complete release of the guaranty when and if the original named tenant is no longer the tenant under the lease; and/or (c) the guaranty falls away completely after a period of Y years so long as there have been no defaults by the tenant during that time. Coincident with signing the guaranty, guarantors need to consider their exit strategy. If the tenant sells the store, the guarantor does not want to have continued personal exposure for the acts of a new, unrelated tenant party. For this reason, guarantors are wise to negotiate the Landlord’s release of the guaranty upon the tenant’s assignment of the lease. Naturally, landlords do not like to agree to this but it is worth a hard pursuit in the lease negotiation. A common compromise is to agree that if the assignee and/or its principals have an aggregate net worth of more than $X, then the landlord will release the original guarantor(s). However you slice the apple, make sure that you do not sign the guaranty without having a full understanding of your maximum potential personal exposure and if (or, ideally, when) you will be released from your guaranty obligations. Leases are complicated legal instruments which can be fraught with peril for unsuspecting franchise owners. Whenever you enter into a lease for a new or existing Dunkin’ Donuts restaurant, be certain you are represented by an attorney who is familiar with potentially dangerous provisions.
•
Karen Abrams is Senior Counsel at Paris Ackerman & Schmierer, LLP. She represents tenants in the full range of their business matters including leases, financing, sales, acquisitions and business operating documents.
WE SERVE IT LIKE YOU SERVE IT Financing that’s quick, easy and convenient “The best part about working with Direct Capital is that I literally didn’t have to worry about anything. I would absolutely use Direct Capital again in the future.” – Adam Goldman, Dunkin’ Donuts Franchisee
Get started now: www.DirectCapital.com/DDIFO or 888-501-6846