Independent Joe #41 December 2016/January 2017

December 2016/January 2017

Award-Winning Magazine

for D D Independent Franchise Owners

Ready to Drink

Boost or Bust for Same Store Sales?​

Experience + Smarts = Successful Expansion

Love, Marriage and Dunkin’

YOU CAN MAKE MONEY AND HAVE MORE TIME TO SPEND IT.

3,187,100

$

AVERAGE ANNUAL GROSS SALES PER STORE OF THE TOP 1/3RD FRANCHISED STORES1

392,495

$

RECORDED AVERAGE ANNUAL EBITDA OF THE TOP 1/3RD FRANCHISED STORES2

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2 Item 19 of PSP Franchising, LLC’s 2016 FDD provides that of the 55 reporting franchised stores, 5 reporting franchised stores (9%) achieved an Annual EBITDA that exceeded the $392,295 “top third” Average Annual EBITDA during the measurement period of 1/4/15 and ending 1/2 /16.

3 According to the APPA: http://www.americanpetproducts.org/press_industrytrends.asp.

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I CR EAT D E MA N E YO U D.

CA S H I N

.

WE THE FRANCHISEES OF THE DUNKIN’ SYSTEM . . .

As a political junkie (and a professional lobbyist for over 30 years), I was listening intently last summer when the major party candidates for president gave their nomination acceptance speeches. Now, as we look ahead to the inauguration of Donald J. Trump as our nation’s 45th President, it’s worth pausing to reflect on something his vanquished opponent said at the time she was in the spotlight. There was an important phrase in Hillary Clinton’s speech that continues to resonate with me because its meaning is directly applicable to the Dunkin’ Donuts franchise system.

Take a moment to absorb these words from the former First Lady, U.S. Senator and U.S. Secretary of State: “[T]onight, we’ve reached a milestone in our nation’s march toward a more perfect union: the first time that a major party has nominated a woman for president.”

Beyond the claim of historical importance because the Democratic Party was nominating a woman as its standard bearer, Mrs. Clinton’s reference to “a more perfect union” struck me as relevant to the relationship Dunkin’ Donuts has with its franchisees. The phrase, “a more perfect union,” comes directly from the Preamble to the United States Constitution: We the people of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to Ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

Those familiar with the interlocking history of Dunkin’ and the early days of DDIFO can immediately see the parallels. DDIFO was created – with the guidance from Dunkin’ founder Bill Rosenberg – specifically to represent the interests of franchise owners and, in so doing, ensure balance and tranquility in the relationship; provide for the defense of their common interests; and promote the general welfare of the franchise owner community. In other words, to form a more perfect union, if you will.

Through the decades, and the many changes in Dunkin’s corporate ownership, that perfect union

has been elusive more often than not. Most recently, we can point to the unilateral changes Dunkin’ Brands wrote into its 2016 franchise agreement, ostensibly to shield itself from the potential impact of the NLRB joint employer ruling.

As we discovered however, through critical analysis undertaken by DDIFO, the actual changes went far beyond simply skirting the joint employer ruling.

Embedded in the agreement was language that threatened, among other things, to harm the franchise owner’s ability to create and share wealth with his/her family – to grant the blessings of success to their posterity. The memo from DDIFO General Counsel Carl Lisa highlighting the brand’s changes exposed the injustice the brand attempted to perpetuate, and left the Dunkin’ franchisee community wondering if this latest move by the brand represented a definitive step to prevent a more perfect union between the franchisor and its franchisees. The steps DDIFO took to identify and publicize those egregious new provisions prompted Dunkin’ to rescind the changes and revert to the former franchise agreement. Subsequent conversations among franchisees demonstrated their appreciation that that this organization provided yet again for their common defense; it is a challenge and a responsibility which we will never shirk.

After the convulsive presidential campaign, Americans are still hopeful this nation – and its leaders – can achieve a more perfect union. At DDIFO, we too are optimistic that we can continue to establish a balance (justice) for franchisees, provide for their common defense and promote the general welfare of the Dunkin’ franchise owner community.

We wish President-elect Trump success as he assumes office. We know that if his commitment to success is as unwavering as is the commitment of this organization, then a more perfect union cannot be far off.

Ed Shanahan DDIFO Executive Director

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 1

SUB HEADLINE

CONTENTS

From the Executive Director We the franchisees of the Dunkin’ System . . . • • • • • • • 1 What’s Brewing: A Look at State Issues Around the Footprint • • • • • • • • 5 Experience + Smarts = Successful Expansion • • • • • • • • • • • • • • • • 9 Ready to Drink: Boost or Bust for Same Store Sales​?• • • • • • • • • • • 12

9 Cold and Frothy • • • • • • • • • • • • • • • • • • • 14 Franchisee Profile: Love, Marriage and Dunkin’• • • • • • • • • • • • • • • • 17 Directory of Sponsors • • • • • • • • • • • • • • • 21 Legal: Structuring a Multi-Unit Franchise Network • • • • 24

14 2 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

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Independent The Magazine for DD Independent Franchise Owners

•

December 2016/January 2017 Issue #41 Independent Joe® is published

by DD Independent Franchise Owners, Inc.

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

Editors: Edwin Shanahan, Matt Ellis Contributors: Cathy Cassata, Cindy Atoji, 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

Direct all inquiries to: DDIFO, Inc. 2 First Avenue, Ste. 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 © 2016 Printed in the U.S.A.

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WHAT’S BREWING A LOOK AT STATE ISSUES

AROUND THE FOOTPRINT

By Scott Van Voorhis Dunkin’ franchise owners can expect to find a friendlier ear in federal government now that Republicans control both Congress and the White House.

Any attempts to raise the minimum wage on the federal level are arguably pretty much DOA now. Ditto for other issues, such as reclassifying managers as hourly workers, and union-friendly rulings by the National Labor Relations Board.

The Affordable Care Act (ACA) looks to be history now as well, which could free franchise owners of both the employer mandate and possibly the calorie labeling requirement, though the latter, in a strange, bureaucratic twist, could actually prove tougher to get rid of.

“In a word, better,” said Benjamin Litalien, founder and principal of the industry consulting firm FranchiseWell, when asked what the outlook is now for franchise owners with Republican control in Washington. “It won’t be a windfall; it is going to take time.”

Still, we are not likely to see any sea change on the state level, especially in blue states, which may redouble their efforts to pass minimum wage and sick

leave legislation while also pushing for calorie and sodium labeling.

A good example of this is California, which on Dec. 1 began mandating menulabeling by restaurants across the state, in a law based on the erstwhile ACA caloriedisclosure requirements.

Meanwhile, the minimum wage is going

up in 19 states as 2017 gets underway, while sick leave legislation is also gaining steam.

“At the state level, where you find most of this action, I think it is going to continue to get fueled,” Litalien says.

Calorie labeling up in the air Requiring restaurants to provide calorie

Introducing Independent Joe’s Community Corner

By Matt Ellis Talk to any member of any community group in any city or town where there is a Dunkin’ Donuts, and he or she will tell you about the time their local franchisee made a donation to some worthy cause. Whether it is to Special Olympics, the local little league or the neighborhood parish, franchisees are known for their generosity and support.

Here at Independent Joe, we think it’s important to recognize the many ways franchisees contribute to their communities – not just through The Joy in Childhood Foundation (formerly the DDBR Community Foundation) – but on their own, helping local organizations and entities that are important to them and their neighbors.

Starting in 2017, we will devote pages in this magazine to publish news items and photos, illustrating how franchisees are making important contributions to their communities.

If you would like to be considered for inclusion in a future story – or if you would like to suggest a friend, partner or family member – please email us at ij@ddifo.org.

We look forward to celebrating great stories of community involvement and reminding the world that Dunkin’ Donuts franchise owners are truly committed to their local communities.

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 5

WHAT’S BREWING

counts on menus was one of the more controversial pieces of the Affordable Care Act when it passed in 2010, at least for franchise and restaurant owners.

The U.S. Food and Drug Administration (FDA), though, has dragged out for years the implementation of the edict, which could require chains and franchise owners with more than 20 locations to post the number of calories next to their various food and menu offerings.

The FDA recently extended the deadline from December to May, effectively punting the ultimate rollout from the outgoing Obama Administration to President-elect Trump and his team.

Given the Republican distaste for regulation, it would seem like an open and shut case for the end of the menu-labeling requirement, but it’s not so simple.

While nixing the ACA would require a simple majority vote, getting rid of the calorie-labeling provision would require a

two-thirds vote of the House, according to the industry publication Nation’s Restaurant News.

already rolling out their own versions, creating a crazy quilt of different rules across the country.

Any effort to repeal the menu labeling provision through the federal regulatory process could take years, with no guarantee of success, noted Daniel Liebowitz, an associate in the environmental and regulatory department of Paul Hastings LLP in Washington, D.C.

Philadelphia, for example, goes well beyond calorie counting to also require the posting on menus of sodium, carbs and saturated fat.

“The rule is final,” Liebowitz says. “The process to repeal a final rule is tough.”

However, the House in early 2016 did pass the Common Sense Nutrition Disclosure Act, which would scale down some of the calorie-labeling requirements. It could very well gain traction in the coming months in now Republican-dominated Washington and, in the process short circuit the FDA’s menu-labeling rules set to take effect in May, Liebowitz says.

But even if Congress manages to vote out menu-labeling, some states and cities are

6 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

And New York City officials, fresh off of requiring restaurant and franchise owners to put salt shaker symbols on the menu next to offerings with high sodium, have unveiled a “Look Before You Eat” campaign aimed at further driving home the point. The ads are appearing in local newspapers, on TV, and online, as well as on subway and bus lines.

Wages headed up Andrew Puzder, President-elect Trump’s pick to head the U.S. Department of Labor, has been no fan of proposals to hike the federal minimum wage to $10.50 or beyond that to $15 an hour Puzder, chief executive of the company

that owns Hardees’, told the Los Angeles Times that he is not opposed to increasing the federal minimum from $7.25 or even tying it to inflation.

But boosting the minimum to $15 an hour, along with adding on sick leave legislation and other rules that boost costs for employers, would cost workers their jobs by encouraging automation, he argues.

Puzder has also come out strongly against the Obama Administration’s new labor rules requiring all managers making less than $47,500 a year to be paid overtime.

But Puzder will have far less influence over state-level efforts to boost the minimum wage, which arguably could even gain traction in some blue states as a way of pushing back against the Republican ascendancy in Washington.

The minimum wage went up in 19 states at the start of the year, with deep blue states like California, Massachusetts, New York, Washington, Connecticut and

Vermont leading the way in terms of the biggest increases. (Arizona is the big red state exception, rising to $10 now, $12 in 2020, and indexed after that, but it is currently being challenged in the courts by major business interests in the state.)

The Bay State and Washington State have the biggest initial increases, both to $11 an hour, compared to California’s $10.50, but the Golden State plans to follow that with further increases topping out at $15 an hour by 2022 and 2023, according to Business for a Fair Minimum Wage, which is tracking the state-level pay hikes.

Washington’s minimum rises to $13.50 by 2020, while labor activists recently kicked off a legislative drive in Massachusetts to further increase the minimum to $15.

New York is more complicated, with the minimum rising in different parts of the state to different levels – and minimum wage increases accelerated for fast food workers as well.

The Big Apple just went up to $11 an hour, with additional increases to $15 an hour between now and 2018/2019. The suburbs of Westchester County and Long Island are now at $10 an hour, rising to $15 an hour by 2021. Upstate New York has jumped to $9.70 an hour, with increases topping out at $12.50 in 2020. After that, there is the potential for additional increases up to $15 an hour.

Vermont’s minimum has risen to $10 an hour, edging up to $10.50 in 2018, after which it will be indexed, while Connecticut has risen to $10.10.

Starting this year, the minimum wage has also gone up in Michigan ($8.90), Maine ($9), Colorado ($9.30) and Hawaii ($9.25).

Maybe the biggest opposition at the state level has come from Maine Gov. Paul LePage, who has ordered state labor officials to delay the enforcement of Maine’s new $9 an hour minimum by a month while he readies legislation to repeal the increase.

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WHAT’S BREWING

Pushback on sick leave Minneapolis businesses are sparring with city officials in court in a bid to derail a new sick leave law set to take effect in July.

While a state judge did not rule on the Minnesota Chamber of Commerce’s request for an injunction, he did have questions on the scope of the new rules championed by Minneapolis Mayor Betsy Hodge.

The new ordinance requires businesses with at least six employees to award one hour of sick leave for every 30 worked, for a total of 48 hours each year.

However, maybe the most controversial provision is the requirement that companies based outside Minneapolis comply with the city’s new sick leave rules if one or more employees works at least 80 hours a year in the city, or 1.5 hours a week.

Hennepin County Judge Mel I. Dickstein directed some pointed questions at the city’s top lawyer, asking whether the new rules were so wide-ranging that they

would ensnare companies whose employees came into the city on a weekly basis for meetings or to conduct business.

Meanwhile, three different sick leave laws have taken effect in Illinois covering the state, as well as Cook County and Chicago.

“Are they subject to Minneapolis's requirement because at least an hour-and-a-half a week they come into the city of Minneapolis, and how could that be?" Dickstein asked, according to the Minneapolis Star Tribune. "And how could the reach of the Minneapolis ordinance be so far? I don't understand that."

Looking ahead The coming year is likely to see a major shift in Washington towards a more openly pro-business, anti-regulation approach.

Republicans in the Minnesota Legislature have discussed filing a bill that would prevent local cities and towns from passing sick leave and other labor legislation, according to the newspaper.

If so, they will take a page from Republican lawmakers in Ohio, who recently passed a bill that effectively bars local officials from raising the minimum wage on their own.

Gov. John Kasich signed the bill in into law in the last week of December, putting a halt to plans by Cleveland to hold a vote this spring on a proposal to boost the minimum wage in the city to $15 an hour.

Learn more at watchfiresigns.com/donuts

8 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

The ACA and its coverage mandates for businesses and possibly even the FDA’s menu labeling rule may be headed out the door. The same is true for the new overtime rules and for that matter the National Labor Relations Board’s more pro-union approach under the Obama Administration.

But challenges remain at the state and local levels, with no let-up in efforts by lawmakers and activists around the country to boost the minimum wage, mandate sick leave and regulate shift scheduling.

Here at Independent Joe, we’ll keep our eye on the ball so you can do what you do best, running your franchise and keeping your customers happy.

•

Experience+Smarts= Successful Expansion

By Cindy Atoji

H

e came in with donuts and came out with tires and mufflers. Not literally, but let’s not quibble over the details.

The figurative donuts-for-tires trade happened when Dunkin' Donuts franchisee Eric Eskander struck up a conversation with a Meineke owner at the DDIFO National Conference two years ago. Eskander wasn’t looking to diversify his portfolio, which included 53 Dunkin’ Donut franchises on the South Shore of Massachusetts and three Anytime Fitness centers, but Meineke caught his eye. It was a reputable brand with a business model focused on growth; and cars, of course, were not just a modern convenience but a necessity, with regular maintenance and emergency repairs a requirement to keep them on the road.

Eskander liked the fact that there were multi-unit incentives in case he wanted to expand, plus great earnings potential, and significant territory available. He just recently opened his first Meineke shop, in South Dartmouth, Mass., but stresses that it’s not really a case of donuts or tires.

“The business models are similar, and both are customer service orientated,” says Eskander. “So we took what we knew from Dunkin’s and applied it to another brand.” But, along the way, Eskander learned there are certain best practices franchisees

need to follow if they are to be successful expanding into new business models.

Doing due diligence

Is this franchise for me? What exactly do the franchise disclosure documents (FDD) say? What will the initial investment really be?

And most importantly, what do other franchisees say? Eskander, the director of operations for Cadete Enterprises, the umbrella organization for his multiple franchises, says after he returned from the DDIFO National Conference, he started the process of systematically researching Meineke and verifying the brand’s

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 9

MULTI-BRAND FRANCHISING

claims. This included speaking with 15 Meineke franchisees across the country.

“I heard the good, the bad, and the ugly,” says Eskander. “Someone always has something negative to say – it doesn’t matter what brand they’re operating with.” But, he says, the feedback was mostly positive, and he felt confident that the brand – and the industry – was heading in the right direction. Much of his

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conversation with the Meineke owners centered on what kind of support services they were receiving: What sort of operational support does the brand provide? What about technology and software? What kind of training is offered?

He also asked them about what struggles they were facing in the automotive industry and how it was changing. Not many franchisees were willing to talk about the bottom line as far as profits were concerned, says Eskander, but he was more interested in fact-finding and confirming that the information that the brand was providing was accurate. “I felt comfortable enough with my findings to keep moving forward,” says Eskander.

Location, location, location

Ask not what a location can do for you, but what you can do for a location. With apologies to JFK, this truism is accurate when it comes to franchise site selection. There are no stock definitions of a great site, because business requirements vary. Eskander took an existing private auto repair shop and converted it to a Meineke that is 45 minutes from his office. He says that distance was as far as he was willing to go, because of a conscious decision he had made to keep all of his business interests in the same geographic area—the south shore of Boston.

“This is more efficient and allows us to use the foundation we’ve built over the years for Dunkin’s to continue to other brands.

We’ve had opportunities in the past to expand out of state but that’s further than I’m comfortable,” says Eskander.

His first Anytime Fitness club was literally in the same parking lot as one of his Dunkin' Donuts restaurants; and his other Dunkin’ shops are in the same vicinity, in the Cape Cod towns of Falmouth and Mashpee, plus nearby Pembroke and neighboring locations. The close proximity allows for more efficient logistics and store management.

Portfolio diversification

Once he made the decision to expand beyond his current brands,

10 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

Eskander says he wanted true diversification—a completely different industry than his current portfolio of fitness and food service.

“I love the Dunkin’ brand and we are very happy with it and want to continue to grow, but most of our business interests were in that company. It was a calculated decision to diversify and not to have all our eggs in one basket,” he says.

ambitious Eskander what’s ahead for his family business. He says his plan is fluid but another Meineke is definitely on his radar.

There’s a low learning curve because he’s using his Dunkin’s knowhow and expanding it to another brand, making sure his team understands the importance of keeping a shop clean and serving customers with a smile and a commitment to making them happy. And it works. His first Meineke opened in less than three months.

•

While there are plenty of brand sectors such as print and copying, pet, drain clearance, cleaning chemicals, and numerous others, Eskander says his search for expansion was centered more on the franchise model, not the specific product or service he would be offering. His family’s way of doing business is to provide a great customer experience, whether donuts or tires.

He has no automotive background – “I’m not in there doing oil changes and if I were, we’d all be in trouble.” Eskander focuses on running the business while his technicians focus on changing oil, checking fluids and serving the customers. And, because the Meineke franchise model is generally similar to what he already knows from his other businesses, he’s able to take what he had already learned from Dunkin’ and apply it to automotive repair.

Staying focused

How does a busy franchise owner – with multiple Dunkin’ Donuts shops and fitness centers – ensure his core businesses don’t suffer when embarking on a new endeavor? Eskander says it comes down to people.

“It’s all about delegating and team building.” Eskander says he “built a team then built a Meineke.” He brought in a vice president of operations and an opening specialist – one had no experience in the auto repair industry and the other, the opening specialist, had 30 years of experience. The opening specialist had numerous connections and was charged with hiring mechanics, finding the right staff to put in each center.

With his people, policies and procedures in place, we asked the

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 11

Ready to Drink

Boost or Bust for Same Store Sales?​

12 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

L

ast year, sales of ready-to-drink coffee continued its meteoric rise—jumping 14 percent to $2.5 billion. It was the fourth straight year of double-digit growth. No Dunkin’ Donuts franchise owner would be surprised to learn that Starbucks controls 75 percent of the ready-to-drink coffee market.

It’s why franchisees were generally

pleased to hear the news that Dunkin’ Brands sealed a deal with Coca-Cola to brew, bottle and sell iced Dunkin’ coffee in retail stores across the U.S.

deal will be a winner for them. And, because Coke already delivers to their stores, it won’t require a whole new set of logistics.

According to Steve Holtz, the beverage editor of CSP Daily News, the timing is right for Dunkin’s foray into the expanding ready-to-drink category.

Coke is hoping the Dunkin’ deal will sweeten its bottom line. Soda sales continue to sag as coffee continues to climb.

Over the years, Coca-Cola has already invested in Keurig Green Mountain and Monster Beverage, which is currently the number two RTD coffee offering. But, competing with Starbucks, the real monster in the category, requires a solid coffee brand. And that, according to Holtz, is what makes Coke so happy about having Dunkin’ in its stable of non-carbonated offerings.

“There is room to grow here for manufacturers and brands. All of them are chasing Starbucks, but Dunkin’ Donuts has a strong brand that can be a fair challenger to that.”

Bottled success Starbucks began selling its bottled Frappuccino in the 1990s and has enjoyed strong profits from the frothy coffee beverage not just in its own stores, but also in convenience stores and supermarkets. Holtz says Starbucks learned early on that ready-to-drink (RTD) coffee was a way to advance its brand beyond its own cafes.

“They put it out on the retail side and it hasn’t leached into their made-to-order business yet. And, it’s probably created a different customer, one who wants to grab-and-go and likes the flavor as well as the cost and convenience. Overall it’s been great for the Starbucks brand,” he says.

Frappuccino put Starbucks on the shelves in convenience store coolers as an alternative to soda, vitamin water, iced tea and sports drinks. For c-stores, profits from the sale of coffee – fresh brewed and bottled – is second only to food products. Industry watchers say c-stores want to expand their offerings of hot and cold coffee products in order to capitalize on the coffee trend. Holtz says the c-store operators are optimistic the Coke-Dunkin’

“This is a big bet for us, without question,” Coca-Cola’s North American VP for coffee and tea Geoff Henry said in a press release. “And we’re confident we have the right strategy in place to capture the tremendous opportunity we see ahead. The demand for coffee of all varieties cannot be overstated.”

Market tested In its press release announcing the new partnership with Coke, Dunkin’ Brands said, “The agreement supports Dunkin’ Donuts’ goal of strengthening its position as a coffee authority and further extends the Dunkin’ Donuts brand into new distribution channels.”

What Dunkin’ doesn’t talk about publicly is that it tested the RTD concept before it signed on the dotted line with Coke.

According to one franchisee who was briefed on the testing, after Dunkin’ Brands presented the results of its market test – which pointed to a great upside for the deal – to franchisee leaders, the franchisees decided to get a second opinion.

With Dunkin’s blessing, the franchisees commissioned a separate, independent market test. The results of that test were in line with the brand’s test.

The conclusion, according to one franchisee who spoke on a condition of anonymity: “This may help us. It will not hurt us.”

“ This is a big bet for us, without question. And we’re confident we have the right strategy in place to capture the tremendous opportunity we see ahead.

The demand for coffee of all varieties cannot be overstated.

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 13

COLD AND FROTHY For as long as people could remember, cold frothy drinks came from the Baskin Robbins side of the house. But, it’s Baskin’s big brother that is bringing nitrogen-infused iced coffee to customers at Dunkin’ Donuts counters in several test markets. Nitro cold brew is the latest innovation sweeping the already hot iced coffee market.

Dunkin’ Donuts estimates it sells 1.7 billion cups of hot and iced coffee every year, and industry watchers say one-in-five U.S. adults drink iced coffee. As Dunkin’ quickly learned this year, iced coffee aficionados are willing and eager to try twists on the original. Cold brew iced coffee as a category grew by 115 percent between 2014 and 2015, according to the research firm Mintel. Dunkin’ Brands has credited the release of its cold brew as having a positive impact on same store sales. Now, the market for cold brew is being jolted with new flavor and consistency thanks to the scientist’s realization that coffee can be treated like beer. Think Guinness… the creamy, foamy Irish stout beer is perhaps the closest approximation to nitro cold brew—without the alcohol, of course. It’s even served from a keg.

DDIFO Restaurant Analyst John Gordon, who is principal of Pacific Management Consulting Group, says nitro cold brew “builds on the craft brew awareness from casual dining and over indexes with younger, higher income customers, which Dunkin’ Donuts badly needs.”

Stumptown, a Portland, Ore specialty roaster, was apparently first out of the nitro gate, followed shortly after by Starbucks, which announced in May that it was adding Nitro Cold Brew and Vanilla Sweet Cream Cold Brew to its roster of cold beverages. In a press release, Starbucks said it fashions its cold brew by taking “a small chilled keg of Starbucks Cold Brew coffee and infusing it with nitrogen, which unlocks the super-smooth, natural sweetness of the Cold Brew coffee.”

According to the publication Extra Crispy, “Cold brew promotes a smoother, less acidic taste and a naturally sweeter flavor.” But, perhaps the thing that will startle the men and women who prepare

14 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

and serve Dunkin’ Donuts coffee is that nitro cold brew can be served without ice, because the nitrogen chills the liquid.

A description of the nitro offerings at Starbucks, published in Business Insider, pegs the drink as similar to carbonated beverages, but with smaller bubbles. The description goes on to say by the process of infusion the nitrogen gives the cold brew a taste that is more creamy than bubbly, and slightly sweet rather than bitter.

Market research conducted by Mintel finds 55 percent of older millennials (age 29-38) and 30 percent of men drink retail-purchased cold brew coffee. Stumptown is charging a dollar more for nitro than its regular cold brew iced coffee, sending a message that consumers are willing to pay a premium for the frothy beverage. For Dunkin’ franchise owners, getting a premium price on a product that draws millennials is a viable strategy for future growth and profit.

BOTTLED COFFEE Dunkin’s RTD iced coffee will enter retail channels in much the same way as Dunkin’ branded Keurig K-cups did in 2015. Bottles of iced coffee, bearing Dunkin’ labels, will roll out of Coca-Cola bottling plants and be delivered into supermarkets, convenience stores and Dunkin’ shops across the footprint. And, franchisees will share the profits with the brand, as they do with K-cups. Sources tell Independent Joe the profits will be split 50/50.

When they announced the K-cup deal, Dunkin’ called the profit share “unprecedented in our industry and underscores the collaborative franchisor/franchisee relationship we have at Dunkin’ Brands and our focus on building store-level profitability.”

K-cup sales have been solid. Dunkin’ estimates it sold more than 150 million pods last year, and predicts that it will sell 2.4 billion cups of coffee through the grocery channel this year along with 2 billion cups in its stores. In a press release timed to the release of its second quarter earnings, Dunkin’ Brands CFO Paul Carbone said,

“In our first year of [K-cup] sales, we were able to get hundreds of millions of cups of Dunkin' Donuts coffee in the hands of new and existing customers.”

When Dunkin’ decided to make its K-cups available in retail channels outside of its franchised locations, store-level sales had been slipping. Franchisees welcomed the opportunity to realize a higher revenue stream from the branded coffee pods than they were receiving from just their own shops. The situation with RTD iced coffee is not quite the same. Thanks to the success of cold brew, the iced coffee category is exploding. Some may wonder whether making Dunkin’ Donuts iced coffee available in a ready-to-go retail option will take money out of franchisees’ cash registers.

Considering Cannibalization The academic publication IMPACT: International Journal of Research in Business Management defines the term cannibalization as, “the process by which a new product gains sales by diverting sales from an existing product.”

Its 2014 paper, “The Impact of Cannibalization on Consumer Purchasing,” authored by Kallepalli Madhavi, found “Cannibalizing an existing market is a successful strategy for attacking an entrenched market leader. The attacker erodes the position of the dominant company, although the attacker cannibalizes its own products in the process.

The attacker hopes to compensate for its loss with increased market share in the redefined market.”

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 15

BOTTLED COFFEE That may sound like a solid strategy for weakening Starbucks’ market dominance and expanding Dunkin’s brand awareness – especially in emerging markets where donuts are a primary sales driver – but it may also wind up hurting franchisees’ bottom lines. As one franchisee in the Southeast market who asked not to be identified said, “The cannibalization effect is definitely something to consider, especially if there is a convenience store next door to your own shop.”

optimistic franchisees will be winners in the deal, “I don’t think there will be a significant loss of traffic to the shops.” He envisions a scenario where franchisees get a double dip at profits from a customer who comes in for a fresh-made order of iced coffee and grabs a RTD bottle to go.

The additional sale, plus the profit-share, he says, should make for a healthy revenue stream for franchisees—with no cost to invest in new equipment or additional personnel.

It’s worth considering the scenario. If a customer walks into a c-store to get a lottery ticket or a bag of chips, he or she might also opt to grab a bottle of RTD Dunkin’ iced coffee from the cooler instead of walking next door for a cup of iced coffee. The franchisee gets a slice of the sale of the bottled Joe, but loses out on the total sale, plus the complimentary snack. It’s a piece of something versus the whole of something else.

Ready to drink coffee will reportedly be bottled in Espresso, French Vanilla, Mocha and Original flavors. In its recent article on the Coke-Dunkin’ deal, the National Association for Convenience and Fuel Retailing asks “Is 2017 the year for ready-to-drink coffee?” Operators behind the counters at their convenience stores are eagerly expecting a sales jolt from bottled Dunkin’ iced coffee.

Dunkin’ franchisees know that iced coffee sells, they just have to hope that the RTD variety doesn’t leave a bad taste in their mouth.

Will franchisees win?

Still, beverage editor Steve Holtz is

•

Dunkin' franchisees who would like to upgrade their coffee program with a new Silver King dairy dispenser to replace an existing unit in their stores, are eligible to receive a complimentary Bagel Saber. Prince Castle will ship out a free Bagel Saber to franchisees rewarding them for upgrading existing dairy dispensing equipment into current Silver King dairy dispensing technology with proven dispensing consistency. Effective September 15th through December 31st, 2016 (new store opening purchases are not eligible). To take advantage of this offer, order your SilverKing dairy dispenser from the NATDCP. Please submit this completed request form to Silver King by email to customerservicega@princecastle.com or by fax to: 866 653 1453. Please allow 3 -4 weeks for processing, validation and final delivery of your new Bagel Saber. Questions can be sent to Gail Kilgore at kilgoreg@princecastle.com.

16 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

Love, Marriage and Dunkin’

W

hen Colleen Bailey walked into her local Dunkin’ in Rockland, Maine, she knew she would get donuts and coffee. She didn’t know she’d fall in love, get married and eventually own nine Dunkin shops of her own.

“Ed owned the Dunkin’ and I lived right up the street from it.

That’s how we met,” says Colleen.

That was in 1972, the year Ed Bailey bought his first Dunkin’.

By Cathy Cassata

Before that, Bailey spent seven years working for Dunkin’ Brands.

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 17

FRANCHISEE PROFILE: BAILEY “I started with Dunkin’ because of an ad I read in the Boston Globe in 1965. They only had about 100 stores at that time,” Bailey remembers.

At corporate, he worked in different roles, including as the head of Dunkin’ Donuts University and performing quality control.

“They were a young company and they moved us around so I not only lived all over the country, but in 1970 I went to Japan for a year for their first international adventure,” Bailey says. “William Rosenberg was the president of the company and Tom Swartz was the [chief] executive.

It was amazing to work with key people setting the goals of Dunkin’.”

Yet on an impulse, Bailey decided it was time to leave the brand and open his own Dunkin’ Donuts restaurant.

While working for the brand helped him as a franchisee to understand the processes and procedures and the brand’s line of thinking, his time as a franchisee was short-lived.

“Corporate called me and asked if I’d be interested in doing some special assignments. I said ‘yes.’ Then I sold the store,” Bailey remembers.

While the Baileys met at Ed’s first store, they didn’t date until a few years later.

After Ed sold his store, he was in North Carolina working for the Brand and Colleen continued to work as a manager at Sears in Maine.

One Big Happy Dunkin’ Family In 1978, when Colleen married Ed Bailey, she was still working at Sears. Although she knew the retail business, she didn’t have a desire to be part of Dunkin’.

“At the time, I wasn’t interested in the donut business,” says Colleen. “As we had our four children, Ed traveled a lot for the brand, and so I became a stay-at-home mom, volunteering a lot of time at the kids’ school and in the community.

Colleen also worked at the kids’ school bookstore for five years as the manager, purchasing supplies and stocking merchandise.

Ed Bailey’s role at Dunkin’ required him to travel throughout the United States to help open new stores. During the 1980s, he even spent a lot of time in Canada.

When he decided to retire in 2001, after 36 years in the business, Colleen got the itch to dabble in Dunkin’ herself.

“Our older kids were in college and our youngest was seven. I was itching to get out of the house and wanted to use my resources and talents to start a small business,” she says. “We thought it’d be a nice retirement job to own two stores in Skowhegan, Maine. Then it kept growing.”

Today, the Baileys own nine stores throughout Maine, including one in Unity, a town in which both of their parents and grandparents lived at one time, they recently discovered.

“It just seems Dunkin’ was meant to be

18 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

part of our family,” says Colleen.

While the Baileys have plans to grow their business, they don’t have any plans to spread outside of Maine yet.

“You can never stop growing. It’s really important to keep growing your business for as long as you’re able to,” says Colleen. “While we’ll do that in Maine, I don’t know what our children will do. We hope the business is passed down to them someday.”

Dunkin’ is already in the blood of all the Bailey kids. Three of them are currently involved in the family business. Their son Scott is in his 11th year with the brand working in the same role his dad did years ago, while their son Matthew works as general manager of the family’s network.

Their only daughter Katrina works part-time, helping her parents with the financial end of the business.

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 19

FRANCHISEE PROFILE: BAILEY “Dunkin has always been a part of their lives. Ed took them all to work and they’d make donuts and bagels with him. They’d sit up on the donut bench and help him cut donuts when that was the way to do things,” says Colleen. “They all love Dunkin’. You could say it’s a requirement of being a Bailey.”

the local schools as much as possible,” says Colleen. “Those are the meaningful, fun parts of the job that make it exciting to get out there, meet people and show our love for the community and for the business. It’s rewarding to learn about our communities so we can give back and be as helpful as possible.”

Giving Back

The Baileys are passionate about volunteering their time to the Red Cross. They support the Special Olympics every year, as well. Politically, Ed and Colleen stay focused on advocating for franchisees.

They’ve met with local representatives at the State House in Augusta, and have traveled to Washington D.C. to talk with senators and lobby for franchisee legislation.

At least once every week, Colleen and Ed together visit all their stores.

“It’s important that our employees know us and understand that we care,” says Colleen. “When we visit, we help out by throwing out the trash or cleaning tables or doing whatever needs to be done. We want our employees to know that we are involved and appreciate them and that we couldn’t be successful without them.”

The Baileys also value creating a community feeling around their stores. They volunteer at many Chamber of Commerce events in each of the towns where they operate stores.

“We give product, coffee, donuts, muffins to sponsor the events, as well as help out

Colleen is active on several committees. She is on the Maine Dunkin Ad Committee, which has allowed her the opportunity to help make decisions on product advertising, and has been a frequent guest on local radio and television stations. She is co-chair of her District Advisory Council (DAC) and sits on the Regional Advisory Council (RAC).

She also serves on the Development

20 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

Committee and hopes to one-day continue her service to the Dunkin’ franchisee community by serving on the Brand Advisory Council (BAC).

“I’m honored and privileged to be a part of these, and I’ve always been welcomed.

Being the only female often times when I go to meetings isn’t easy, but I’m always welcomed and listened to,” says Colleen.

“I’m strong-willed and determined and want to make a difference by representing the franchisees as much as possible.”

Of all the Baileys do, they both agree their favorite part is meeting people. “It’s a people business. You’ve got to love people in order to survive,” says Ed. While being franchisees can be difficult and requires tireless hours of hard work, Colleen says it all comes down to this.

“We are big on being local and letting people know that we’re family owned and support the community. We love what we do. We love the lifestyle Dunkin’ allows us to have. And we wouldn’t have it any other way.”

•

ACCOUNTING

BUILDING

Adrian A. Gaspar & Company, LLP, CPAs

Duro-Last Roofing

Robert Costello 617-621-0500 • cpas@gasparco.com 1035 Cambridge Street, Ste. 14, Cambridge, MA 02141 www.gasparco.com

Samantha Pickelman 525 Morley Dr., Saginaw, Mi 48601 (989) 758-1048 • spickelm@duro-last.com www.duro-last.com

Brendon Pierson

Persona Signs, Lighting, Image

Peggy Pierson 732-681-4800 • peggy@brendonpierson.com PO Box 1750, Wall, New Jersey 07719 www.brendonpierson.com

Marcovich, Mansour & Assoc. Inc.

Joseph Mansour 401-334-9099 • jmansour@mm-cps.net 640 George Washington Hwy., Lincoln, RI 02865

Neovision Consulting Inc.

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

Sansiveri, Kimball & Co., LLP

Michael A. DeCataldo 401-331-0500 • mdeca@sansiveri.com 55 Dorrance Street, Providence, RI 02903 www.sansiveri.com

BACK OFFICE BlumShapiro Consulting

David Fionda 781-610-1206 • dfionda@blumshapiro.com 2 Battermarch Pk.;1 Pine Hill Dr Ste. 301, Quincy, MA 02169 consulting.blumshapiro.com

Jera Concepts

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

Susan Koelzer 700 21st Street SW, Watertown, SD 57201 800-843-9888 x390 • skoelzer@personasigns.com www.personasigns.com

Poyant Signs

Jackie Linhares 125 Samuel Barnet Blvd, New Bedford, MA 02745 508-207-1273 • jlinhares@poyantsigns.com www.poyantsigns.com

Steven Song Marketing Door to Door

Steven Song 626-423-2660 • steven@marketingD2D.com 70 South Munn Ave., E. Orange, NJ 07018 www.marketingD2D.com

Watchfire Signs

David Watson 205-542-7881 • David.Watson@watchfiresigns.com 1015 Maple Street, Danville, IL www.watchfiresigns.com

COMMUNICATIONS Charter Business

Chris Lawrence 207-632-0562 • Chris.Lawrence1@charter.com 477 Congress St. Portland, ME 04102 www.charter.com

Comcast Business Services

866-407-6338 • national_sales@cable.comcast.com 500 South Gravers Road, Plymouth Meeting, PA 19462 www.business.comcast.com/internet

2017

Directory of Business Members

BUSINESS MEMBER

Granite Telecommunications

Daryl Chelo 401-334-3176 • dchelo@granitenet.com 1 Albion Rd., Lincoln, RI 02865 www.granitenet.com

COST RECOVERY EF Cost Recovery

Ed Craig 774-263-7388 • ecraig3@efcostrecovery.com 32 William St., New Bedford, MA 02740 www.efcostrecovery.com

Performance Business Solutions, LLC

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

FINANCE Analytix Solutions

Satish Patel 781-503-9000 • snpatel@analytix.com 800 West Cummings Park, Ste. 2000, Woburn, MA 01801 http://insight360.analytix.com/dunkin

Bank of America/Merrill Lynch

Earl Meyers 585-546-9162 • earl.w.meyers@baml.com 1 East Ave., Rochester, NY 14450 www.bankofamerica.com

Bank RI

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

Berkshire Bank

David L. Sabourin 508-329-7851 • dsabourin@berkshirebank.com 303 Turnpike Road, Westborough, MA 01581 www.berkshirebank.com

Thank You to Our Business Members!

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 21

2017

BUSINESS MEMBER

Directory BusinessMembers Members Directory ofofBusiness

BMO Harris Bank N.A.

Pinncale Commercial Capital

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

Mylan Dawson 317-472-2828 • dawson@pincomcap.com 101 W. Ohio St., Suite 2000, Indianapolis, IN 46204 www.pincomcap.com

CIT

Santander Bank

HigherMe

Shannon Cassidy 617) 890-6476 • shannon@higherme.com 77 Franklin St., Suite 510, Boston, MA 02110 www.higherme.com

HIRETech

Douglas Solomon 603-433-9413 • DSolomon@cit.com 155 Commerce Way, Portsmouth, NH 03823 www.cit.com

Paul Sousa 401-276-1954 • Psousa1@santander.us 95 Amaral St., East Providence, RI 02915 www.santanderbank.com

Lindsay Conderman 281-558-7100 x123 • lconderman@hiretech.com 1500 S. Dairy Ashford Rd. Ste. 240, Houston, TX 77077 www.hiretech.com

City National Bank

TCF Franchise Finance

Paychex

David Sandoval 213-673-9026 • david.sandoval@cnb.com 555 S. Flower Street. Los Angeles, CA 90071 www.cnb.com/franchise-finance

Bill Johnson 952-656-3268 • wjohnson@tcfef.com 11100 Wayzata Blvd., Ste. 801, Minnetonka, MN 55305 www.tcfef.com/franchise

Eastern Bank

TD Bank

Deborah Blondin 603-606-4724 • D.Blondin@Easternbank.com 11 Trafalgar Square, Ste. 105, Nashua, NH 03063 www.easternbank.com

Fidelity Bank

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

Joyal Capital Management Franchise Development

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

Northern Bank & Trust Company

Kelley Munsell 781-569-1584 • kmunsell@nbtc.com 275 Mishawum Road, Woburn, MA 01801 www.nbtc.com

Pacific Premier Franchise Capital

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

Ryan Birtles (843) 576-9337 • rbirtles1@paychex.com 7204 Copperfield Ct, Wilmington, NC 28411 www.paychex.com

Paycor Inc.

Peter J. DiFilippo 401-525-6771 • Peter.DiFilippo@td.com 180 Westminster Street, Providence, RI 02903 www.tdbank.com

Jim Ferreira (203) 530-3512 • jferreira@paycor.com 12 Dale Dr., Greenwich, CT 06831 www.paycor.com

United Bank

TalentReef

Mark McGwin 508-793-8342 • mmcgwin@bankatunited.com 33 Waldo St., Worcester, MA 01642 www.bankatunited.com

Wells Fargo Bank

Julianna Fritz 203-225-5894 • Julianna.M.Fritz@wellsfargo.com 4 Corporate Dr. Suite 495, Shelton, CT 06484 www.wellsfargo.com

HUMAN RESOURCES The Ahola Corporation

Tim Yonek 440-717-7620 • tyonek@ahola.com 6820 West Snowville Road, Brecksville, Ohio 44141 www.ahola.com

CareerBuilder

Kylie Cox 781-343-4351 • Kylie.Cox@CareerBuilder.com 400 Crown Colony Dr., Ste. 301, Quincy, MA www.careerbuilder.com

Cassie Altbrandt 303-667-2328 • caltbrandt@talentreef.com 210 University Ste. 300, Denver, CO 80206 www.talentreef.com

INSURANCE American Family Insurance

Todd L Laczynski 219-406-8633 • tlaczyns@amfam.com 2502 Beech St Ste 70, Valparaiso, IN 46383 www.ToddLaczynski.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

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

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.

22 INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017

Marks & Klein LLP

Justin Klein 732-747-7100 • justin@marksklein.com 63 Riverside Avenue, Red Bank, NJ 07701 www.marksklein.com

Paris Ackerman & Schmierer LLP

David Paris 973-228-6667 • david@paslawfirm.com 103 Eisenhower Parkway, Roseland, NJ 07068 www.paslawfirm.com

OPERATIONS

Crane Payment Innovations

2017

PLEASE VISIT THE DDIFO BUSINESS MEMBER DIRECTORY ONLINE AT WWW.DDIFO.ORG safeTstep by Payless Shoesource

Ray Picard 603-809-3584 • ray.picard@cranepi.com 1 Executive Pk. Dr. #202, Bedford, NH 03110 www.CranePI.com

Kyle Clendennen 785-295-6664 • kyle.clendennen@safetstep.com 3231 Southeast Sixth Ave, Topeka, KS 66607 www.payless.com/safetstep-1/

DTT

SKAL East, Inc

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

Ecolab

BUSINESS MEMBER

Kevin Huerth 781-806-3139 • kevin@skaleast.com PO Box 303, 31 Eastman Street, Easton, MA 02334 www.skaleast.com/index.cfm?keyword=dunkin

Solink

3M Company

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

Christopher Beaudoin 884-463-5730 • cbeaudoin@solinkcorp.com 390 March Road, Ste, 110, Ottawa, Ontario k2k 0g7 www.solinkcorp.com

HME Drive-Thru Headsets

Squadle

Alarm Grid

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

Armor SafeTechnologies, LLC

Alexander Pezzolla 732-572.0706 ex 202 • alex@jarrettforcash.com 1315 Stelton Road, Piscataway, NJ 08832

Bill Muenkel 952-484-4875 • wemuenkel@mmm.com 3M Center, 220-12E-04, St. Paul, MN 55144 www.3M.com/communications

Joshua Unseth 954-933-5095 • support@alarmgrid.com 2510 NE 47th St, Lighthouse Point, FL 33064 www.alarmgrid.com/alarm-monitoring-dunkin-donuts Patrick Moore 214-636-8409 • prmoore@armorsafe.com 5916 Stone Creek Dr., The Colony, TX 75006 www.armorsafe.com

Bunn-O-Matic Corporation

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

Cardtronics

Tom Spooner 973-452-4131 • tspooner@Cardtronics.com 628 Route 10 - Ste. 8, Whippany, NJ 07981 www.cardtronics.com

Carrier Corp

Bob Eckweiler 973-222-6742 • Bob.Eckweiler@carrier.utc.com 3 Hollyhock Way, Newton, NJ 07860 www.carrier.com

Jarrett Services ATM, Inc.

New England Drive-Thru Communications

Angela Bechard 603-475-2046 • angela@nedrivethru.com 999 Candia Rd. Ste. 7, Manchester, NH 03032 www.nedrivethru.com

Pentair Filtration & Process

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

Prince Castle/Silver King

Zachary Waas 630-873-0088 • waaz@princecastle.com 355 East Kehoe Blvd., Carol Stream, IL 60188 www.princecastle.com

R.F. Technologies, Inc.

Michael McAuliffe 617-571-6807 • michael@squadle.com One Broadway, Floor 14, Cambridge, MA 02142 www.squadle.com

Staples Advantage

Joe Shea 508-238-0106 • joseph.shea@staples.com 31 Commercial St. Sharon, MA 02067 www.staplesadvantage.com

SuzoHapp

Tom Orton 847-660-4289 • Tom.Orton@suzohapp.com 1743 Linneman, Mt. Prospect, IL 60056 www.suzohapp.com

Torrco

Marcos Valladares 301-775-5046 • tej.guthalagowda@workpulse.com 2 Eastwick Dr., Suite 200, Gibbsborro, NJ 08026 www.workpulse.com

Workpulse, LLC

Tej Guthalagowda 301-775-5046 • tej.guthalagowda@workpulse.com 2 Eastwick Dr., Suite 200, Gibbsborro, NJ 08026 www.workpulse.com

Michael Murdock 847-495-7350 • michaelm@rftechno.com 330 Lexington Drive, Buffalo Grove, IL 60089 www.rftechno.com

INDEPENDENT JOE • DECEMBER 2016/JANUARY 2017 23

A LOOK ON THE LAW

One vs. Many: W

hen advising clients on the acquisition of a multi-unit franchise network, we are often posed the age-old question: “Should we own the assets in one entity or multiple entities?” At the risk of sounding too much like a lawyer, the answer to this question is, “It depends." Each franchisee has a unique set of hot button issues, which generally inform our response to such an inquiry. For some operators, insulation from liability is paramount; for others, limiting transaction costs is a primary concern. While there is no one-size-fitsall answer, it’s important to review the benefits and detriments that come with both ownership structures.

Insulation from Liability Prevailing trends and best practices dictate that each franchised restaurant be held in its own single purpose entity, so as to insulate each independent business from the liabilities of the others. By implementing this strategy, franchisees can generally contain exposure to claims levied by employees, creditors, and patrons to the entity in which any alleged liability arises, thereby ensuring the liability does not contaminate the other restaurants in his network. For example, if an employee of one of the restaurant entities brings a successful action for unpaid wages, he could only look to the assets of that restaurant entity to satisfy his damages; all the other restaurants would be shielded from liability because they were owned by separate entities.

Let us now examine the countervailing philosophy. What if a franchisee sought to realize some of the benefits of single entity ownership, and opted to an entire network with one LLC? From a risk management perspective, this decision would certainly expose the entire network to the cross-contamination of liability arising at one restaurant. Thus, under this scenario, if a patron slips and falls at one of the restaurants, that individual could look to the assets of all network locations to satisfy a judgment. However, notwithstanding this example, the operator could mitigate against such network-wide damages through the purchase of appropriate

BY DAVID S. PARIS AND CRAIG FELDMAN

Structuring a Multi-Unit Franchise Network

business insurance policies.

Credit and Financing Let us now consider that a franchisee may need to obtain institutional debt as a means to finance an acquisition. By acquiring a network through multiple entities, a franchisee is certain to drive-up the transaction costs associated with his loan. At a minimum, most lending institutions will require certificates of good standing ordered and lien and judgment searches be conducted on each purchasing entity. Additionally, the franchisee will typically be required to pay his own legal fees, in addition to those incurred by the bank. Thus, the use of multiple entities will invariably result in the creation of more legal work and higher fees, since numerous documents will have to be drafted—authorizing each entity to enter the transaction, and borrow and guaranty the bank debt. Conversely, the use of a single entity to acquire the entire network could result in tens of thousands of dollars in cost reductions.

Landlord-Tenant Relations When it comes to landlord-tenant relations, there are pros and cons with each network entity structure. For instance, to the extent the franchisee uses a separate entity for each restaurant, such entity will typically sign as the tenant under its lease. Accordingly, if the location turns out to be poor performing, the franchisee can determine to close the restaurant, or threaten to do so in order to leverage negotiations with the landlord. Assuming there are no personal guarantees on the lease, the landlord would be left with the option of re-negotiating the lease terms or commencing an action against an insufficiently capitalized entity.

Unfortunately, the benefit illustrated above is more theoretical than practical, as most landlords will require that the principal(s) of a single purpose entity personally guaranty the tenant entity’s obligations under the lease. To that end, even if a franchisee owned the store in a single entity – if he decided to close the restaurant – he would likely face personal liability for unpaid rent.

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That example allows us to segue into one of the more valuable benefits derived from owning the network in one entity – the increased potential for avoiding personal guarantees on leases. The fact is, when signing a lease with a tenant entity that owns the assets of multiple Dunkin’ Donuts restaurants, the tenant has more leverage in convincing the landlord that a personal guaranty is not necessary. From the landlord’s perspective, a tenant entity that owns multiple Dunkin’s may have sufficient assets and cash flow to satisfy a claim or judgment for unpaid rent, such that the backstop of a personal guaranty is not necessary.

Cross Defaults under the Franchise Agreements One often overlooked issue when determining entity structure is the existence of the “cross-default” provision in the Dunkin’ Donuts and Baskin-Robbins franchise agreements. Section 14.06 of the franchise agreement provides that, “We terminate any other franchise agreement with you or any affiliated entity by reason of a default under sections 14.0.3, 14.0.4 or 14.0.5.”

According to this provision, a termination of one Dunkin’ franchise agreements can give rise to the termination of all of a franchisee’s other Dunkin’ franchise agreements. The courts in some states have held that the “cross-default” provision may be enforceable regardless of whether the franchisee’s Dunkin’ restaurants are owned in one entity or many. However, some courts have shown a hesitancy to enforce the “cross-default” provision when the restaurants are owned in multiple entities. You should contact your franchise attorney to learn how the courts in your jurisdiction(s) treat this issue.

In general, our firm most often counsels our multi-unit franchisee clients to implement the multi-entity structure, based on the flexibility and protections against financial and business liabilities such an entity offers.

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David S. Paris is a founding partners of the law firm Paris Ackerman & Schmierer LLP. Craig Feldman is of counsel, heading the firm’s commercial real estate department.

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