WHAT’S
BREWING
CFA’S AGENDA
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TAX FIX
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IFA
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TAX CREDITS
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JOINT EMPLOYER
February/March 2019
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DONUTS & FRIES
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Two Rival Brands Appeal to Younger Customers
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MANDATES HAVE CONSEQUENCES As waves of ultra-progressive politics roll across the nation, now might be a good time to consider the impact of President Barack Obama’s 2010 call for an increase in the minimum wage. From my perspective, examples abound in most every corner of the country, but some just paint a far more vivid picture. Consider Durgin Park, a Boston institution, which at one time was more popular than the New England Patriots. Located right in the heart of downtown Boston in the Quincy Marketplace at Faneuil Hall, Durgin Park was founded 192 years ago when John Durgin and Eldridge Park opened the doors to their new venture. It was 1827 and John Quincy Adams was in the White House. Adams, by the way, who served from 1825 through 1829, was the first American president who was not considered one of the Founding Fathers. The restaurant thrived throughout the years despite the fact that its service staff was encouraged to adopt a surly attitude, if not downright rude demeanor, and “push back” with the customers. Since its founding though, the restaurant succeeded in good times and bad, taking on all comers and manners of disruption. Consider that the restaurant was a constant in Boston through many good and challenging times, including Boston’s Great Molasses Flood, the Great Chicago Fire, The Battle of the Alamo; the invention of the telephone, both World Wars, Korea, Vietnam, the Persian Gulf War, 9/11, and, for sports enthusiasts, the Miracle Mets of ’69 and more Boston-based World Championships that I have room to chronicle here… Safe to say, Durgin Park had weathered all kinds of economic booms and busts, from the Great Depression of the 1930s and the Great Recession of 2008, to the prosperity of the 1950s and today’s upswing, which continues to cause a labor shortage. Yet, through all that, it was the pressure of anti-business dictates stemming from an excessive government that finally brought this successful business to its knees. Durgin Park closed its doors for good on January 12, 2019.
Dunkin’ franchisees across the country are trying to cope with government mandates that businesses provide higher minimum wages, annual paid sick leave, predictive schedules and in some cases parental leave up to as many as 20 weeks. Much has been written about business owners facing the challenge of laying off workers in the face of increased labor costs, or closing their doors, which is what happened to Durgin Park. It’s not that any one particular dictate forced the iconic restaurant to call it quits – rather, it was the aggregate of years and years of one more mandate; one more tax; one more cost. There’s an old saying that you eat an elephant one bite at a time, and Durgin Park finally succumbed on that last bite. Many of the restaurant’s 100 employees had been employed at the restaurant for as many as 30 or 40 years. I can’t help but wonder how those laid-off Durgin Park workers are enjoying the new $12 minimum wage in Massachusetts. Aren’t you curious how they’d use their statemandated paid sick leave, if only they still had jobs? The point is not that improving employee wages and benefits is bad, it is anything but. It is, instead, that lawmakers must understand there are consequences to their mandates. As the scientist Isaac Newton wrote in his Third Law, “For every action, there is an equal and opposite reaction.” Newton was talking about physics, but his theory seems to also hold true for commerce. When government mandates increase costs, businesses are forced to increase prices or cut costs to match the cost of the mandate. At one time, our elected officials understood the challenge and the value of expanding business – staying out of its way to allow the marketplace to work its magic – and they encouraged its growth and expansion to the betterment of the nation’s economic health. Today, so-called ‘leaders’ grab headlines by demonizing business and lecturing the American
public on the evils of profit. Many lawmakers now chase companies away rather than welcome the jobs and help secure the prosperity they can bring, as we just witnessed with the dramatic decision by Amazon to pull the plug on its planned HQ2 development in New York City. HQ2 was projected to create up to 25,000 jobs in Queens with an average salary of $150,000, but Amazon buckled under the pressure of lawmakers decrying the tax breaks and incentives NYC offered one of the nation’s richest companies. Durgin Park didn’t have anywhere near the economic impact that Amazon’s HQ2 could have, but for the individuals who made their living by tending to the needs of its customers, its demise was even more devastating than New York pols rejecting the opportunity of Amazon. Back when John Quincy Adams was occupying the White House and Durgin Park was building the foundation of its long future, the President offered this advice on limiting the power of government: “Nip the shoots of arbitrary power in the bud, is the only maxim which can ever preserve the liberties of any people.” His instruction is more applicable today than it has ever been! Ed Shanahan DDIFO Executive Director
INDEPENDENT JOE • FEBRUARY/MARCH 2019
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SUB HEADLINE
CONTENTS From the Executive Director: Mandates Have Consequences. . . . . . . . 3
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What’s Brewing… in Washington, D.C.. . . . . . . . . . . . . . . . . . . 7 Dunkin’ Franchisees Can Benefit Big from New Federal Tax Laws. . . . . . . . . . . . 9 Look at the Law: States Double Down on Employee Perks . . . . . . . . . . . . . . . . . . . . . . 12 Donuts & Fries Two Rival Brands Cook Up a New Way to Appeal to Younger Customers. . . . 14
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COVER STORY Dunkin’ Is Meeting Customers Where They Live, Work & Play. . . . . . . . . . . . . . . 16 Considering Multi-Brand Franchising?. . . . . . . . . . . . . . . . . . . . . . . . . . 19 Directory of Business Members .... 22 Franchisee Profile: John Griffey. . . . . . . . . . . . . . . . . . . . . . . . . . 24 Photo Story: Next-Gen Concept in Florida. . . . . . . 26
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INDEPENDENT JOE • FEBRUARY/MARCH 2019
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WHAT’S
BREWING … IN WASHINGTON, D.C. By Scott Van Voorhis Fixing a federal tax bill error that is costing franchise owners millions of dollars. Passing legislation that would give a boost to veteran and minority entrepreneurs. Educating lawmakers about what boosting the federal minimum wage to $15 an hour would do to franchisees and other small business owners. For this edition of “What’s Brewing,” we examine some of the federal issues topping the legislative agenda at two of the nation’s largest organizations representing franchise owners and their brands, the Coalition of Franchisee Associations (CFA) and the International Franchise Association (IFA).
Given the restaurant world’s fast-pace, most of these improvements would have long since been replaced by another round or two of upgrades by the time year 39 rolled around.
Independent Joe recently caught up with Misty Chally, the CFA’s executive director, and Michael Layman, the IFA vice president in charge of government relations. Here’s what they had to say.
But as the bill was being drafted, someone forgot to put in the 15-year number, a mistake that effectively nullified the tax benefits restaurant owners were supposed to reap. The depreciation schedule now remains at 39.5 years, with that missing 15-year number also effectively invalidating the 100 percent bonus as well.
Tax fix tops CFA’s agenda The tax bill fix has been “first and foremost on our to-do list and it has been there over a year,” says Chally. The CFA “fought long and hard” to reduce the period over which restaurant owners can claim tax depreciation benefits for renovations, additions and other upgrades, she says. The long-standing rule – 39.5 years – forced restaurant owners to wait decades to get the full tax benefits from expenses racked up putting in new kitchens and all sorts of other interior improvements.
The Tax Cuts and Jobs Act of 2017 promised quick service franchise owners, and others, a much better deal: The ability to claim tax depreciation benefits over 15 years, plus a 100 percent depreciation bonus covering some items bought as part of the project. “We fought long and hard for that change,” Chally says.
“It has cost franchisees thousands and thousands of dollars,” Chally says. “I know a lot of retailers and restaurants are putting their plans on hold. They don’t know if they can rely on that money.” Given all the fighting on Capitol Hill, the fix did not get done during the lame duck session in Congress. The next move is now up to the new Democratic leadership in the House.
“Will it be easy to pass or will they want something in exchange?” Chally asks, eager to see how the winds will blow. The CFA is also keeping a close eye on critical issues for franchise owners. The first is the push by the Democratcontrolled House of Representatives to pass a federally-mandated $15-an-hour minimum wage. The coalition wants to help those House members who are pushing or backing a $15 an hour national minimum wage to get a better understanding of what it would mean to franchise owners, on the ground—particularly in rural areas where wages are lower. “New York City is not the same as Des Moines, where it’s a $7 to $8 an hour job,” Chally says. “Fifteen dollars an hour sounds great, but it will cost a lot of jobs. Just educating them on these issues is crucial.” The second priority is an effort to change federal overtime rules. The Obama Administration roiled the franchise world with plans to boost the minimum salary level for management to $47,000, up from around $24,000 now. That proposal would have made a whole new echelon of workers – those making between $24,000 and $47,000 – suddenly eligible for overtime. The Trump Administration vowed to take
INDEPENDENT JOE • FEBRUARY/MARCH 2019
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WHAT’S
BREWING a second look at the overtime proposal, with a decision pending by the U.S. Department of Labor this spring, possibly in March. Chally is still expecting an increase in the overtime pay threshold, but a much lower one than what was proposed, probably settling out in the low-to-mid $30,000s.
U.S. Reps. Julia Brownley (D-Calif.) and Jackie Walorski (R-Ind.) filed the veterans’ franchise fee/tax credit bill in January.
that are upholding their legal duties to maintain their trademarks should not be held as joint employers,” Layman says.
“The IFA is making lots of plans to stay relevant in a divided Congress and in the new landscape out in state capitols,” Layman says.
The IFA is also concerned about minimum wage proposals at the state and city level that deal more harshly with quick service franchise owners as opposed to other restaurant and business owners.
At the top of the list is a proposal aimed at “expanding economic opportunities” by helping entrepreneurs who are military veterans or members of a minority group get a leg up on entering the franchise business, says Layman, the group’s government affairs chief.
The IFA, which counts both franchisors and franchisees as members, is also keenly interested in further joint employer rulings, including how the National Labor Relations Board (NLRB) will respond to the comments it solicited from business leaders regarding whether it should revise the standard set during the Obama administration—and which continues to cast a shadow over the industry, putting franchisors on the firing line sharing liability for any labor violations or unionization efforts.
The IFA is pushing a pair of bills that would offer a 25 percent tax credit to veteran and minority entrepreneurs. The tax credits could be used to defray the cost of the initial franchise fee up to $400,000.
The IFA is backing a “trademark licensing protection act” in Congress that would carve out space for franchisors to protect the integrity of their brand and not get ensnared in federal labor law.
Tax credits, joint employer, tops for IFA The International Franchise Association has an ambitious legislative agenda as well for 2019.
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The big franchise brands currently face a Catch-22 situation. Under federal law, they could lose their trademark if they don’t take action to maintain brand standards at the franchise level, even as some of these actions could thrust them into the unwanted role of a “joint employer,” Layman says. “The bill would protect franchisor and franchisee relations by clarifying that franchise brands
When Seattle raised its minimum wage, it gave small businesses seven years to comply, as opposed to the three years the city gave big businesses. Quick service franchise brands, even when there were owned by independent franchisees, were put in the big business category and given less time to comply. New York took a similar approach, Layman says. IFA is now urging Congress to pass legislation that would prevent cities and states, when passing wage hikes, from applying separate and more onerous conditions on quick service restaurants. “It would prevent cities and states from setting minimum wages that discriminate against franchises,” Layman says.
Issues that matter While each approaches the franchise business from a slightly different perspective, the IFA and the CFA are each working on major legislative and regulatory issues that have the potential to change how Dunkin’ and other quick-service franchise owners run their businesses. The CFA is pushing for a federal tax-bill fix that could open the way for franchise owners to recoup thousands spent on restaurant renovations and upgrades. And the IFA is hoping to protect franchise owners from being singled out in minimum wage bills, among other items on its to-do list. Rules and regulations matter, eating away at profit margins of small business owners in myriad of ways. Next issue, we will bring you another look at how action taken in states across the Dunkin’ footprint can impact you and your business.
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The IFA is making lots of plans to stay ©2019 CIT Group Inc. All rights reserved. CIT and the CIT logo are registered trademarks of CIT Group Inc. Not all applicants will qualify for financing. All finance programs and rates are subject to final approval by CIT, and are subject to change at any time without notice.
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INDEPENDENT JOE • FEBRUARY/MARCH 2019
relevant in a divided Congress and in the new landscape out in state capitols.
By Cindy Atoji-Keene
The tax filing deadline this year is Monday, April 15, 2019. That’s not any big news. What is news is the biggest change in tax law in decades that was approved by Congress last year, the Tax Cuts and Jobs Act. President Donald Trump’s signature legislation will impact virtually every taxpayer, according to Joe Mansour, CPA, the managing partner of Marcovich, Mansour & Capobianco, an accounting firm headquartered in Lincoln, RI.
Mansour provides business valuation and tax and consulting services to Dunkin’ franchisees across the country and says, although there are exceptions, many Dunkin’ owners will see tax benefits when they file their 2018 returns. The one piece of the tax law that is generating the most buzz is the Section 199A deduction, which Mansour calls a “home run” for his core client group of Dunkin’ franchisees. Accountants like Mansour spent hours dissecting the particulars of the new code in general and 199A, in particular to get a handle on what it all means. He sat down with Independent Joe to discuss some of the impact. His answers were edited for clarity.
IJ: What are some of the major provisions of the tax act that Dunkin’ franchise owners should know about? Will franchisees see benefits? Mansour: There are exceptions, however I believe many franchisees will see some tax benefits, some significant, when their 2018 tax returns are filed. There was some give and take with the tax changes, some favorable provisions, and others not so favorable. Overall though I believe most of our franchisee clients will benefit from the new tax laws. For example, the individual tax rates at every level of taxable income were decreased. The top marginal tax rate was reduced from 39.6 percent to 37 percent. And for a married couple, the top marginal rate of 37 percent does not kick in until taxable income hits $600,000. In 2017, the top tax rate of 39.6 percent kicked in when taxable income for a married couple hit $470,000. That in and of itself will put more money in the pockets of taxpayers. IJ: How about the depreciation laws that were changed? Mansour: The depreciation changes were for the most part favorable for franchisees. This is important given the new equipment requirements and the extent of the remodels that are upcoming for
many franchisees, particularly those who converted or will be converting their existing locations to the Next Generation model. One of the intentions of Congress was clearly to reward capital intensive businesses with a nice tax break on their property and equipment expenditures. IJ: Can you explain the break on property and equipment expenditures? Mansour: The bonus depreciation deduction was increased from 50 percent of qualifying purchases to 100 percent. This runs through 2022, at which time the percentages are gradually reduced by 20 percent each year thereafter. Property that is eligible for the bonus depreciation deduction consists of assets that have a depreciable life of 20 years or less. This includes assets such as equipment, furniture and fixtures, millwork, and land improvements such as landscaping and parking lots. The espresso machines that our clients purchased in 2018 are all eligible for a 100 percent depreciation write-off. The same with items such as the tap systems, high volume brewers, new registers, and parking lot resurfacing. Also, prior to the tax act, only new property qualified for bonus depreciation. Now, used property is also eligible. A franchisee that purchases equipment in an acquisition can likely claim a 100 percent bonus depreciation deduction on the equipment acquired. Used vehicle
One of the intentions of Congress was clearly to reward capital intensive businesses with a nice tax break on their property and equipment expenditures. INDEPENDENT JOE • FEBRUARY/MARCH 2019 9
ACCOUNTING FEATURE
Dunkin’ Franchisees Can Benefit Big from New Federal Tax Laws
and truck purchases will also be eligible for bonus depreciation, however there are limits as to the amount of bonus that can be taken on most vehicles. Factors such as whether the vehicle is a luxury auto or a truck, or whether it is an SUV with a gross vehicle weight of more than 6,000 lbs. all factor into the amount of depreciation that can be taken on a vehicle. If a franchise owner has $100,000 of income before depreciation and does a remodel spending $200,000 on the equipment package, the $200,000 can be fully depreciated in one year and can create a loss of $100,000 for the franchisee. IJ: What is section 179 expense? Mansour: Section 179 is a provision under the Internal Revenue Code that enables businesses to write off certain capital additions in the year of purchase. The maximum Section 179 deduction was increased from $500,000 to $1 million under the new tax act. This increase was made permanent, as opposed to the bonus depreciation provisions, which are temporary. Section 179, like the new 100 percent bonus depreciation allowance, also enables business owners to immediately expense certain capital asset purchases. One of the differences between Section 179 and bonus depreciation is that 179 enables a taxpayer to immediately expense qualifying improvement property as well, subject to certain limitations. As such, franchise owners who remodel may very well get to immediately expense some of the construction costs associated with the remodel. Roofs, HVAC equipment, and fire and security systems, which previously had to be depreciated over 39 years, are now also eligible for immediately expensing under Section 179. These are all positives. One thing that taxpayers must keep in mind with Section 179 expense, however, is that it cannot be used to create a loss for a company. This is one of the other big differences between 179 and bonus depreciation.
Section 199A is clearly a home run for our core client group of Dunkin’ franchisees. Code. Section 199A is clearly a home run for our core client group of Dunkin’ franchisees. The deduction is available to pass through entity business owners, as well as certain trusts and estates, who have qualified business income generated from qualifying trades or businesses. It is the most beneficial, and clearly the most complex, provision to come out of the tax act. Essentially, it reduced the top rate paid on business income from 37 percent to 29.6 percent. However, there are several calculations and considerations that must be made in order to ultimately get to the deduction.
pays tax on $80,000 of business income from the three franchises, as opposed to $100,000 like they would have in the past. One thing about the QBI deduction is that it was tailored perfectly for QSR owners who pay a substantial amount of wages and invest in property and equipment.
IJ: How do the mechanics of the qualified business income deduction work? Is the deduction taken by the company itself or by the owners? Mansour: First, the qualified business income is generated at the company level. For example, if we have a company named ABC Donuts, which is set up as an S-Corp, and owns three Dunkin’ Donuts franchises, the net income generated by ABC Donuts is considered qualified business income, because it qualifies as trade or business income as per Section 162 of the Internal Revenue Code.
This means that, provided no previous taxable gifts were made, an estate is not taxable for federal estate tax purposes for a married couple until the value of the estate hits $22 million. And married couples now have $22 million to gift during their lifetimes, as opposed to $11 million.
The preparer of ABC Donuts’ corporate tax return would report the income on a k-1 form and also indicate how much of the business income qualifies as trade or business income. So, if the total net income of ABC Donuts was $300,000, spread evenly among three owners, then each owner would be allocated $100,000 of qualified business income.
IJ: And what is all the buzz about the Section 199A deduction?
Each owner will take the deduction on his/her individual tax return (form 1040), based on the amount that is equal to the lesser of: (1) Twenty percent of the individual’s taxable income (reduced by net capital gains), or (2) Twenty percent of the individual’s total qualified business income.
Mansour: This is the new qualified business income deduction, written into a new section of Internal Revenue
Each owner would get a deduction of $20,000 on their tax returns ($100,000 multiplied by 20 percent). Each owner
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IJ: And what about estate taxes? Mansour: The lifetime exemption for estates and gifting basically doubled, from $5.5 million to approximately $11 million. For married couples, it increased from $11 million to approximately $22 million.
This provision of the act goes away in January 2026, at which time the exemption is scheduled to revert to the old limits. [Now] is a good time for franchisees to consider gifting if their desire is to get some assets that could potentially appreciate in the future outside of their estates and pass them onto their heirs. IJ: What sections of the tax act are not so good for Dunkin’ franchisees? Mansour: Two come to mind right away as being the most significant to our clients. First, the tax act places a limit on the deductibility of state and local income taxes. In the past, taxes paid for state income taxes, personal property taxes, and real estate taxes were all 100 percent deductible as itemized deductions, with no limitation. Now, the deduction for state and local income taxes is limited to $10,000 in total. As such, franchisees who live in states where they pay a relatively high state income tax, and in the past got a tax benefit for real estate taxes paid on primary and second homes, will no longer see a
ACCOUNTING benefit of a deduction at the federal level for any of these taxes over $10,000. Fortunately, real estate taxes paid on income producing properties such as commercial and residential rental properties, and property taxes paid on furniture and equipment by businesses are all still 100 percent deductible at the entity level. The second relates to depreciation. Congress had intended for qualified improvement property to be depreciable over 15 years. This would have allowed construction costs on a remodel to be depreciable over a 15-year period, as opposed to 39 years. Hence, the remodel would have been eligible for bonus depreciation as well, and not subject to the $1 million limit that we have with Section 179 expense. And it could have been used to create a loss for tax purposes. The final version of the tax act states that qualified improvement property is depreciable over 39 years. As such,
qualified improvement property is neither eligible for the 15-year life, nor the bonus depreciation. This was admittedly an error, and a technical correction was supposed to have been made in 2018, but it never was. Franchisee Robert Branca was part of the team, which included Dunkin’ Brands’ lobbyists and Nigel Travis, that went to Washington to make a plea for the technical correction. Unfortunately, with the change in control of the House, the government shutdown, etc., the technical correction was never made. IJ: One tax expert said that despite the laudable goal of taxing the returns to capital lightly, 199A’s complexity and uncertainty of its durability may make this section a noble failure. Do you agree with this? Mansour: It is too early to tell. We need to get through this filing season, and then wait for case law to come out from the tax courts which will provide tax practitioners and tax attorneys with guidance to follow relative to taking certain positions.
One thing I can assure you is that there are going to be many more returns on extension this year than in years past. Even the tax software products are not yet up to date with all of the changes. If I was the IRS, I would certainly consider extending this filing season. In my opinion it would have made things much easier on everyone if Congress simply reduced the tax rates on income from pass through entities, rather than having all these limitations and hoops to jump through to ultimately get the deduction. By the time case law is made available and we sort it all out, the deduction will go away. It is set to expire after 2025, unless it gets extended.
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The information contained in this communication is general in nature and offered for informational purposes only. It is not offered and should not be construed as financial or legal advice. You should consult your own trusted advisors for guidance based on your individual situation.
INDEPENDENT JOE • FEBRUARY/MARCH 2019 11
A LOOK AT THE LAW
BY DANIEL S. FIELD AND DANIELLE JUREMA LEDERMAN
States Double Down on Employee Perks D
uring its first two years, the Trump administration loosened many federal workplace regulations. Although leadership of many key agencies remains in flux, several stringent labor regulations have been undone. Most active have been the U.S. Department of Labor, which enforces federal wage and hour laws as well as the Family and Medical Leave Act (FMLA), and the National Labor Relations Board, which primarily regulates union-management relations. These agencies have reversed key rules implemented by the prior administration that restricted the lawful use of independent contractors, sought to increase the number of employees entitled to overtime, and expanded franchisee-franchisor co-liability under sweeping joint employer rules. Though the federal landscape now looks more employer-friendly, employers should not be complacent. This is because many of the largest states in the country are responding by developing an unprecedented series of new workplace protections that are adding substantial, new obligations—including those that mandate employers: provide extended, paid family leave; provide paid sick time; and implement gender-neutral pay practices. In what may signal a new trend, employers in one state are also being asked to comply with exacting new minimum wage tip-credit standards.
NARROWING THE GAP BY BROADENING THE DEFINITION OF EQUAL PAY Virtually every state legislature has enacted or is considering equal pay laws, whether through pay-related provisions in employment discrimination statutes or specific laws stipulating gender pay
equity. Only two states – Alabama and Mississippi – have no equal pay laws at all. “Equal pay for equal work” laws require employers to review employee salaries for discrepancies based on gender. Employers who fail to do so can face significant liability, including multiple back-pay damages. Some states like Oregon, California, and Illinois, which already had equal pay laws on the books, are going further, expanding their laws beyond gender to require that employers demonstrate equal pay based on characteristics such as race, color, national origin, religion, sexual orientation, disability and age. If this were not challenging enough, a number of states including Connecticut, Massachusetts, and California are broadening the definition of “equal work.” For example, California’s equal pay law expands the definition to include work that is “substantially similar,” where in most cases equal work is defined as “equal skill, effort, and responsibility.” California law requires proof of equal pay by gender, race and ethnicity. Following California’s lead, several other states have limited an employer’s ability to differentiate the work from one employee to another, thereby making it more difficult for employers to demonstrate equal pay where employee job titles and duties vary widely. Most equal pay laws also now bar employers from asking about the salary history of prospective employees. Similar laws have been passed in Delaware, Massachusetts, Oregon, Vermont, San Francisco, New York City and the territory of Puerto Rico. While these laws do not necessarily prohibit an employee from voluntarily disclosing his or her own salary history, employers must now be cautious when discussing salary requirements with applicants.
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MANDATED PAID SICK TIME An increasing number of states are following their neighbors and requiring employers provide sick leave—in some cases requiring that the time is paid. Connecticut was the first state to mandate that private employers provide paid sick leave. Its law requires that employers permit employees to accrue paid sick time, with a maximum accrual of 40 hours per year. Since then, nine other states have passed laws mandating employers provide paid sick time: Arizona, California, Maryland, Massachusetts, New Jersey, Oregon, Rhode Island, Vermont, and Washington. Employers should consult counsel, human resources professionals, and payroll providers to ensure compliance with the requisite sick time accrual rates.
THE NEW FRONTIER: PAID FAMILY LEAVE Paid Family Leave (PFL) laws are now sweeping the nation with surprising swiftness, with President Trump indicating his support for a national mandate. PFL provides employees with paid time off to care for specified persons, including parents of a newborn or a newlyadopted child. While the FMLA has long provided covered employees with time off to care for a family member, such leave did not require employers pay the employee. Four states: California, New Jersey, New York and Rhode Island are now requiring PFL, with New York allowing up to 10 weeks of paid leave. The states are using employee payroll deductions to fund PFL, and allowing employers to administer leave through pre-existing temporary disability insurance programs.
Washington D.C. has also passed a law providing for PFL and establishing a fund, which will allow the District to start collecting payroll taxes from employers on July 1, 2019 and begin administering paid leave benefits one year later. People who are self-employed can opt into the program and pay their own way. Washington State has also mandated PFL and will begin benefit payments in 2020. Like D.C., Washington created an account in the state treasurer’s office for the receipt and distribution of funds pursuant to the PFL program. Massachusetts was the next state to establish PFL which will begin implementing the same type of deductions in July of this year and will begin providing leave to employees in 2021. Massachusetts will create an entirely new agency dedicated to administering its PFL program. Draft regulations concerning the implementation of Massachusetts PFL have been published for public comment.
PAID FAMILY LEAVE (PFL) IS NOW REQUIRED IN THESE STATES: Rhode Island California New Jersey New York
CALCULATING TIPPED MINIMUM WAGES FOR EMPLOYEES SHIFTBY-SHIFT In contrast to the U.S. Department of Labor’s move to loosen tip sharing regulations, some states are tightening tip credit rules. As part of a sweeping “grand bargain” overhaul of state wage laws, Massachusetts changed its minimum wage rule to require employers calculate the tip credit every shift. This presents particular difficulties for employers and their payroll providers who must now more closely monitor tips. Under this new rule, employers may no longer use the tips earned over a full pay period to calculate average hourly pay. Instead, they must “true up” any tip shortfalls from slow shifts and make up the difference between the tips earned up to minimum wage on a shift-by-shift basis. Employers are well-advised to ensure that their payroll providers are properly accounting for this change in calculating the pay of tipped employees.
DELAYED AGAIN – AN UPDATE ON THE FEDERAL OVERTIME RULE Once again, the U.S. Department of Labor has pushed back the date by which it plans to propose new regulations concerning overtime and so-called “white collar” overtime exemptions under the Fair Labor Standards Act (FLSA). We may finally see these long-delayed, draft, proposed overtime rules in March 2019. With states across the nation working towards the creation of new and increasingly burdensome employee benefits, employers must continue to be diligent about complying with the plethora of new regulations.
•
Daniel S. Field is a partner and Danielle Jurema Lederman is an associate with Morgan, Brown & Joy, LLP, which is New England’s oldest and largest law firm devoted exclusively to representing employers in labor and employment law matters.
Quality representation for Dunkin Franchisees for over 50 years
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Lisa & Sousa Ltd. is general counsel for the Dunkin Donuts Independent Franchise Organization (DDIFO) with over 50 years of collective experience representing multi generational Dunkin Donuts franchisees in the acquisition, financing, development, structuring, transitions and transfer of franchised and other businesses.
5 Benefit Street, Providence, RI 02904 Tel: 401-274-0600 Email: clisa@lisasousa.com
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INDEPENDENT JOE • FEBRUARY/MARCH 2019 13
FEATURE
DONUTS & FRIES Two Rival Brands Cook Up a New Way to Appeal to Younger Customers
L
ast summer, servers behind the counters and in the drive-thrus of Dunkin’ restaurants were able to say something never before heard in the history of Dunkin’ Donuts: “You want fries with that?” When the brand introduced Donut Fries to a newly revamped snack menu, Dunkin’ added an item that research shows is important to a key demographic. It also added its name to a list of QSRs that sell fries. But, if “Fries” was an important add for Dunkin’ Brands, “Donut” was even more important to one of Dunkin’s main competitors. Six months after Dunkin’ debuted Donut Fries, McDonald’s made a McSplash with the announcement it would start selling Donut Sticks, calling them “the perfect complement to our existing breakfast lineup,” which pairs “deliciously with our fresh brewed premium roast McCafe coffee.” Donut Sticks are groundbreaking for McDonald’s. The chain has never served donuts, despite its active presence in the breakfast daypart. (Breakfast accounts for 25 percent of the chain’s total sales.) As it deflected claims that the Donut Sticks were an exact rip-off of Dunkin’s Fries, McDonald’s staked its claim as a donut seller, proudly proclaimed its offering as, “Hot, crispy and golden brown for a light and airy texture — never microwaved — and sprinkled with cinnamon sugar.” McDonald’s does know a thing or two about deep frying.
Experts believe the Donut Sticks were probably in the pipeline at the time Dunkin’ launched Donut Fries. The item represents an important step in McDonald’s broader strategy of beefing up its breakfast menu. One expert Independent Joe interviewed called it a “strategy to goose morning breakfast visits.” French fries are McDonald’s best-selling item of all time, though fewer are sold in the morning. Donuts, of course, are traditionally a morning seller, which was clearly part of McDonald’s rationale for Donut Sticks. But, in the battle for QSR loyalty, sticks and fries represent something more important than just breakfast. “It’s about craveability,”says Robert Byrne a foodservice analyst at Technomic. And it’s something that will attract young consumers. “Gen Z drives donut sales,” says Byrne. “A sweet item is a higher driver for Gen Z. You combine sweet with fried and you have a winner every time.” According to Wikipedia, Generation Z is the term for those born from the “mid1990s to the early 2000s,” and who Forbes claims makes up a quarter of the U.S. population, making them a larger cohort than the Baby Boomers or Millennials. Reaching this cohort is critical for McDonald’s, Byrne says, because as a legacy brand, it is entrenched with older consumers, and is under pressure to
14 INDEPENDENT JOE • FEBRUARY/MARCH 2019
By Matt Ellis appeal to younger consumers. Business Insider notes McDonald’s “has recently lost market share as rivals work on morning sales,” which explains why it is trying to sweeten its McCafe menu with fried dough covered in cinnamon and sugar. But, by making its Donut Sticks only available in the morning, McDonald’s is not using the item to impact its afternoon and evening menu. “Donuts are a low margin and high waste item, so McDonald’s doesn’t want to be in the donut business,” points out John Gordon, founder of Pacific Management Consulting Group and DDIFO’s Restaurant Analyst. “Seventy percent of McDonald’s sales are at lunch and dinner. Donut Sticks can help McCafe platform and provide upsell opportunities and create larger average tickets in the morning.” Not to be outdone, Burger King recently announced its own appeal to Gen Z craveability with confirmation it was bringing back Funnel Cake Fries, which the chain sold in 2009. These morsels are described as “hot, crispy, funnel cake goodness, fried sweet to crispy perfection and topped off with powdered sugar.” Of course, Dunkin’ has known for years that the right recipe of fried dough and sugar can create smiles. For Dunkin’ (which, of course, no longer uses “donuts” in its name), Donut Fries were not meant to replace the actual donut. The composition of the Donut Fries are more like
buttery croissant-style donut dough, giving it a different flavor profile than you would find in a traditional jelly donut or chocolate frosted. In a statement, the brand called Donut Fries one of many “unique, delicious items that bring smiles and keep people energized any time of day.”
two and they are useless.”
When releasing third quarter 2018 results, Dunkin’ CEO Dave Hoffmann cited the $2 afternoon snack menu, which featured Donut Fries, as a key driver of the increase in same store sales, calling them “one of the best-performing limited-time offer bakery items in recent brand history.”
Armed with franchisee feedback, Dunkin’ may still decide to bring back Donut Fries—possibly even with dipping sauces. The move would help the brand leverage an already strong position with Gen Z customers, who Byrne says skew towards sweeter items even as they look for balance in their meals. Can you say “quinoa then a deep-fried sweet dessert?”
After its debut, Dunkin’ gave out bags of the treat during National French Fry Day (July 13). Signs advertising the snack treat asked customers “Do you want [Donut Fries] with that?” Clearly Dunkin’ was eager to capitalize on the popularity of french fries, but an unscientific poll of franchisees by Independent Joe found many saying the fries fell short. These were comments we received: “They get hard and stale after a minute or
“They need to add something to the product like dipping sauces.” “They were mediocre at best as far as sales went.”
In a recent survey, Technomic asked QSR customers to identify a well-known brand with craveability. The results found 44 percent of people identifying a trip to Dunkin’ with satisfying a craving. And, 42 percent said Dunkin’ serves craveable items. On the other hand, only 26 percent of those Technomic surveyed said McDonald’s serves craveable items.
For McDonald’s, the dive into Donut Sticks is one part of an aggressive expansion of its breakfast menu. In November, the chain introduced its first new breakfast item since the McGriddle 15 years ago, Triple Breakfast Stacks. They are billed as breakfast sandwiches with three times as much meat. McDonald’s is also reportedly testing premium bakery items, which include new Muffin Toppers and coffee cakes, according to Business Insider. McDonald’s brass made a point of discussing efforts to increase breakfast traffic with investors during a recent earnings call. “We're doing well with average check growth, but we really want the customer to come back, and more often," said Kevin Ozan, McDonald's chief financial officer. And, while he did not identify the Gen Z customer specifically, McDonald’s move into the donut business is clearly aimed at capturing younger, cravings-driven customers to not only boost breakfast, but also develop a life-long habit of stopping in under the arches for a snack or a meal.
•
GROW YOUR SALES
10% OR MORE “One day we advertised our 99 cent breakfast oatmeal. 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.”
Photo courtesy of @tryitordiet
GIANNA D’ANGELO Dunkin’ Donuts®, Everett, MA
Learn more at watchfiresigns.com/donuts
INDEPENDENT JOE • FEBRUARY/MARCH 2019 15
COVER STORY
LIVE, Customers Where They WORK & PLAY Dunkin’ is Meeting
By Wendy Jacobson
I
t’s no secret that the retail landscape is changing. Brick and mortar stores are popping up all over the place, but not necessarily in the ways they once did. Gone are the days when you’d cozy up to the counter at a Dunkin’ Donuts for a cup of hot coffee served in a cup on a saucer. And, you no longer have to visit a traditional Dunkin’ location to satisfy your hankering for an iced Cappuccino and a fancy donut. Dunkin’s forays into nontraditional locations, like a gas station, travel plaza or even at the Hard Rock Hotel in Las Vegas, have proven to be a successful retail strategy. These types of nontraditional restaurant locations are growing by leaps and bounds, particularly in areas where traditional retail real estate locations are sparse. According to Franchising.com, nontraditional restaurant locations include airports, hotels, college campuses, stadiums, hospitals, military bases, highway rest stops and turnpike plazas. Think about any place where large numbers of people congregate, pass through or live. Retail experts say these locations provide an excellent opportunity for brands to effectively expand in new – as well as familiar – locations.
16 INDEPENDENT JOE • FEBRUARY/MARCH 2019
DEEPER EXPANSION
Dunkin’ is still planning to open 1,000 new locations by the end of 2020, and more than 90 percent of those will be built outside the Northeast. Nontraditional locations are a natural fit because they allow the brand deeper expansion and a chance to be part of more customer experiences.
" There is value in opening a unit where the primary purpose of a guest’s visit isn’t Dunkin’-focused."
“We want to place our brands where our customers work, play, learn and make memories,” Chris Burr, Director of Nontraditional Development for Dunkin’ Brands said in an interview with Restaurant Development and Design Magazine. “Those tend to be nontraditional locations.” Dunkin’ currently boasts more than 800 nontraditional locations, with airports as one of the most active segments. But, as Burr has pointed out, lodging and hospitality is a growing segment as are locations in hospitals and medical facilities. “Airports are coveted locations,” Gary Shamis, an advisor in the Restaurant Group at BDO International accounting firm, told Restaurant Finance Monitor. He says airports are a great way for national concepts to try new types of products, but also cautioned that a poorly run location could reflect negatively on a brand as well.
NONTRADITIONAL, BUT POWERFUL Burr spends many of his days scouting nontraditional locations for Dunkin’ franchisees. He points out that the best locations can expose the brand to previous or lapsed customers who haven’t visited in a while—as well as to new customers. They may see a Dunkin’ in the airport as they walk to their gate and decide to grab a coffee. It’s even better, he says, when you see a Dunkin’ in a place where you wouldn’t expect to see one. “There is value in opening a unit where the primary purpose of a guest’s visit isn’t Dunkin’-focused,” says Burr. “For example, a Dunkin’ location in a waterpark can enhance the experience with its products and create a circular branding effect that benefits the entire system.” As Dunkin’ expands and opens new
locations, Burr says the split is about 50-50 between the development of its traditional franchisee base – stores on the streets and in shopping centers, for example – and nontraditional franchisees, which are operators who own and operate a facility and thus own the Dunkin’ inside. As a franchised system, Dunkin’ first prioritizes finding a space and utilizing local franchisees, as is the case in the master development agreement between Dunkin’ and Walmart stores. In these deals, Dunkin’ controls the space, and local franchisees own it. In other instances however, this model may not be possible. Many college campuses, for example, have exclusive foodservice agreements with companies like Aramark or Sodexo, so the commercial foodservice becomes the franchisee.
WHAT TO LOOK FOR
As with any new location, many aspects go into assessing a new site. “In airports, we look for passenger counts, and in hotels, we look at an average number of rooms and number of guests per room,” Burr told Restaurant Development and Design Magazine. “One of the things that’s great about Dunkin’ is our broad portfolio of concepts helps us scale the menu to the venue.” He goes on to say that it’s important to look at each nontraditional location through a different lens than that of a street store. And while the quality and brand presence must be consistent, he concedes that the menu might be a bit different. “Still, that cup of coffee has to be the same, regardless of where you are. The
INDEPENDENT JOE • FEBRUARY/MARCH 2019 17
COVER STORY coffee a customer gets at Kauffman Stadium in Kansas City has got to have the same quality standards as the cup of coffee you’d get at a restaurant in Boston,” and maintaining the brand standards is always the goal,” Burr told the magazine. “Nontraditional locations have the opportunity to introduce your concept to new customers or draw back an occasional or lapsed customer,” says Burr. “It’s vital these locations are credible and speak the brand standards to the customer.” But, sometimes you have to bend a bit because, in the nontraditional world, you’re operating in someone else’s house. “There may be some existing design requirements we have to adhere to,” says Burr. “This is very common in airports. Washington/Reagan airport in D.C., for one, is very strict about what colors you can use and what the sign has to look like.” Weinberger, of Maui Wowie’s, adds that
you need to understand that in nontraditional locations, every audience and every space is a little different. “So long as we can have our brand and product intact, we can go down the road of due diligence and see if the financials and operations make sense.”
boasts it is “North America's largest family of indoor waterpark resorts.”
In 2017, travel retail company, Hudson Group, which operates more than 20 Dunkin’ locations, opened Dunkin’ spots inside the Hard Rock Hotel & Casino in Las Vegas and Biloxi, Miss.
And, let’s not forget about college campuses. In 2017, Dunkin’ opened a nontraditional location at the University of Hawaii, as well as at George Mason University, Binghamton University, the Air Force Academy (its second), and several more.
The Dunkin’ in the Las Vegas Hard Rock Hotel includes a few nods to the aesthetics of the hotel, including a mural of a hot pink skull devouring a donut.
GROWING THE NONTRADITIONAL BASE
Along with its new locations in the Hard Rock Hotel, you can find Dunkin’ at many Great Wolf Lodges across the country. In 2018, Dunkin’ expanded its operating agreement with Great Wolf Lodge, opening its 12th restaurant at the chain, which
18 INDEPENDENT JOE • FEBRUARY/MARCH 2019
Between 2017 and 2018, Dunkin’ also debuted more than 30 rest stop and travel center outposts – both full- and self-serve – with Pilot Flying J Travel Centers.
Burr says these nontraditional locations help customers make emotional connections with the brand. “When our customers engage with Dunkin’ where they work and where they enjoy life, it gives them a sense of place, and offers a spot in their daily lives where they can make memories with Dunkin’.” And isn’t that what it’s all about?
•
FEATURE
Considering MultiBrand Franchising? J By Debbie Swanson
esse Keyser, of St. Louis, Missouri, purchased his first franchise unit, Little Ceasars, in 2005, and soon expanded to five restaurants in Western Kentucky and Southern Illinois. Fueled by that success, Keyser began looking into other brands, and purchased Valpak in 2008, which provided an unexpected source of insight.
“Working with Valpak, I did extensive interviewing of business owners in different industries, and realized the area had a need for both carpet cleaners and hair salons,” he says. At the Franchise Update Conference in
Tony Lutfi
Jesse Keyser
2014, Keyser connected with individuals from Oxi Fresh carpet cleaners, and was soon the owner of five units. Fast forward to today, and he successfully operates six Oxi Fresh, five Little Ceasars, and 27 Sport Clips—having sold ValPak in 2011. Keyser is enthusiastic about the benefits franchisees can gain from operating multiple brands. “When adding a brand, you are opening yourself up to a whole new mastermind group. The opportunity to talk to another set of people who share your commitment, but bring a different perspective, will build your expertise.” Both industry experts and franchisees agree that multibrand franchising can be a good business strategy, but there is a general warning: Don’t act too fast. The keys to success, experts say, are carefully exploring and planning each addition. Therese Thilgen
Times have changed Owning a franchise has come a long way since people would invest their savings into a single unit selling a popular brand. Today franchising is more sophisticated. Therese Thilgen, co-founder and CEO of Franchise Update Media, has observed the progression of a franchisee from “mom and pop owners, to multi-brand.” As hosting organization for the annual Multi-Unit Franchising Conference (the 19th is being held March 24 - 27, in Las Vegas), Thilgen says that about 75 percent of recent conference attendees answered yes (via questionnaire) when asked if they are looking into adding other brands. “Historically, franchisees would stay within their specialty area, such as food or restaurants. Now, they are breaking out
INDEPENDENT JOE • FEBRUARY/MARCH 2019 19
of their industry; the majority state they don’t have specific brands in mind. They’re exploring the spectrum of opportunities available, from food, to services, to non-brick-andmortar franchises,” she reports. It’s no surprise, given the entrepreneurial nature of most franchisees. “Franchisees are smart business people,” says Thilgen. “[If] they run out of the ability to grow where they are - due to available territory or agreement limits - many ask themselves, now what?”
WHAT’S TO GAIN?
With careful planning and adequate research, your move into multi-brand ownership can yield many advantages, including: • Enhanced financial stability: Diversifying can enhance your ability to ride out the natural ups and downs any business is bound to encounter, whether it be due to seasonal traffic, varying day part demands, or the occasional, unexpected economic hit. • The ability to leverage your resources: While most experts don’t recommend sharing employees or management across brands, most do use common overhead resources, such as legal, accounting or executive support. “Brands have different cultures and objectives; one supervisor may be perfect for one, but not all brands. The real savings occurs at headquarters,” says multi-brand franchise owner Tony Lutfi. • Access to a cultivated network: Making use of existing contacts in your network will make your response time more efficient when in need of services, hiring, or purchasing. • A smoother launch: Your past experience with starting up a brand should facilitate an easier startup time at your new brand, and expedite the process of settling into daily operations. • Reciprocal knowledge: Your overall business will flourish from the knowledge you’ll both bring, and gain, from wider exposure. • Rejuvenate your spirit: A fresh challenge and room for growth can ignite the spark into your career, which will benefit both your personal well-being, as well as your business success.
20 INDEPENDENT JOE • FEBRUARY/MARCH 2019
This shift in thinking isn’t just limited to franchisees; brand owners, who may have historically frowned upon franchisees entertaining other brands, have also come to recognize the benefits that come with diverse ownership. “Years ago, franchisors wouldn’t send their franchisees to the conference. But at our current conference, there are 250 franchisors exhibiting, and they’re looking to attract other franchisees,” Thilgen reports.
Clear any hurdles If you’re toying with tucking a new concept under your belt, start by reviewing the commitments and obligations in your Dunkin’ Brands agreement. “Be sure you won’t be violating the provisions of your franchise agreements, specifically, the non-compete,” says Justin Klein, a franchise and business attorney with Marks & Klein, LLP, in New Jersey. “Some brands have a broad non-compete agreement, while others are much more specific in how they define competitors.” Consult a lawyer early in the process to confirm your understanding and make sure you won’t be crossing any lines. Aside from gaining the legal green light, it’s also good business to make sure your current brand is on board. “You don’t want to kill the goose that laid the golden egg,” says Klein. “Talk to your franchisor about the new concept, and make sure they are comfortable with it.” Finally, take a realistic look at your availability and the anticipated time commitment required. “There are a lot of different investor models, so it really depends upon the brands in question, and what level of commitment
MULTI-BRAND FRANCHISING they expect of the franchise operator, whether it’s full time or not,” Klein says.
Fuel yourself with knowledge Once you’ve identified some potential brand(s) of interest, learn as much as you can about them. Read all the franchise documents available to you, and dig around on local news sources and social media – the latter of which can offer an inside view of the brand’s popularity and culture. And, for a closer look, talk to people within your business circles. Experts advise you ask about the roadblocks or unique circumstances investors in other systems have faced, as well as their thoughts about that brand’s culture. Listen for any trends in their responses, as well as potential warning signs. And find out how those concepts perform in markets similar to yours, so you can draw comparisons. Keyser says people need to be realistic when they start comparing the numbers. Specifically, he says, do not completely trust the data a franchisor provides in Item 19 of their Franchise Disclosure Documents (FDD), which provides potential earnings. While it may be accurate, it could be reflective of a region unlike yours, such as a college town with regular late night activity. “You want to make sure [Item 19] is an accurate representation of what earnings you might expect,” says Keyser, suggesting you use the FDD information as a basis for inquiry. “Many franchisees won’t be willing to give out financial data, but you can ask whether or not they feel the FDD 19 is accurate for their area.” Unlike when you were a first-timer, Klein says, your own expertise will guide your decision. This firsthand knowledge is valuable, but still, remain objective. “If you are used to the quality and care of one brand, such as Dunkin’, realize that you may not get that with another brand,” Klein suggests. “Be careful not to make assumptions or bring expectations.” This is another area where talking with existing franchisees is valuable; try to
get a feel for their day-to-day demands and expectations , as well as the parent company’s support for the franchisees.
into account logistics, regional preference, need for your physical presence, regional demand and competition, and more.
Which brand to choose?
“I’ve worked with franchisees who own a few different concepts all in one region – for example, a massage shop, hardware store, coffee shop. They know how to operate in that town, they’ve gotten good at it, and continue to remain successful,” Klein observes.
Franchising opportunities span a wide spectrum, from restaurants and products, to services, to home-based opportunities. Aside from steering clear of obvious restrictions, there are many factors to weigh when selecting a new concept that will complement your existing portfolio: your own desire for change versus a preference for familiarity; personal appeal for the product or service; ability for co-branding with complimentary brands; and more. California-based franchise owner Tony Lutfi recalls that his awareness of the industry’s climate at the time played a role when he purchased two Long John Silvers to add to his original brand, Arby’s. “This was in the mid 90s, after Jack in the Box had their E-Coli incident, with sales plummeting. I thought being diversified would be wise, and have continued this careful diversification policy, to reduce risk.”
Over the past decades, franchising has not only flourished, but attitudes have evolved for both brand owners and franchisees. “Franchising has become an investment strategy; it’s not just a means of buying yourself a job, it’s a business,” says Klein. For the owner who already knows what it takes to make a franchise unit succeed, this is good news. With careful planning and a measured growth, moving into multi-brand franchising can open up a whole new world of new opportunity.
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Lutfi’s careful approach has paid off; along with his children, he presently runs 14 companies operating 54 Arby’s, 20 Jack in the Box, 29 Church’s Chicken, 29 Little Caesars, and six Sizzler restaurants. In his experience, franchises need to “also consider each brand’s acceptance of one another, to avoid future conflicts.” Another factor is location: will you be expanding within familiar regions, or breaking into an entirely new market? Both have their advantages; your choice is a personal preference, taking
INDEPENDENT JOE • FEBRUARY/MARCH 2019 21
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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
H&R Block
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Jim Curran 412-721-3404 • jcurran@paycor.com 2009 Mackenzie Way, Cranberry Twp., PA 16066 www.paycor.com/franchise-solutions
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
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
Green Dot/rapid! PayCard
Edward Cole 813-340-3276 • scole@greendotcorp.com 2266 Bascom Way, Clearwater, FL 33764 www.rapidpaycard.com
Erin Robertson 702-807-7854 • enrobertson@paychex.com 100 E Hines Hill Rd., Hudson, OH 44236 www.paychex.com
TPI - True Payroll Integration
Andy S. Aziz 203-930-1373 • andy@tpipay.com 2349 Black Rock Tpke., Fairfield, CT 06825 www.tpipay.com
WorXsiteHR
DDIFO
Business Member 2019
Cardtronics
Tom Spooner 973-452-4131 • tspooner@Cardtronics.com 628 Route 10 - Ste. 8, Whippany, NJ 07981 www.cardtronics.com
DTT
Mira Diza 800-933-8388 • mdiza@dttusa.com 1755 North Main St, Los Angeles, CA 90031 www.dttusa.com
Ecolab
Michael Vuolo 800-737-8234 • Michael.Vuolo@ecolab.com 1 Edgewater Dr. Ste. 210, Norwood, MA 02062 www.ecolab.com
Georgia-Pacific
Colby Nelson 818-518-5662 • cnelson@worxsitehr.com 1901 S. Victoria Ave. Suite 109 www.worxsitehr.com
Turk Enustun 317-432-8809 • Turk.Enustun@gapac.com 12425 Buccaneera Dr., Fishers, IN 46037 www.gppro.com
INSURANCE Intrepid Direct Insurance
Brady Campbell 858-535-6034 • bcampbell@hme.com 14110 Stowe Dr, Poway, CA 92064 www.hme.com
Neto Insurance Agency
Emily Wiley 832-925-5283 • Emily.Wiley@us.loomis.com 2500 Citywest Blvd., Ste. 2300, Houston, TX 77042 www.loomis.com
Starkweather & Shepley Insurance Brokerage, Inc.
Christina Trammell 972-548-1850 • christina@mcdinnovations.com 3303 N. McDonald St. McKinney, TX 75071 www.mcdshades.com
Nick DiCarlo 913-217-4281 • ndicarlo@intrepiddirect.com 10851 Mastin Blvd, Ste. 200, Overland Park, KS 66210 www.intrepidinsurance.com Stephen Neto 508-678-9068 • steve@netoinsurance.com 1468 Pleasant St, Fall River, MA 02723 www.netoinsurance.com Sabrina San Martino 800-854-4625 ext. 1121 • ssanmartino@starshep.com 60 Catamore Boulevard, East Providence, RI 02914 www.starkweathershepley.com
LEGAL
HME Drive-Thru Headsets
Loomis
MCD Innovations — Airxcel, 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
Prince Castle/Silver King
Lisa & Sousa Attorneys at Law Ltd.
Carl Lisa, Sr. 401-274-0600 • clisa@lisasousa.com 5 Benefit St, Providence, RI 02904 www.lisasousa.com
Paris Ackerman LLP
David Paris 973-228-6667 • dparis@parisackerman.com 103 Eisenhower Parkway, Roseland, NJ 07068 www.parisackerman.com
OPERATIONS
Zachary Waas 630-873-0088 • waaz@princecastle.com 355 East Kehoe Blvd., Carol Stream, IL 60188 www.princecastle.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
TGC Development Group
Chris Hitchcock 316-393-6802 • chris@tgcdevgroup.com 125 N Emporia, Ste. 202, Wichita, KS 67202 www.tgcdevgroup.com
3M Company
Bill Muenkel 952-484-4875 • wemuenkel@mmm.com 3M Center, 220-12E-04, St. Paul, MN 55144 www.3M.com/communications
Bunn-O-Matic Corporation
Todd Rouse 800-637-8606 • Todd.Rouse@bunn.com 1400 Stevenson Dr., Springfield, IL 62703 www.bunn.com
Thank You to Our Business Members!
INDEPENDENT JOE • FEBRUARY/MARCH 2019 23
FRANCHISEE PROFILE
For this Florida Franchisee Success is All In The (Extended) Family
By Michael Hoban
I
f there’s one thread that runs through John Griffey’s success story as a Dunkin’ franchisee, it is family—particularly if you include the extended family he’s developed during his two decades in the business. “It really is a family business,” says Griffey. “Myself and my wife Jean, Jim and Judy Yoakum, the Zepka family in Connecticut, and the Ramos family in Florida.” That “family” currently owns and operates nearly 20 locations in Connecticut and Florida, with more on the way. Coming out of junior college, Griffey’s Uncle Jim – who would later become his business partner – encouraged him to enter the Marriott hotel managementtraining program in Washington, D.C. Griffey took the suggestion, moved from his hometown in Florida, and began his career in the Roy Rogers fast food division of Host Marriott. He worked in a variety of positions throughout his 15-year career, ultimately running all their travel center restaurants on the Pennsylvania Turnpike. The group included Bob’s Big Boy,
Roy Rogers, and other national QSRs. A chance conversation between his Uncle Jim and Ted Crew at an Army-Navy football game in the 1990’s is what led him to Dunkin’. Crew is the owner of Great American Donuts, which now owns and operates over 50 Dunkin’ locations in the state of Connecticut. “Ted was looking for a young guy to run a couple of restaurants and my uncle knew I was ready to leave Marriott,” says Griffey. “So I talked to Ted, took the job and moved to Connecticut. He had two restaurants at the time and that’s how I was introduced to the Dunkin’ world.” The introduction was about as far as he would go with Dunkin’ for a few years, however. Two months after taking the job, Crew asked Griffey if he would like to run a string of truck stop restaurants stretching from Florida to Fresno. Griffey was a natural fit for the challenge, but Crew still needed someone to operate his Dunkin’ restaurants. Griffey recommended his close friend and colleague from Host
24 INDEPENDENT JOE • FEBRUARY/MARCH 2019
Marriott, Doug Zepka, who learned the ropes at Dunkin’ and helped Crew grow his business over the next few years, while Griffey ran the truck stop restaurants. By 2000, Griffey sensed it was time for a change. He spoke to Uncle Jim about providing financing for Griffey and his wife Jean to buy their own restaurants; Uncle Jim agreed to help, backing the purchase of two Dunkin’ restaurants in Simsbury, Connecticut. “He was the money man and we were the people who ran ‘em,” says Griffey, who also brought Doug along to help run the stores. “We were in there at 4 o’clock in the morning, running the cash register, baking, cooking, serving customers. We were in the business hands-on for probably the first five years, until we got large enough so we could hire some folks to do that for us.” Doug’s wife Liz joined the operation not long after the first stores opened, and for the next half dozen years, Griffey added one or two restaurants per year, growing the Connecticut business to 16 locations
at one point. Along the way, they added Brian Ramos, a former Krispy Kreme manager, to bolster the management team. In 2005, Uncle Jim and his wife Judy, who had been active behind-thescenes partners in the business, moved back home to Vilano Beach, Florida. While visiting his aunt and uncle on vacation in 2009, Griffey and Jean began thinking about returning to his hometown of St. Augustine. Later that same year, they purchased a pair of stores from a franchisee who had declared bankruptcy, opening the first Florida store in February of 2010. Ramos, who was now married with children, had become an integral part of the team in Connecticut, and he and his wife Beth agreed to run the stores for Griffey, moving to Florida before the first store was even purchased. Griffey has followed the same growth formula in Florida as Connecticut, steadily adding stores until he reached the current tally of 11 in St. John’s County – with an SDA agreement to add three more by 2023. With three of the families now located in Florida, it was time to begin paring back the number of stores in Connecticut, so in 2012, they began selling them off, reducing the total to seven up north. “We just felt at the time that it wasn’t really fair to leave Doug up there to run 16 stores,” Griffey says with a laugh. “And that’s also when we really started to grow in Florida.” The Griffeys and Ramoses weren’t the only members of the extended family to migrate to the Sunshine State. In fact, much of the Florida management team are transplants from Connecticut, a testament to the family environment and the winning business philosophy that Griffey has followed since day one: Treat people the way you want to be treated and hire your people from within. “Our best managers were once hourly employees for us, so it is very, very rare that we have a need to go outside of our system to hire a manager,” Griffey says. “What we try to do is move the hourly employees into supervisory roles, and when we have a management position open, we promote from within. In Connecticut we just don’t lose managers. We
have people that have been with us since the day we bought the business in 2000.”
Next-Gen concept in Florida, they reached out to Griffey.
Justin Finley, who went to work for the company when he was 16, is now an area manager in St. Augustine. His stepbrother, Kevin Hazzard, who also began working for the Griffeys at age 16, is a store manager in the same city.
“We had a store on the drawing board, so when the brand came to me about two years ago and asked if we’d consider making this the Next-Gen store, we just said ‘yes’,” Griffey says. “I have the reputation of being a pretty straight shooter, and they know that. I am of the belief that I would rather be involved and try to provide feedback than to just sit back, let it happen and then just complain.”
“He used to walk to work at the Winsted (CT) Dunkin’ Donuts in the morning. We would give him breakfast, and my wife Jean would drive him to school,” says Griffey. Another key to the success of Griffey’s business model is that all of the families have a real stake in the business—one that extends beyond the bonds of family and friendship. “Our philosophy is pretty simple. When I’m in Florida, and somebody is running our business in Connecticut, you might say, ‘I want you to run it like it’s yours,” says Griffey. “Well, you don’t really run it like it’s yours unless it’s yours; that’s just a fact.” So when the Griffeys and the Yoakums first established their business in Connecticut, Doug Zepka was given an immediate equity stake. That equity eventually grew to nearly one-third of the Connecticut operations. “We did the same thing with Brian in Florida and it’s worked out well for us,” says Griffey, who sold a 70 percent stake in the Connecticut stores to Zepka in 2018. In addition, all of the administrative and operational functions are handled by members of one of the families. While John, Doug and Brian are primarily involved with the operational side of the business, Jean Griffey writes every check, Liz Zepka handles all of the payroll and HR functions in Connecticut, and Beth Ramos does the same in Florida. “So we don’t have to worry about some things that other [franchisees] do,” says Griffey. “Our system may not work for everybody, but it’s been very successful for us.” During his career, Griffey has also been active on Dunkin’ committees, serving on the South Central RAC in Florida, as well as the People’s Subcommittee of the BAC. And when Dunkin’ wanted to roll out the
Griffey opened that store in August, 2018, and he says it’s been a hit. Built from the ground up, the new store sports a first-ofits-kind stucco exterior, an interior design featuring an open layout and plenty of natural light. He likes the innovative tap system for cold beverages that he says resembles a brew pub. “It’s a gorgeous store and the customers absolutely love it,” says Griffey. Griffey is involved with the Dunkin’ Joy in Childhood Foundation, as well as another high-profile charity whose roots are in Northeast Florida. The Tesori Family Foundation, founded by former PGA Tour player and current PGA Tour caddie Paul Tesori, which supports families with children with Downs Syndrome and other special needs. Last August, Griffey’s company, St. Johns Donuts, donated $1 for every dozen donuts sold in their Florida network, and Griffey presented Tesori a check for $18,000 in September. The spirit of giving extends to Griffey’s workers as well. He and Jean provide assistance to long-term employees if they find themselves in financial difficulties. In one case, they helped a couple re-finance their home. He also understands the value of retaining employees in this challenging labor market, which is why he offers competitive wages, health benefits and paid vacations to full-time employees. “We just try to treat people the right way—the way we’d want to be treated,” explains Griffey. “We provide some opportunities for growth, and Doug and Liz are great people and Brian and Beth are great people. So it really is like a family.”
•
LEARN MORE ABOUT GRIFFEY'S NEXT-GEN STORE ➜
INDEPENDENT JOE • FEBRUARY/MARCH 2019 25
FRANCHISEE PROFILE
Next-Gen
Concept in Florida
26 INDEPENDENT JOE • FEBRUARY/MARCH 2019
John Griffey opened his NextGen store in August, 2018, and he says it’s been a hit. Built from the ground up, the new store sports a first-of-its-kind stucco exterior, an interior design featuring an open layout and plenty of natural light. He likes the innovative tap system for cold beverages that he says resembles a brew pub. LEARN MORE ABOUT JOHN GRIFFEY P24
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