Independent Joe #51 August/September

WHAT’S

BREWING

JOB CREATORS NETWORK

•

TAX CUT WORKS

•

HEALTH CARE COSTS

August/September 2018

Award-Winning Magazine

for D D Independent Franchise Owners

BENCHMARKING

THE BOSS As Travis looks ahead, we look back at his tenure as CEO

GREEN STEPS

NEW MENU

PROFILE

Styrofoam Cup Will Soon Be a Thing of the Past

Franchisees Embrace Simplified Menu, LTOs

Hard Work Helps Make Local Connections

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A JOB WELL DONE So we’ve turned the page and begun a new chapter at Dunkin’ Brands with the ascension of Dave Hoffman to President and Chief Executive Officer and the retirement of Nigel Travis.

As we’ve often written here, change is inevitable and, ultimately, healthy.

I would expect that to be true of this latest change as well.

But, before we focus on what Hoffman’s leadership could mean to the Dunkin’ brand – and how his story will be written – we must reflect on the accomplishments achieved under Travis. The first thing is to recognize the overall strength of the brand today – and we don’t have to look far to see it. In a couple of recent studies alone, Dunkin’ comes in No. 4 in the country by total unit count (Baskin was No. 17) and a solid No. 7 in the QSR Top 50 Brands listing with too many other accolades to list. The next thing is to acknowledge the relationship Travis forged with the franchisees.

When he arrived in Canton almost a decade ago, Dunkin’ franchisees were a fearful and disenfranchised group.

Dunkin’ had a well-deserved reputation as the QSR sector’s most litigious

brand. Hundreds of lawsuits were pending against franchise owners— seeking to strip them of their ownership status, collect royalty fees and flip their shops to new franchisees. (Much like the situation we're seeing today with the Tim Horton's brand.) It was a challenging time for franchise owners and a prominent blemish on the brand.

Against that dark backdrop, Travis emerged as a leader with respect for the work and the value of the franchisees.

He also demonstrated his business acumen steering the company through the worst recession in a generation, then guiding it through a successful IPO. Seven years after going public, Dunkin’ Brands’ unit economics are strong and the DNKN stock price continues to hit record highs.

Wall Street will judge Hoffman, who spent two years as President of Dunkin’ U.S., by the numbers—stock price, same-store sales and new store openings, to name a few. Franchisees will also judge him by those metrics, in addition to his ability to work collaboratively with them and act in the interests of franchisees along with those of other stakeholders.

Speaking for this organization, which is focused solely on what’s best for Dunkin’ franchisees, we recognize that change in the corner office is often necessary, and new leaders often bring a new focus to the job. Of course there will be new challenges ahead, but as Travis demonstrated, with clear vision and purpose, success is there for the taking.

The recent passing of two American icons, Senator John McCain and Aretha Franklin, bring two words to mind: Service and R-E-S-P-E-C-T. One describes a man’s commitment to his country; the other an iconic musical appeal to humanity. Those words also have particular meaning within Dunkin’ Donuts.

As the voice of the Dunkin’ franchisee community, DDIFO wishes to thank Nigel Travis for his service to this company and for the respect he showed this brand’s shop owners during his tenure. At the same time, we respect the vision Dave Hoffman has for future Dunkin’ success, and welcome the opportunity to work cooperatively with him to overcome challenges and ensure continued success for Dunkin’ and its franchisees.

Ed Shanahan DDIFO Executive Director

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

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SUB HEADLINE

CONTENTS 9

From the Executive Director: A Job Well Done. . . . . . . . . . . . . . . . . . . . . . . . 3 What’s Brewing: Business Insight from the Job Creators Network. . . . . . . 7 Dunkin’ Green Steps. . . . . . . . . . . . . . . . . . 9

Who has More Loyal Fans?. . . . . . . . . . . 12 Franchisees Embrace Simplified Menu, LTOs. . . . . . . . . . . . . . . 15 COVER STORY Benchmarking the Boss: How Did Dunkin’ Donuts Perform Under Nigel Travis’s Watch?. . . . . . . . . 18

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Franchisee Profile: Deo Braga. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Directory of Business Members.... 24

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Look at the Law: Dunkin’ and the No-Poach Clause. . 26

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INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

Independent The Magazine for DD Independent Franchise Owners August/September 2018 • Issue #51 Independent Joe® is published

by DD Independent Franchise Owners, Inc. Editors: Edwin Shanahan, Matt Ellis Contributors: Cindy Atoji-Keene, Cathy Cassata, Michael Hoban Debbie Swanson, Scott Van Voorhis Business Member Coordinator: Joan Gould Creative Director: Caroline Cohen Direct all inquiries to: DDIFO, Inc. 2 First Avenue, Ste. 127 – 3, Peabody, MA 01960 978-587-2705 • info@ddifo.org • www.ddifo.org DD Independent Franchise Owners, Inc. is an Association of Member Dunkin’ Donuts Franchise Owners.

INDEPENDENT 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 © 2018 Printed in the U.S.A.

WHAT’S

BREWING

BUSINESS INSIGHT FROM THE

By Scott Van Voorhis Looks like it could be a long, hot and potentially expensive summer for Dunkin’ and other quick service franchise owners around the country. SeveraLabor and activist groups have been on a roll around the country, championing proposals that push up costs for franchise owners and other small business owners. Launched nearly a decade ago, the Job Creators Network (JCN) is devoted to defending the interests of the small business owners who make the U.S. economy tick, from small manufacturers to franchisees.

Started by Home Depot co-founder Bernie Marcus, JCN recently embarked on a nationwide “Tax Cuts Work” bus tour.

The aim is to get the message out about the benefits for small business owners of the Republican tax bill passed last year.

Independent Joe caught up recently with Alfredo Ortiz, JCN’s president and chief executive.

Ortiz and JCN played a significant role rallying small business support for the Republican tax cut bill. Working closely with former House Speaker Newt Gingrich, Ortiz oversaw a multimilliondollar media campaign and an avalanche of 550,000 emails urging members of Congress to take action.

Born to immigrant parents in Southern California, Ortiz was an executive at Boston Consulting Group and an expert

JOB CREATORS NETWORK

on boosting the effectiveness of corporate sales forces before Marcus tapped him to run JCN. As a counter to the labor movement’s Fight for $15 campaign, JCN last year launched “Fight for $50K,” a campaign aimed at shifting the focus from raising the minimum wage to boosting job skills and workforce development training to prepare more people for middle class jobs paying $50,000 a year.

Tell us about the Tax Cuts Work bus tour and what JCN will be doing over the next few months.

We have the first two legs of the bus tour [running] through November. We are pretty much going to every corner of the country, from Seattle to Orange County and from Upstate New York to Miami.

The tour will highlight the advantages for small business owners of the tax cuts. We have 3,500 stories of small business owners who have benefited from the tax cuts.

For example, there is a small Illinois manufacturer with 16 employees and $3 million in revenue. She has gone out and bought $500,000 in new equipment and can deduct that immediately thanks to the new tax bill. She gave everyone full benefits and raises. This is an area, manufacturing, people were saying was dead just three or four years ago.

How involved are franchise owners in the Job Creators Network?

The International Franchise Association is a member of JCN. [So too, is the Coalition of Franchisee Associations - the CFA.] Their members are our members; we fight for them. The franchise community is a huge part of what we fight for as well. We believe the franchise model is one of the best ways for any hard working American – whether black, Hispanic, Asian or female – to be able to get their arms around a business and call it their own.

One of the biggest challenges facing Dunkin’ and other franchise owners is a shortage of workers. What, in JCN’s view, should be done to solve this problem?

There are more jobs out there right now than people looking—6.3 million compared to 6 million job hunters. The big challenges we are hearing from franchises in general is where do we find the people? There are a lot of people out there who are qualified to work but are not entering the workforce. They are dis-incentivized. A lot of people don’t know about the earned income tax credit (for low-income workers). Let’s rename it the Working Americans Tax Credit. A study found that using this exact same description, people were six times more likely to apply for the credit, which you have to have a job to take advantage of.

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

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WHAT’S

BREWING I think [President Trump] is spot on in focusing on workforce training and skills development. If you make $9 an hour and you get an extra buck for flipping burgers, newsflash, you are still flipping burgers.

Let’s say you are over 25 and you are flipping burgers. It is probably because there is a problem somewhere. We should identify these folks and get them the skills training they need.

Despite efforts by the Trump administration, the National Labor Relations Board’s joint-employer rule is still in force. The regulation opens up franchisors to legal liability over complaints about pay and working conditions, which critics say undercuts the independence of franchise owners. What is JCN’s view of the controversial rule?

We actually protested outside a couple of NLRB offices. We had small business owners carrying signs like “Keep your hands off my business.” The owners become managers. It really makes no sense. We thought it was a horrible attack

8

on the franchise system. We were really excited the Trump administration came along and changed the [Board’s] position. It is in the hands of Congress now.

Franchising is truly one of the easier and best ways for any hard working American to get a piece of the American Dream. A lot of people don’t understand that the Dunkin’ Donuts down the street isn’t a big corporate entity. It’s a franchisee – a hard working American pursuing the American Dream. The joint employer rule is an attack on our way of doing business.

plans to go beyond state lines and [allow] businesses to bring leverage to the issue is important.

We’ve talked a lot about the impact federal regulations can have on small businesses and franchise owners. But aren’t there major regulatory issues on the local level as well?

Health care costs are a major issue for franchise owners. What is JCN’s view of the new federal rules that will enable small business owners and other companies to band together and purchase coverage?

Regulation is easier, but, hands down, local red tape is still an issue. The president can only do so much. We have to take it all the way down to city hall to make sure that citizens all around the country understand red tape kills the economy. It’s the permitting process—the time to get things done. Time is money, especially if you are buying a piece of land.

When Obamacare passed, many small business owners couldn’t afford it and had to drop health care coverage. The Trump administration’s Associated Health Plans initiative will be more affordable and enable millions of Americans to have health benefits. The ability of

The Job Creators Network calls itself, “The Voice of Main Street,” and believes the best defense against bad government policy is a well-educated public. It attempts to accomplish this through employee education. You can learn more at their website: www.jobcreatorsnetwork.com.

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

•

FEATURE

Dunkin’ Green

Steps

By Cathy Cassata

T

he staple Styrofoam cup will soon be a thing of the past in the Dunkin' world. As of last May, Dunkin’ Brands removed foam cups from all New York City and California locations. Stores in Hawaii are in the midst of replacing foam cups too, with the brand planning for all of its 12,500 stores around the world to do the same by 2020.

What cup will fill the shoes of its predecessor? The replacement is a doublewalled paper cup made of paperboard certified to the Sustainable Forestry Initiative (SFI) Standard, which promotes sustainable forest management in North America and the responsible procurement of forest products around the world. No

"I know change is scary, especially since the foam cup has been such an iconic part of the brand. But as scary as change is, change is also necessary." sleeve is needed with the paper cup since it is designed to keep beverages warm without the cup being too hot to hold. The new cup made its debut early this year at the Dunkin' Next Generation concept store in Quincy, Mass.

"I know change is scary, especially since the foam cup has been such an iconic part of the brand. But as scary as change is, change is also necessary," said Misha Goli, who owns eight Dunkin’ Donuts shops in Oklahoma. "If you don't change, others

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018 9

GREEN STEPS change and you get left behind."

This step is the latest in Dunkin's 13-year effort to become more socially and environmentally responsible. Taking a look back: In 2005, the brand turned to a fourcup carrier made of recycled newsprint. In 2009, it began using napkins made of 100 percent recycled paper with bagel bags following suit in 2014. In 2015, Dunkin' started using lids for cold beverage cups made from recyclable No. 5 polypropylene, an effort that was completed this summer, and which will remove an estimated 500,000 pounds of material from the waste stream each year. In 2016, Dunkin' issued a Sustainable Pulp and Paper Sourcing Policy that aimed to source paperboard certified to the SFI Standard for 80 percent of its consumer-facing-based packing by the end of this year.

"There are a number of reasons why companies make these moves. Some are in the area of social responsibility and some are just straight business strategy," according to Andrew J. Hoffman, PhD, professor of sustainable enterprise at the University of Michigan's Ross School of Business.

An act of social responsibility When Dunkin' announced its move to paper cups last February, Karen Raskopf, the brand's chief communications and sustainability officer, stated in a press release that the decision to eliminate foam cups is significant for the brand and the industry.

"We have a responsibility to improve our packaging, making it better for the planet while still meeting the needs of our guests. Transitioning away from foam has been a critical goal for Dunkin’ Donuts U.S., and with the double-walled cup, we will be able to offer a replacement that meets the needs and expectations of both our customers and the communities we serve,” said Raskopf.

The move makes sense as it is well-known that foam has a negative impact on the environment--decomposing slowly and damaging marine life and animals when it ends up in the ocean. "[Dunkin'] could be looking at ocean plastics which is a major issue getting lots of attention these days. Styrofoam has always been a problem with the durability

of them once they enter the landfill," Hoffman says. "But I hate to be one of those people who says 'what more can you do for me?' A lot of people are really attentive to what they perceive as hypocrisy, so if Dunkin' does it on one thing and not another, people may say 'You don’t really mean it.' This is a great start, but getting rid of all material and moving to people reusing their own cup is even better."

In addition to these efforts, Dunkin' Brands is also taking steps to remove artificial dyes from its products, build more energy-efficient restaurants, and partner with the Rainforest Alliance to source certified coffee.

A move based on business sense While Goli believes that disposable cups and all plastics certainly have a negative effect on the environment, he says customers are aware of this too.

"To stay competitive, you have to make the moves that the consumer wants. You have to be observant of what your competitors are doing and react accordingly, but understand what your guests want," says Goli. "Starbucks has always had a paper cup. They don’t have a double-walled one, so ours might be better at retaining heat and that puts us at a competitive advantage."

Hoffman, the University of Michigan expert, agrees, stating that if Dunkin's competitors are being environmentally conscious, it is in the brand's best interested to do the same.

"Maybe [Dunkin'] customers care about the environment, in which case the brand wants to satisfy customers. If customers notice that competitors are doing it, but Dunkin' isn't, that can be embarrassing.

They want to be seen as forward thinking and progressive," Hoffman says, noting that Dunkin' may also be positioning the company to be ahead of new regulations it is anticipating, or that its suppliers may be planning to move toward more environmentally safe products.

What it means for franchisees How will moving to the new cups affect franchisees' day-to-day business?

"I think a lot of work has been done in

10 INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

finding the right cup solution, and the fact that we're rolling it out in phases will hopefully give us enough warning so that the impact is minimal and if anything, the impact is positive for the brand," says Goli, who is expecting to open his 9th store – a Next Gen concept store – in Oklahoma City this month. The store will use the double walled paper cups, as well as follow the system-wide initiative to remove artificial food coloring.

As a second-generation operator, Goli says there are good and unknown aspects of the changes when it comes to day-to-day operations. His dad started as a baker in the 1970s and bought his first shop in 1981. Goli grew up in Dunkin’ Donuts and 10 years ago took over operations of four stores in his father's network. Since then, he's built out.

"I've been around the system my whole life, and grew up with foam cups. I understand why people have so much love for them. They hold the coffee hot for a long time, are easy to use, and are lightweight, but I also understand the need to switch," he says. "The reality is a lot of consumers are shifting towards wanting the paper cup rather than the foam cup."

As an operator, he says a big plus of the double-walled paper cups is reducing SKUs. The double walled-cup comes in three sizes — medium, large and extralarge — and will be used for all hot drinks, including coffee, tea and hot chocolate.

Espresso and small-sized beverages will continue to be served in regular paper cups.

"Right now, we have four different hot coffee cups and two different lids for hot coffee, plus three espresso cups and another lid, so we'll go from seven cups to four cups and three lids to one lid. For a store manager and the employee taking inventory and doing the ordering and filling, they'll only have one cup to grab versus trying to decide what goes in which cup each time," Goli says.

He also likes that the new cups will use the current lids for coffee, "Which is far more superior to the lids we have on the espresso cups. So now we have a superior lid with espresso drinks that we didn’t have before," he says.

Another benefit of the new cups is that they don't need a sleeve, which means one less thing to buy and stock. However, with all that said, Goli says the double-walled paper cup will cost more.

"So the question is does the operational efficiency that you gain offset the increase in costs? We don't know this yet. If it does, it's a winner," he says.

Hoffman points out that some franchisees may be concerned about the change because often times, "The customer-facing unit can be fairly risk averse, thinking if it isn't broke don't fix it, and they may not have the broader view that corporate has," he says.

As far as customers are concerned, Goli believes some will welcome the change right away, while others may be hesitant.

"It will be interesting to see how they react to and trust not having a sleeve," he says.

In Hoffman’s view, changes like these are rejected less when the customers understand the move.

"Right now, we have four different hot coffee cups and two different lids for hot coffee, plus three espresso cups and another lid, so we'll go from seven cups to four cups and three lids to one lid."

"These type of changes should be accompanied with a marketing campaign about why they are doing this and why it's a good thing rather than just imposing it on customers," Hoffman says.

"When Home Depot moved to sustainably certified wood, they did a whole marketing campaign about it and 10 years ago when Whirlpool created front load washers, people didn’t want to buy them because they use less water and people thought they didn’t clean clothes as well, so they had to do a whole public relations campaign to explain to people why they are great."

Goli believes the same thing will happen when Dunkin' eliminates plastic straws and plastic bags.

"It's coming. There are a lot of places that don't have plastic straws anymore.

Someone the size of Dunkin' can't just say 'I want to replace our straws and start tomorrow.’ If you don't look at it now and know the options, by the time we have to do something it might be too late to react," says Goli. "After all, it's taken us 10 years to get to a paper cup.

They announced the change early this year, but it will take until 2020 to fully transition."

•

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018 11

FEATURE

Who has More Loyal Fans?

By Debbie Swanson

C

When it comes to customer loyalty, Dunkin’ may just have an edge on its closest rival

ultivating satisfied, loyal customers has always been an important factor to the success of any business, but since social media has enabled rapidfire opinion sharing, happy customers are more important today than ever. According to a 2016 Forrester Research report, 72 percent of businesses say improving customer experience is their top priority. In the ongoing coffee wars between Dunkin’ Donuts and Starbucks, recent surveys indicate that when it comes to nurturing customers who will come back for more, Dunkin’ Donuts just may have the upper hand. That’s always good news, but can be particularly advantageous as Dunkin’ Donuts continues to push into

western markets—traditionally a Starbucks’ stronghold.

A GLIMPSE AT THE TWO BRANDS Collectively, Starbucks and Dunkin’ dominate about 60 percent of the United States coffee market. According to Boston. com, Dunkin’ has 10,000 stores in 32 countries and sales of nearly $9 billion, while Starbucks has 20,000 stores on six continents and about $13 billion in sales.

It’s well known that each brand rules in different regions: Seattle-born Starbucks is popular on the west coast, while Boston-based Dunkin’ Donuts is favored by much of the east.

A survey from market research firm Nielsen took a closer look at the loyalty of each brand’s customers. In Seattle, just over one in three adults reports patronizing a Starbucks within the past 30 days, ranking that city No. 1 in market penetration. Tacoma is behind Seattle at 31 percent of adults, followed by San Diego, where about 30 percent of adults say they’ve patronized a Starbucks. Denver and Portland also fall in the top ten in terms of market penetration.

On the opposite coast, Dunkin’ fans are tighter, especially throughout New England: In Boston, about 47 percent of adults reported making a stop in the past 30 days. In Manchester, New Hampshire, that figure is closer to 50 percent. Providence, Rhode Island is also strong, with 46 percent of adults attesting to patronizing a Dunkin’ Donuts shop in the past month.

Each brand draws a different type of clientele, according to Nielsen. Starbucks visitors have a higher median household

12 INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

income, are likely to be college educated, and are younger. Nielsen’s study found Dunkin’ draws an older crowd, but both brands rank high with women: Starbucks attracting approximately 59 percent and Dunkin’ Donuts 55 percent, according to the survey.

Franchise owners typically see this difference daily. Rod Valencia, a Dunkin’ franchisee for 35 years with stores in New York and Florida, observes, “The Dunkin’ customer is more blue-collar, casual, and looking for good coffee and a quick stop.

Starbucks’ customers aren’t looking for a quick trip – they like the “aura” of Starbucks, and they’re willing to pay more.”

LIVIN’ IN THE HEAT OF IT As the owner of a lone Dunkin’ shop amid a sea of 14 Starbucks, Matt Cobo of Walnut Creek, California, knows the importance of making each customer’s visit exceptional.

Coffee Loyalty

“Starbucks has been here forever, they’re definitely dominant,” Cobo says. “It’s a challenge we face every day.”

While his store has a healthy showing of regulars, Cobo says newcomers who frequent his shop are either those who know of the brand – often transplants from other regions – or those who are unfamiliar, but curious. While satisfying each group is important, Cobo and his team steadily work toward winning over the latter. It’s a battle he feels Dunkin’ can win.

Top 3 Metro Areas for Starbucks & Dunkin’ Donuts

“We need to make it easy for them; educate them in their own language. They’ll order in Starbuck’s language, and ask us what we call it – we’re much simpler. Our sizes are in English,” he tells them, joking that he’d love to post a Starbucks-toDunkin’ equivalency chart.

A sure way to the heart of a west coast coffee aficionado, Cobo says, is through technology. “They have much higher expectations of technology here. If it isn’t working, all [heck] breaks loose,” he jokes.

While his Walnut Creek store records 4.5 percent of transactions through Dunkin’s On-the-Go platform, which is above the national average, Cobo says, given the area, it could be even higher. “Starbucks has 25 percent; their mobile platform is large.”

“Once they realize we offer a superior product at a great value, they come back.

People who try us, love us,” says Cobo.

He’s presently gearing up to open another Dunkin’ in the area, as part of a 14-shop development plan.

“On the East Coast, Dunkin’ loyalty seems to be in the DNA, the genetic makeup. On the West Coast, there’s still a certain energy or enthusiasm for Dunkin'; we just need to penetrate the market more,” he says.

THE STATS IN DUNKIN’S FAVOR Robert Byrne, an analyst at Technomic, the Chicago-based foodservice research and consulting firm, sees this as an

Starbucks’ top U.S. market is its hometown, with about one in three Seattleites saying they’ve patronized the chain in the past 30 days. Even so, New Englanders show a lot more love for Boston-based Dunkin’ Donuts.

Percentage of adults 18+ who say they have patronized the store in the past 30 days

1

#

2

#

3

#

Seattle 34.4%

Manchester, NH 34.4%

Tacoma 31.1%

Boston 47.1%

San Diego 29.6%

Providence, RI 46.5%

Starbucks Total Customers

1

#

2

#

3

#

Dunkin' Donuts

33.5 million

25.2 million

Median Household Income

$72,413

$63,827

College Degree

22.7%

14.6%

Under 30

30.1%

24.7%

Age 55 and over

18.5%

26.8%

Women

58.7%

54.8%

Source: Nielson Scarborough

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018 13

STARBUCKS VS. DUNKIN' DONUTS optimistic time for Dunkin’ Brands to explore West Coast market penetration.

According to results from Technomic’s consumer brand metrics survey, an ongoing study in which responses are collected from 100,000 consumer visits to numerous United States restaurant chains, Dunkin’ seems to be at the heart of a devoted following.

“Even though the Dunkin’ footprint is smaller in the west, their survey responses there are higher than in other parts of the country,” he explains, adding that Starbucks’ ratings are more even throughout the country. So while there are fewer Dunkin’ patrons in the western regions, those who are there are true fans.

“One [measure] is the customer’s intent to return to the restaurant. In the west, 38 percent of Dunkin’ Donuts customers responded with an intent to return, while Starbucks showed 34 percent,” Byrne says.

Another factor is overall visit satisfaction.

“In the west, Dunkin’ Donuts had a 46 percent positive response on visit satisfaction, while Starbucks is more uniform across the nation at 48 percent,” says Byrne. “While [Starbucks’] score is a little higher than Dunkin’s, the intent to return isn’t there – meaning that visit satisfaction at Starbucks isn’t transferring into loyalty. What’s more important: a nice visit, or the intent to return?”

Another benefit of a strong loyal base: word of mouth referrals. According to Technomic’s metrics, 34 percent of Dunkin’ Donuts customers intend to recommend the store to someone else, compared to 26 percent of Starbucks customers. When it comes to rolling into new territory, the thumbs-up from those already loving the product is a golden asset.

Finally, when rating each chain on its ability to provide value on high-quality menu items, in the western regions, 34 percent of Starbucks customers responded positively, compared to 44 percent of Dunkin’ Donuts customers.

Byrne says all of these factors signal a positive message for franchisees eyeing the West Coast.

“The west is a mature market, so it might

be harder and an uphill battle to chisel out a spot for yourself, but ratings show there may be good reason to go after it,” he says.

WHAT’S DRIVING THE DUNKIN’ LOVE? An article in the Seattle Times claims that New Englanders foster an “unconditional love” for home-grown Dunkin’ Donuts, a fondness that Seattleites just don't harbor toward Starbucks.

Reasons cited for this disconnect included a regional disdain for large corporations in favor of the independent guy; lingering animosity over former Starbucks CEO Howard Schultz’s sale of Seattle’s NBA team; and a common distaste for Starbucks’ beans.

But for many, it is simple math; Dunkin’ Donuts offers a quality product at a better price.

“For customers who enjoy purchasing coffee away from home on a daily basis, Dunkin’ enables more visits. It cuts across household income levels, while Starbucks can’t do that. They don't use price as a driver,” says Byrne.

Throughout New York, Starbucks is prominent, particularly in the borough of Manhattan. But, because Dunkin’ has greater presence in the City’s outer boroughs, Dunkin’ boasts the honor of being the largest brand in the nation’s No. 1 market. According to Valencia, Dunkin’ has a dedicated following. He sees a heavy morning crowd, which is good news, given the numerous coffee carts and other options all around the City. “Coffee fans like our product. Those looking for more of a milk-based product seek Starbucks,” he reports.

Franchise owner Bill Daly, with stores in both New England and Florida, calls his New England customers an extremely faithful group—with ties that even reach to certain employees.

“In one New England store, we have had the same woman open up at 4:30 a.m., five or six days a week, for 12 years. She comes in ahead of time, lines up about 15

14 INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

pre-labeled coffee cups for her regulars, and is ready for them – and they love it,” Daly says.

In another shop, he adds, the employee who runs the drive thru recognizes the regulars, just by their voice.

Daly says he encourages his employees to take steps to foster loyalty. “For example, we started encouraging employees to tell customers which number they prefer, rather than using terms like extra-extra light, or dark, which can vary. When they find what they like we tell them ‘that’s 4 sugars, or 5 creams’. That way they’ll get the same beverage, every time, at any store.”

In Florida, Daly says, the customer base varies more due to the region’s population of tourists, snowbirds (seasonal residents) and renters. Guests in the Sunshine State view a trip to Dunkin’ as a destination in itself, rather than the northeasterner’s attitude of a quick stop en route. “They’ll stock up on items, and they’ll linger. But we do see our regulars; one store always has a group of men every morning, who sit and talk between 7:00 and 9:00 a.m.”

Valencia also sees the different type of dedication in Florida, where most stores are accessible by car rather than by foot, as in New York City. “I see that as a sign of loyalty—they chose to drive to us.”

At the end of the day, winning the loyalty of customers is the cornerstone of any successful business. And according to both statistics and observations, Dunkin’ Donuts just may be beating the competition on this front.

“The needle is pointing in the right direction for Dunkin’,” summarizes Byrne.

•

FEATURE

By Michael Hoban

Franchisees Embrace Simplified Menu, LTOs D

unkin’ completed the national rollout of its simplified menu last April, removing 10 percent of all required menu items and eliminating another 23 optional products that the brand described as “slow moving, complex and off strategy.” Judging by the responses from a sampling of franchise operators on the East coast and Ohio markets, the move has been paying dividends on a number of fronts – even if it hasn’t yet translated into higher sales.

“With the simplification of the menu, our stores saw their food costs get in better shape, a [slight] decrease in payroll, and a reduction in prep time by oneand-a-half to three hours per day. But more importantly, it allowed us to do what we do good – better,” says Bill Daly, who operates 32 Dunkin’ shops in Providence and Tampa. He points out one of the main benefits derived from slimming down the menu

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018 15

was improved speed and accuracy. “That’s where simplification really helped my people. With less products and easier builds, we can be more efficient and more accurate, and spend that extra half-second making sure that the order is right, then getting it out the window in a timely manner.”

Shops Daly owns in Rhode Island and Florida piloted the simplified menu in August of 2017. He estimates that while the old menu was reduced by 35-40 items, those items accounted for only 3 percent of his total sales. Many of the offerings on the old menu were time-consuming to make, and when they didn’t move, ended up being thrown away. “It was a nightmare,” Daly says.

“ [Donut Fries are] probably the biggest repeat item that we have...The production work on the back end for the fries and the pretzels is pretty basic, so it’s quick and easy and I don’t think it really impacts us much from a labor standpoint.” ­— Craig Anton

Dave Carvalho, who operates 20 stores in the Greater Boston area, adopted the simplified menu at the start of the first quarter in 2018 and agrees that the change has been a plus for his business.

The only downside, he says, was that it was challenging to do it January— typically a soft month for sales in the Northeast. “But other than that, it has only been positive,” says Carvalho. “It’s easier for the employees in the sandwich station, it’s less stuff for a manager to manage from an inventory control standpoint, so it only made sense. We did see a slight [negative] impact on top line sales, but I do believe that the overall benefit is a positive for us.”

The impact on franchisee bottom lines has been negligible so far, according to Dunkin’ Brands’ Q2 earnings report. The company reported a decline of approximately 100 basis points in same-store sales for the quarter, offset by a decrease of approximately 100 basis points in cost of goods sold, although there were also modest reductions in payroll expenses.

“Many other restaurant brands have been streamlining menus to reduce guest confusion, eliminate slow moving items and to refocus marketing,” says DDIFO restaurant analyst John A. Gordon, principal of the Pacific Management Consulting Group. “But the impact on sales is not immediate and takes time to fully mature, so only time will tell what the full impact will be."

Since the transition to a simplified menu, Limited Time Only (LTO) offerings have reflected a less-is-more philosophy of the brand. The April launch of the Dunkin’ Go2s promotion, allowing customers to purchase two breakfast sandwiches for $2, $3 or $5, incorporated existing product lines. Franchisees we spoke with indicated any increase in cost of goods was justified by the corresponding bump in sales.

More emblematic of the shift to simplification is the rollout of the Dunkin’ Run menu. Launched in most markets in July, the new Donut Fries-led $2 snacking menu

16 INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

– aimed at reinvigorating the afternoon daypart – offers new items without adding significantly to the cost of goods, according to franchisee Craig Anton, owner of 24 stores in the Cleveland and Youngstown, Ohio markets.

Anton says the new items are performing well, with the donut fries being the most popular among the new entries. “They’re probably the biggest repeat item that we have,” he says, adding that the ham and cheese rollups and pretzels are also selling, with the bulk of the pretzel sales coming in the afternoon. The news is positive on the operational side as well.

SIMPLIFIED MENU “There’s slightly more work in the prepping at the sandwich station, but to turn the rollups out is pretty simple and quick.

The production work on the back end for the fries and the pretzels is pretty basic, so it’s quick and easy and I don’t think it really impacts us much from a labor standpoint.”

So far, Anton says, the platform has not led to an increase in beverage purchases, but is serving as an add-on to existing beverage purchases—causing a ripple effect on overall sales and exceeding his expectations.

“I think the advertisements and the promotions that we’re seeing – whether it's billboards or other forms of media – are helping because it keeps [Dunkin’] on their minds, which generally has a positive effect.”

That is not the case in Boston, where the results have been “very underwhelming,” according to Carvalho. “I thought that there would be a much bigger impact on

the business, and the numbers are far lower than I expected,” he says. “We had done menu simplification to get rid of a lot of underperforming items, and some – if not all – of these items are performing just as badly as the ones that we got rid of back in January.” Because sales of the new items have been so slow, he says, there has been little impact on labor or operations.

We visited one of Carvalho’s locations in suburban Boston for a 4-hour swing one recent morning/afternoon and confirmed the tepid level of interest guests had for the new items, despite a multichannel advertising campaign and upselling by the staff. Carvalho points out that some of his customers’ lack of interest could be a result of demographic differences.

“Ohio is a higher donut market [than Boston] so, if 20 percent of your business is donuts, you’d just expect more people to buy some product line closer to donuts – like donut fries – whereas here, we’re 10 percent or less, so it

REACH A SPECIFIC AUDIENCE

makes sense,” says Carvalho.

Gordon confirms that in markets with a sales mix heavily weighted towards beverages, bakery-oriented features generally don’t resonate as well, plus promotions are often unpredictable even within the same market.

“LTOs and menus have different effects everywhere in every restaurant, because people and guest motivations differ,” he says.

That appears to be the case in Providence – just 50 miles from Boston – where the LTO menu is selling well at Daly’s shops— as well as at his locations in Tampa. He says he is pleased with the overall direction that Dunkin’ has taken.

“With the simplified menu in place, now we can just drop in these products that are kind of easy. There’s not a lot of prep to them, so we warm it, we’re using the same packaging, we serve it, and, and it doesn’t compete with other items. Simple.”

•

GROW YOUR SALES

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That morning the manager called me to say that we sold out all of our oatmeal. I noticed that whatever we advertise on the LED sign sells fast and usually sells out.”

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INDEPENDENT JOE • AUGUST/SEPTEMBER 2018 17

COVER STORY

BENCHMARKING THE BOSS As Travis looks ahead, we look back at his tenure as CEO

By Cindy Atoji-Keene

18 INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

NIGEL TRAVIS GETS AN A- FOR HIS SUCCESSFUL TENURE AS DUNKIN’ CEO.

That seems to be the agreement among analysts and a conclusion reached after reading news reports and industry updates.

While not a perfect grade, Travis’s near decade-long tenure had successful benchmarks, such as bringing the company public and increasing the domestic and international scope of its brands. It should also be noted that Travis, a 68 year-old native of East-London, allocated ample time to grooming David Hoffman as his successor.

“For the most part, I would give Travis a satisfactory grade for building profitable growth, keeping the focus on higher margin beverages, and listening to franchisees’ concerns,” says Stephen Anderson, a research analyst at Maxim Group, who focuses on the restaurant and consumer sector.

Travis’s report card is marred by slow international growth – even he told Forbes three years ago that “we haven’t always gotten things right internationally” – and some litigation and personnel issues that he inherited when he came on board in 2009. But Dunkin’ entered 25 international markets and added almost 6,000 restaurants globally under Travis, with approximately 11,701 locations in the U.S. and 8,819 abroad. The outgoing CEO also drove growth by expanding its consumer packaged goods business, capitalizing on cross-marketing opportunities by selling Dunkin’ K-cups, as well as bottled drinks, packaged coffee, and creamers in grocery stores. Hoffman, a veteran of McDonald's Corporation, applauded his predecessor for helping yield strong shareholder returns and positioning the company for long-term growth. But what marks would you give Travis for his stewardship of Dunkin’? We look at the company’s performance in four significant categories:

STOCK PRICE

If the price of DNKN stock is a barometer for the company’s health, it’s looking quite fit. It was Travis's task to get Dunkin’

“ Travis changed the culture of the company to become more franchisee friendly; very early on, he expressed that franchisee economics needed to be supported, a tone that was missing before he came on board" Brands prepared for the 2011 initial public offering—an event NASDAQ celebrated by unofficially changing its name on that day to “NASDDAQ,” with the trademark pink and orange Ds on their Times Square sign and on the exchange's website. The IPO was successful, with the stock price soaring from $17 to hovering around $70 dollars today – “a nice run up,” according to John Gordon, DDIFO’s restaurant analyst and the founder of Pacific Management Consulting Group.

Investors like Dunkin’s “asset light” concept, which means lower costs and higher returns. Unlike many quick service entities, 100 percent of the Dunkin’s are franchised. The real measure of success for franchisees, however, is whether they are growing, making a return on investment and are profitable – and by those benchmarks, Travis has also been successful, says Gordon. “All these measures are better today than they were when Travis came on board.”

SAME STORE SALES

Using same store sales as a metric for success – evaluating the total dollar amount of sales in a company's retail stores – is an important measure of driving corporate revenue for analysts like Gordon and Anderson. If charted on a graph, samestore sales growth at Dunkin’s looks like a roller coaster, with steady growth initially, negative growth when the recession hit, and some highs scattered in. Dunkin’ has been affected by market saturation – too many stores at one point – and a dramatic weakness in afternoon coffee sales. Faced with stagnating same store sales and slower foot traffic, Travis, like many restaurant executives, deployed the strategies of menu innovation, technology, and aggressive promotions to reverse the decline.

While Anderson, the Maxim Group analyst, says that slumping afternoon beverage sales has been a challenge for Starbucks and others in the industry as well, Travis “took a page from McDonald’s playbook and went for smarter discounting to try to build traffic, as well as slimming down the menu with a focus on specialty beverages.” Part of the menu shift – dropping slower selling lunch items – can be blamed for declining same store sales but that was built into the sales forecast. Anderson expects once this adjustment is made, more sustained sales growth will occur with higher volume breakfast sales. Plus, he believes, “Travis set a course toward using technology to build sales,” with the successful rollout of the Dunkin’ app and its On-the-Go ordering platform.

PROMISES KEPT TO FRANCHISEES

Dunkin’ founder Bill Rosenberg prided himself on treating franchisees like “family.” But over the years, franchisor and franchisee interests have diverged; it’s the main reason why DDIFO was formed in 1989. And, while brand leadership has not always officially recognized the Dunkin’ Donuts Independent Franchisee Owners association, company chiefs have been judged by how they incorporate franchisee interests into their decision-making.

At the time Travis took over, Dunkin’ Brands was reeling from a significant loss of trust its franchisees had for members of the executive team—a result of the brand’s overzealous lawsuits against shop owners.

“Travis changed the culture of the company to become more franchisee friendly; very early on, he expressed that franchisee economics needed to be supported, a tone that was missing before he came on board,” says Gordon.

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018 19

NIGEL TRAVIS

So when Travis entered the consumer packaged goods space as a sales driver – including K-cups and bottled beverages – a conflict arose because franchisees who were selling K-cups in their stores would be forced to compete with big-box stores and supermarkets that were now stocking Dunkin’-branded K-cups on their shelves. Instead of a money-grab at the expense of franchisees however, Travis made a promise to the franchisees that Dunkin’ Brands would split the K-cup profits 50-50. He kept the promise and it has proved to be profitable. Dunkin’ and Baskin Robbins products delivered more than $400 million in retail sales this year.

“This is one of the few places in the franchisee world where the franchisee was given a split of another profit stream that the franchisor realized,” says Gordon. And Travis’ focus on franchise profitability is rare among franchise operators, Anderson pointed out, observing that on quarterly conference calls with the Wall Street community, Travis frequently said that the key to building a long-term relationship with franchisees is ensuring their profitability.

COMPETITIVE POSITIONING AND NATIONAL EXPANSION

Eight years ago, Travis announced his

vision to expand Dunkin’ Donuts in the Southeastern U.S. as well as internationally, with China being a major focus. As he moves to the role of executive chairman, leaving Hoffman with store-centric interests, Travis will be able to figure out how to optimize the Dunkin’ brand internationally, where business has been flat. As he told the trade magazine Baking Business in 2015, “As for our international businesses, I feel we are making real progress with these segments but make no mistake, it is tough…

“In my experience, this is typical in an international turnaround. We’re going to have hits and misses along the way, and the world economies are highly fluid, and at any given time you can have regions where macro factors are significantly challenging the business despite your plans for the market,” Travis said at the time.

Gordon agrees that it takes a while to take what had been a regional brand and expand it to the rest of the country and beyond. “There’s more work to be done, especially internationally. [That is] the chief development area for Dunkin’,” says Gordon, who believes the presence of Dunkin’-branded products in the consumer packaged goods space helps to

20 INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

strengthen brand awareness in new markets. Some stores in emerging markets are doing well while others are taking longer to find the right beverage-food mix and build a base of loyal customers, but Travis is credited with giving Hoffman a road map to follow as the brand continues to seek strongholds in West Coast markets that will ultimately offer higher returns.

It appears that Travis, the Brit who took on the doughnut and ice cream sphere in the U.S., deserves a satisfactory grade for building profitable growth, keeping focus on higher margin beverages and listening to franchisee’s concerns. Hoffman spelled it out in a company press release this way: “Thanks to Nigel, our franchisees around the world have flourished; our asset-light model has yielded strong shareholder returns; and we are well-positioned for long-term growth. We have a strong legacy and an even more exciting future together.”

How the future turns out is exactly the metric by which Hoffman will be judged when his tenure as CEO of “America's favorite all-day, everyday stop for coffee and baked goods” is over. Franchisees are hoping he is celebrated in much the same way Travis has been.

•

FRANCHISEE PROFILE

Hard Work Helps Deo Braga Make Local Connections

By Matt Ellis

F

or Deo Braga, coming to America meant a fast track to opportunity.

As a teenager in the Azores, Braga yearned for more. While attending college and working with his father, Manuel Furtado Braga, he ran a local bar and grocery store the family owned. His uncle, Barry Furtado, was already living in America and running a Dunkin’ Donuts restaurant in East Boston, Massachusetts.

After gaining his U.S. citizenship, Furtado sent for Braga and his father to join him in America. Deo knew he could find work and an exciting, new life across the ocean, so when he and his father flew from San Miguel to Logan Airport in Boston, he felt it was his time. The calendar said February 1981, and although it was Friday the 13th, for Braga there would be nothing but good luck that day.

“I remember I got into my uncle’s car and I thought, ‘I’ve never seen so many cars before,’” Braga recalls. “I knew this was the right choice for me.”

It didn’t take long for Braga to learn the donut and coffee business from Uncle Barry. He quickly earned an opportunity to own his own Dunkin’ shops and expand his business beyond that.

From the sea to the mountains Braga had grown up near the sea, in a town called Vila Franca Do Campo so, in America, he naturally settled along the Atlantic coast in a city called Winthrop.

He could smell the salty air when the wind was blowing in and would often catch the scent after dark, when he was heading into work to take his shift as a night baker.

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018 21

He enjoyed the work and eagerly listened for the phone in his apartment to ring during off hours in the chance another shift had come available.

Braga met his wife Paula when the two were children, living in the Azores. He recalls her walking by a rock pile where he was playing and “something clicked.”

Now, newly married and with a young child, Braga was ready to make his next move. Franchisee Tony Couto had just acquired Dunkin’ stores in Essex Junction, Burlington and South Burlington, Vermont and he asked Braga to come north to help manage his three restaurants. With opportunity on the horizon, Braga settled into a new life as a Dunkin’ operator in a new community nestled in the Green Mountains.

“I was 21 at the time and I didn’t even know where Vermont was, but we moved there,” Braga says, even as he recalls the long winters in northern New England and how they made him long for the summers in the Azores. “[The experience] was great. I got to know every person that came into that store, and learned to be a good businessman and great American.”

It was through those conversations that Braga began to really understand what it was that customers loved about Dunkin’ Donuts, especially in small-town Vermont.

It was the personal connection the operator – and his employees – made with the customers. They kept coming back because they felt welcomed and because they loved the product. Braga knew that meant he had to keep his restaurant looking perfect. He stayed in Vermont, working for Couto for 6 ½ years. Then, Braga received a call every child fears; his father had suffered a heart attack.

At the time, his dad was living in Cambridge and Deo wanted to be by his side.

He realized it was time to leave Vermont and return to Massachusetts. That was 1988, and there was a Dunkin’ Donuts for sale in the famous fishing port of Gloucester. Braga was able to buy the location at 205 Main Street, which dated back to 1961 and was one of the oldest in the system.

As fate would have it, the store became his anchor in this seaside community.

Life by the ocean Gloucester was one of the first settlements in the New World, founded before Boston or Salem in the Massachusetts Bay Colony. By the mid-1700s it was of the major fishing hubs of the American colonies. By the late-1800s, immigrants from Portugal and Italy were settling there. Those roots, plus its place on the Atlantic, made it the perfect home for a man from the Azores who, as a child, “fell in love with the ocean.”

22 INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

By the time Deo and Paula Braga purchased the Main St. Dunkin’, Dad was back on his feet. The couple rebuilt the decades-old restaurant, which Braga recalls with a bit of nostalgia.

“It still had counters for sitting and drinking coffee. It was very run down and had an old cash register and cigarette machine and public phone. I didn’t have any money at the time, so I sold [the machines] and made enough money to do over the ceiling, and buy new cash registers,” he says.

In1992, Braga would open his second Dunkin’ Donuts, at the site of an old convenience store on Route 127, which is known as Washington Street in Gloucester. That location was large enough for the equipment and ovens necessary to bake donuts for both of his locations. It was, in effect, his first central kitchen—built years before Braga and a few partners invested in a large, central manufacturing facility in Peabody, Mass.

Braga remembers using his new Washington Street kitchen to create unique baked goods. “I used to make pastries and fruit squares and cinnamon twists. It was a local thing,” he says, but eventually they were discontinued because Dunkin’ Brands changed the rules regarding what bakery products franchised stores could sell. At that time, Braga’s Dunkin’ shop

DEO BRAGA and fulfill a dream he’d always had.

The Azorean

had little competition for coffee and donut customers.

“I used to be king here,” he jokes. “It was just me and a local donut shop down the street,” but today there is ample competition from independent coffee shops, bakeries and bagel shops. Some of those have names like: Two Sisters Coffee Shop, Cape Ann Coffees and the Lone Gull.

Because these retailers offer uncommon, specialty products, Braga knows he has to rely on the strength of the Dunkin’ brand, which is beloved in these parts.

“People want good coffee and good service,” he says emphatically, while also pointing out, “You have to pay attention to the customer. They are smart and they can get coffee at other places,” but they will keep coming back if the coffee is good and they are treated well. The personal touch, Braga says, is the real way to earn customer loyalty.

“You can’t get loyalty by giving perks,” he says of the popular customer reward programs Dunkin’ and other retailers use.

“You get loyalty through trust. You have to be friendly. They want to see you give great service all the time.”

After 20 years in Gloucester, Braga wanted to expand his reach in the community. Across the street from his Washington Street location was an old bait shop and bar called the Depot Café, which was used as a location shoot for the 1998 film, “The Love Letter,” starring Kate Capshaw and Tom Selleck. In 2008, the building came up for sale. Braga bought the property with the idea of building apartments, but later saw it as an opportunity to open a full-service restaurant,

At the time Braga was building out his new restaurant, which he named for his island home, the nation’s “great recession” was taking hold. “In August 2008, I was in Portugal watching CNN and heard about the economy failing,” recalls Braga about the news that the governmentbacked mortgage companies Fannie Mae and Freddie Mac had gone bankrupt. “I thought, ‘Whoa, this is not good,’” he says.

But, Braga pressed ahead, opening the Azorean Restaurant to rave reviews for its authentic Portuguese food and one of the best wine lists on the North Shore of Massachusetts.

“For two or three years, we didn’t do that well. But we gave it time and I learned how to control costs and make sure we sold wine that was good and at a good price.”

One of the advantages of having a restaurant whose menu relies heavily on fish and is located two miles from one of the nation’s prime fishing ports, is the ability to offer the freshest food anywhere. Not only does Braga buy his fish from local fishermen, he knows the date the fish were caught and the name of the boat that secured the catch.

Having followed the Dunkin’ playbook for so many years, Braga knew that consistent advertising and local sponsorships would be crucial to creating customer awareness of his restaurant. One of the reasons the Azorean is such a popular location is because Braga advertises.

don’t sell,” Braga says. So, he makes sure he has plenty to offer customers seeking a wine to complement their entrée without breaking the bank. Since opening the Azorean, Braga has expanded the restaurant three times to keep up with demand.

Investing in the community Early in 2016, Braga made another investment in his community. He purchased a few buildings on Main Street and remodeled some of the ground floor space into a restaurant and bar called Trio, offering Portuguese, Italian and American fare. The restaurant and bar features traditional fare and large black and white photos of prominent Italian celebrities, like Frank Sinatra and Dean Martin. The menu, created by Braga and head chef Manny Lapa, promises dishes that “we all know and love, crafted from the best ingredients... comforting, and always delicious.” With a full bar and outdoor seating, Trio features an atmosphere that is casual and hip.

Originally, the concept for Trio was to create an Italian restaurant for local people to enjoy. But, Braga realized that because a third of Gloucester’s residents are Italian, many choose other kinds of food when dining out.

“Many Italian restaurants [in Gloucester] fail because people eat at home where, mom and grandma cook real Italian food,” he says. By offering a blended menu – and a cool, urban atmosphere – Trio can draw locals and out-of-town visitors.

“I learned with Dunkin’ you have to advertise,” he says. “I use Facebook, Instagram, TV and radio. I also use direct mail to help [bring in] local customers. Dunkin’ Donuts always did a lot of newspaper ads and direct mail. People came in with their coupons. It helps them.”

Something else Braga and his wife have learned in their years running restaurants, “You go to a restaurant because of the food and the service—not the owner.”

While many people know the Bragas and trust their reputation for operating clean, service-oriented restaurants with great coffee, food and wine, he knows he can’t take anything for granted.

As a Dunkin’ operator, he’s also learned the importance of “controlling prices and giving good quality.” The Azorean Restaurant and Bar has an impressive wine cellar, featuring wines from Portugal, Italy and California—but most are considered affordable. “Expensive wines

Much has changed for Deo Braga since he stepped off the plane in Boston 37 years ago, but not his instinct. “Maybe I was lucky getting my job as a night baker at Dunkin’ Donuts,” he says. “I took advantage of a good business. This is America and I knew I could do anything.”

•

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018 23

DDIFO

BUSINESS MEMBER 2 018

Directory Business Members Directory ofof Business Members

ACCOUNTING Adrian A. Gaspar & Company, LLP, CPAs Robert Costello 617-621-0500 • cpas@gasparco.com 6 Kimball Lane, Ste. 150, Lynnfield, MA 01940 www.gasparco.com

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BUSINESS BROKER National Franchise Sales

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COMMUNICATIONS Yext

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FINANCE Bank of America/Merrill Lynch

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

Performance Business Solutions, LLC

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

Eastern Bank

Ed Craig 774-263-7388 • ecraig3@efcostrecovery.com 32 William St, New Bedford, MA 02740 www.efcostrecovery.com Jeff Hiatt 508-878-4846 • jdh@revenuebanking.com 87 Lafayette Road, Ste. 11, Hampton Falls, NH 03844 www.revenuebanking.com

Northern Bank & Trust Company

Pacific Premier Franchise Capital

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

Sands Investment Group

Kaveh Ebrahimi 805-889-7837 • kaveh@signnn.com 2701 Ocean Park Blvd., Ste 140, Santa Monica, CA 90405 www.signnn.com

Sterling National Bank

Lindy Baldwin 402-312-2542 • lbaldwin@snb.com 500 7th Ave., 3rd Floor, New York, NY 10018 www.snb.com

TCF Franchise Finance

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

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TD Bank

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

Wintrust Franchise Finance

Sandra McCraren 847-432-2488 • smccraren@wintrust.com 9700 W. Higgins Road, 1st Flr, Rosemont, IL 60018 franchise.wintrust.com

HUMAN RESOURCES CertiPay

Danielle Post 813-300-6953 • dpost@certipay.com 130 Bates Ave. SW, Ste. 101, Winter Haven, FL 33880 www.certipay.com

Paychex

Erin Robertson 702-807-7854 • enrobertson@paychex.com 100 E Hines Hill Rd., Hudson, OH 44236 www.paychex.com

TPI - True Payroll Integration

Paris Ackerman LLP

Christina Trammell 972-548-1850 • christina@mcdinnovations.com 3303 N. McDonald St. McKinney, TX 75071 www.mcdshades.com

OPERATIONS 3M Company

Jim Muldoon 978-273-1847 • jim.muldoon21@gmail.com 6 Argyle St, Andover, MA 01810 www.nanosafetysolutions.com

Bunn-O-Matic Corporation

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

Nano Safety Solutions

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

Todd Rouse 800-637-8606 • Todd.Rouse@bunn.com 1400 Stevenson Dr., 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

DTT

Andy S. Aziz 203-930-1373 • andy@tpipay.com 2349 Black Rock Tpke., Fairfield, CT 06825 www.tpipay.com

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

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Brady Campbell 858-535-6034 • bcampbell@hme.com 14110 Stowe Dr, Poway, CA 92064 www.hme.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 St, Providence, RI 02904 www.lisasousa.com

MCD Innovations — Airxcel, Inc.

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

HME Drive-Thru Headsets

Jarrett Services ATM, Inc.

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

Loomis

Emily Wiley 832-925-5283 • Emily.Wiley@us.loomis.com 2500 Citywest Blvd., Ste. 2300, Houston, TX 77042 www.loomis.com

New England Drive-Thru Communications

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

SKAL East, Inc

Carl Huerth 781-806-3139 • carl@skaleast.com 131 Padelford St., Berkley MA 02779 www.skaleast.com/index.cfm?keyword=dunkin

Tellermate

Kyle Anthony 770-220-5113 • kyle.anthony@tellermate-us.com 3600 Mansell Road, Ste 500, Alpharetta, GA 30022 www.tellermate-us.com

TGC Development Group

Chris Hitchcock 316-393-6802 • chris@tgcdevgroup.com 125 N Emporia, Ste. 202, Wichita, KS 67202 www.tgcdevgroup.com

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to Our Business Members!

INDEPENDENT JOE • AUGUST/SEPTEMBER 2018 25

A LOOK AT THE LAW

Dunkin’ and the No-Poach Clause

BY JOHN HOLLAND

M

any franchisors utilize so-called “no-poach” clauses in their franchise agreements, and such clauses may be structured in a way that limits a franchisee’s ability to hire employees of other, same-brand franchisees and/ or employees of the franchisor. Recently, a group of state attorneys general and prominent legislators began pressing franchisors to cease use of so-called “no-poach” clauses, particularly those that prevent lateral job mobility between same-brand franchisee employers.

In July 2018, attorneys general for Massachusetts, California, Illinois, Maryland, Minnesota, New Jersey, New York, Oregon, Pennsylvania, Rhode Island and the District of Columbia, issued a joint letter request to Massachusetts-based Dunkin’ Brands, as well as Panera Bread, Arby’s, Burger King. Five Guys Burgers and Fries, Little Caesars, Popeyes Louisiana Kitchen, and Wendy’s. The letter contended that “no-poach” clauses (otherwise referred to as “employee non-competition,” “no solicitation,” “no hire” or “no switching” clauses) impact the mobility of workers employed by such franchise systems and thereby “restrict employees’ ability to improve their earning potential and the economic security of their families.” The attorneys general accordingly requested that the aforementioned franchisors provide copies of their franchise agreements and the rationale for the use of such clauses in those agreements.

In a separate letter to dozens of U.S.-based franchisors in July 2018, United States Senators Elizabeth Warren (D-Mass) and Cory Booker (D-NJ) issued a parallel request seeking similar information from franchisors. In their letters, Warren and Booker observed that “58 percent of major franchisors' franchise agreements include a no-poach provision that prohibits their franchisees from hiring each other's workers. Use of these provisions … now covers

approximately 340,000 franchise units and millions of low-wage workers.”

Warren and Booker also introduced a Senate bill known as the End Employer Collusion Act to curb the use of no-poach clauses in franchise agreements. In support of the bill, Booker said, “Just as companies can't collude to fix prices, franchises shouldn’t be allowed to collude to suppress their workers' wages. Our bill would crack down on this exploitative practice by banning companies from using 'no-poach' agreements in contracts and franchise agreements.”

While The Washington Post wrote earlier this year that the bill is, in effect, “dead on arrival in a Republican Congress,” the current government inquiries seem to have prompted many franchisors to agree to discontinue use of such no-poach clauses.

McDonald’s announced that it will neither enforce the no-poach clauses found in its current franchise agreements nor include no-poach clauses in contracts with new franchises. Arby’s, Auntie Anne’s, Buffalo Wild Wings, Carl’s Jr., Cinnabon, and Jimmy John’s have since followed suit.

Dunkin’ Brands told The New York Times it does not restrict hiring amongst franchisees, but paragraph 7.0.6 of the 2018 Dunkin’ franchise agreement says, “Neither party will, during the term of this Agreement, directly or indirectly solicit or employ any person who is employed by the other or any of their affiliated companies.”

At a minimum, the language of this passage would seem to bar a Dunkin’ franchisee from hiring people working for Dunkin’ Brands. Because the phrase, “affiliated companies,” is not contractually defined in the Dunkin’ franchise agreement, it is unclear whether this contractual passage could be interpreted to bar a franchisee from hiring from another Dunkin’ franchisee.

26 INDEPENDENT JOE • AUGUST/SEPTEMBER 2018

“Just as companies can't collude to fix prices, franchises shouldn’t be allowed to collude to suppress their workers' wages. Our bill would crack down on this exploitative practice by banning companies from using 'no-poach' agreements in contracts and franchise agreements.”

Ultimately, franchisors and franchisees have a shared interest in clearly crafting any no-poach clause to avoid a circumstance in which their franchise agreements could be characterized as a conspiracy in potential violation of antitrust law. As recently discussed in Butler v. Jimmy John’s Franchise LLC, 2018 WL 3631577, *6 (S.D. Ill., July 31, 2018), an aggrieved franchisee employee could conceivably take the position that a franchisor’s no-poach clause functionally operates to create a horizontal agreement between the franchisor and its samebrand franchisees competitors not to hire one another’s employees in violation of the Sherman Act. Historically, no-poach clauses faced relatively little antitrust scrutiny, but some franchisors have still elected to abandon the use of no-poach clauses altogether, rather than continuing to defend their use in the current regulatory climate.

•

John Holland is a partner at Dady & Gardner, a firm specializing in franchise law.

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