AKFCF Quarterly Summer 2016 by Lionheart Publishing Inc.

SUMMER 2016

DIGITAL MARKETING

How KFCC is moving the Brand forward by embracing technology Also Inside: GAC Special Report • Tax Planning Insights • Family Limited Partnerships

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SUMMER 2016

Digital Marketing: DIGITAL MARKETING

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How KFCC is moving the Brand forward by embracing technology Also Inside: GAC Special Report • Tax Planning Insights • Family Limited Partnerships

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GAC Report By Dan Gans and Mary Donohue

Your GAC has created the presidential candidate profiles to help you sift through the candidates and how their positions might impact your businesses and employees.

7 Tax Planning Insights KFC Franchise Owners Should Leverage in 2016 By Kip Knight

New and extended rules mean you may be able to deduct more of your business expenses upfront. Plus, you should make sure you’re not headed for any Affordable Care Act or tax-filing surprises next year.

Digital Marketing: KFCC finds branding opportunities and improved service with new, online endeavors By Paul Gereffi

Rapid advancements in digital technology are changing the way we live, the way we work, and the way we do business.

36 Family Limited Partnerships: An Effective Planning Tool—When Done Correctly

By Greg Atwell

10 NCAC Report By Tom Slater

12 In the News

42 Beverages Report By Jody Luihn

44 Communications Report By Kevin Schlutz

45 KFC NPC Report By Dale Black

46 OEC Report By Tom Broome

48 RSCS Resource Services By Lainie Yarmuth

50 By Deborah Ossanlo

52 Executive Director Update By Kelly Rodenberg

54 Legal Update By Michelle Hunt

Incoming President’s Report

Regional Short

From the Editor

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FLPs can impact income taxes, estate taxes, gift taxes, asset protection, family control objectives, and family legacy values.

departments

By David Zammit

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As KFC moves forward, embracing digital technology will be part of its strategy. The ability to collect social data, analyze it, and uncover insights and engagement opportunities is an important component in moving the Brand forward. Read the full story beginning on page 26.

By Ron Gardner

56 Looking Back

Outgoing President’s Report By Chris Fowler

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Shifting How We Communicate 6

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AKFCF QUARTERLY MISSION STATEMENT

The AKFCF Quarterly is the voice of today’s franchisee family and supports the mission of the Association of Kentucky Fried Chicken Franchisees, Inc. AKFCF EDITORIAL TEAM AKFCF President Greg Atwell Editor Michelle Hunt Assistant Editors Sharon Clawson Julie Mantlo Editor Emeritus Jeanine Rosselot Darlene Pfeiffer AKFCF Administrative Director Debbie Newton Communications Chair Kevin Schlutz Past President Chris Fowler

By Michelle Hunt

If digital isn’t part of your vocabulary, you’re not spending enough time with our younger generations. The digital craze and advancements in technology are changing the way we market, communicate, organize, and socialize. While apps like Cozi keep my family organized and social media accounts keep me in touch with friends across the globe, it’s the overall societal shift of how we communicate, get our information, and the voice these platforms provide that has really impacting how we live, work, and play. The digital marketing team at KFCC, led by Steve Kelly, has been on the forefront of making digital part of our Brand strategy. In this issue, Steve, speaks with us about what KFCC has done to prepare, how they manage the current digital marketing, and what more is on the horizon. This is a mustread article, especially if you’re new to the digital scene. The article begins on page 26. In addition to the digital marketing piece, we have two more strategic articles on tax planning for 2016 and family limited partnerships. The tax planning article is brought to you by a familiar name, Kip Knight, who is no stranger to KFC, but now leads H&R Block’s U.S. retail operations. Kip highlights several opportunities to keep in mind when working with your tax advisor to ensure you get the most benefit on your 2016 returns. Find this article on page 20. Next in a series of articles from workshop presenter David Zammit, he discusses

Official Publication of the Association of Kentucky Fried Chicken Franchisees

family limited partnerships and how an FLP can impact your future planning. Don’t miss this feature beginning on page 36. As always, we bring you an update from our GAC who profiles the presidential candidates and how each aligns with AKFCF legislative priorities. Check out the latest PAC contributors as well. Don’t miss columns from the outgoing and incoming AKFCF presidents, NCAC, KFC NPC, OEC, RSCS Resource Services, Communications, Southern California Region, Beverage, our Executive Director, and Legal Counsel. There’s tons of information packed into this issue, and don’t forget to watch your inbox for the digital version of the magazine to keep handy on the go. It’s never too early to start planning for the 2017 AKFCF Convention in Austin, TX! Looking forward to everything the convention planning committee has in store—more on that in future issues! I’ll see many of you at the Super Regional and Southeast meetings this fall, but until then I have a busy summer of baseball, running events, county and state fairs, as well as back to school for my boys. We have a senior in the house this year so it’s going to be busy and there may be a tear or two shed before sending him off to college in the fall of 2017. Best wishes for a safe, happy and prosperous summer! Warm Regards,

The AKFCF Quarterly (ISSN 1071-9873) is published by the Association of Kentucky Fried Chicken Franchisees for its members and their friends. AKFCF is the independent Association of Kentucky Fried Chicken Franchisees. Franchisee Editors: Michelle Hunt 14812 N Avenue, Columbus Junction, IA 52738 Phone: (319) 728-3282 Fax: (319) 728-2940 michelle@centraliowakfc.com Sharon Clawson 70 Clinton Plaza, Clinton, IL 61727 Phone: (217) 935-3939, ext.15 SharonC@restmgt.com Julie Mantlo 855 Lovers Lane, Suite 111, Bowling Green, KY 42103 Phone: (270) 783-8880 julie@rogmancorp.com Zaira Guevara (International Liaison) Pty # 69328, P.O. Box 25207, Miami, FL 33102 Phone: (305) 384-4242 (U.S.) (011) 506 2208-7828 (Direct) zguevara@caribla.com POSTMASTER: Send address changes to Lionheart Publishing, Inc., 506 Roswell Street, Suite 220, Marietta, GA 30060. Copyright ©2016 AKFCF, Inc. All rights reserved. Articles may be quoted with credit to the source. Information in the AKFCF Quarterly (ISSN 10719873) represents the views of the authors and unless noted otherwise does not necessarily reflect the policies or position of AKFCF, Inc. Acceptance of paid advertising does not imply endorsement by the Association, or approval of the advertiser or its product or service by KFC Corporation. AKFCF ADVERTISING AND EDITORIAL SUPPORT OFFICE

Send all advertising and editorial submissions for AKFCF Quarterly to:

Lionheart Publishing, Inc. 506 Roswell Street, Suite 220, Marietta, GA 30060 USA Toll Free: (888) 303-5639 Phone: (770) 431-0867 • Fax: (770) 432-6969 E-mail: lpi@lionhrtpub.com Web: www.lionheartpub.com President John Llewellyn, ext. 209 llewellyn@lionhrtpub.com Publishing Editor Cory Sekine-Pettite, ext. 220 cory@lionhrtpub.com Art Director Leslie Proctor, ext. 228 leslie@lionhrtpub.com Advertising Sales Aileen Kronke, ext. 212 aileen@lionhrtpub.com Sharon Baker, 813-852-9942 sharonb@lionhrtpub.com Reprints Kelly Millwood, ext. 215 kelly@lionhrtpub.com w ww. akf c f . c o m

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The Highlights Of My Year 6

By Chris Fowler

I encourage everyone who has ever thought about getting involved to do it now! Contact your Regional leadership and let them know you’re interested!

As I look back on my time as your AKFCF president, it’s hard to believe the year has already passed. There are too many noteworthy moments to discuss them all, so I will only mention a few of the more important highlights of my year. First, I finally got to experience what goes into making a Super Regional meeting work. I found myself in awe on how so many different personalities could come together for a common goal and dream. From connecting with old friends to making new ones, Kim and I had a wonderful time visiting the Fall Regionals as well. It was an honor to be a part of it. Another highlight was the Annual Convention in Atlanta. Although it didn’t start out the way I would have

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liked, as I was “late” for my opening speech, it was an amazing success. The Association raised more than $25,000 for St. Jude’s Cancer Research Hospital, with special thanks to Justin Stewart and Keith Cole. And it ended on an unforgettable high with my boys, Lynyrd Skynyrd. Lastly, I would like to mention how privileged I felt representing the AKFCF on the NCAC Board. To serve alongside such hard-working guys as Tom Slater, Pete Wasalivich, and Mike Kulp, was a real honor. I could go on and on about the year I had. I would not trade this year for anything. I encourage everyone who has ever thought about getting involved to do it now!

Contact your Regional leadership and let them know you’re interested! Again, I want to thank all of you for allowing me this once-in-a-lifetime opportunity to be your president. It seems like just yesterday I got a text from Larry Starkey and Joan Bowling saying “Good Morning, Mr. President!” I was just as honored to receive it then as I am to have sent it now. Now let’s give it up for the new cowboy in town, your Incoming AKFCF President, Greg Atwell!

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Honored To Serve 6

By Greg Atwell

As I write this, my first article as your new AKFCF president, I think back on all of the people who served before me. I want to say “Thank You” to all of the past leaders who made it possible for me to be in this position. Without the leadership that they brought throughout their terms on the AKFCF Executive Committee, I would not be here to serve our great franchise system. By the time you read this, Chris Fowler will have completed his term as our most recent president. Words cannot express the amount of gratitude I have for his support and leadership. He has followed the path of those before him in leading our Association to a stronger partnership with KFCC and the NCAC, as we continue to journey back to greatness. I am honored to follow Chris as we continue this journey, and I know I can count on his support throughout the coming year. I wanted to take this opportunity to let everyone know a bit about me and my family. I am a first-generation franchisee, who started out as a cook at the age of 14 at Starlite Drive-In Restaurant on Nicholasville Road in Lexington, Ky. Working for Andy Rasmussen and his family (John, Carol, and Drew) taught me the values of hard work and loyalty. I was blessed to be part of their KFC family as I started what turned out to be an incredible life adventure. One of the unique things about the Rasmussen’s Starlite Drive-In was that it was a favorite stopping spot for Colonel Sanders. I was able to meet him many

As I START THE YEAR as your AKFCF PRESIDENT, I want you all to know that FAMILY is the most IMPORTANT part of MY LIFE.

times before he passed away in 1980. I remember his favorite meal at the diner was the homemade spaghetti and meatballs. At the time of Andy’s passing, the family had to rebuild the diner as a stand-alone Kentucky Fried Chicken. Since I was only 19 at the time, John and Carol reached out to another franchisee, Bob Ovington, who hired me as a RGM in Paris, Ky. As the next 20 years unfolded, I had the privilege to be part of two other franchise families—Rick Duffy in Florida and Scarlett Adams in Colorado. During these moves, one thing stayed constant in my life. I met my wife, Tammy, in 1986 and we got married in Lexington, Ky., in 1989. Then we moved to Colorado to open a location in Aspen for Scarlett Adams. I operated the Adams’ locations as the COO until Tammy and I had the opportunity to become franchisees in 1996. At that time, we purchased our first two locations in Roswell, N.M. The company continued to grow, until our high point of nine locations. We have since downsized the company, but today we still operate five restaurants in the Las Cruces, N.M., and El Paso, Texas area.

Our two sons, Donnie and Tim, also work in our company as RGMs. We also have been blessed by Donnie and his wife, Sherry, to have our 12-year-old grandson, Jakob. He already wants to get in and start working in the restaurants. When I started supervising restaurants in the late 1980’s, I was privileged to have my dad work with us as a maintenance technician. He is a retired Navy Seal and was disabled during his service to our country. Dad worked with us until his health could not allow any longer last year. One of the best memories I have is working side by side on equipment with him. As I start the year as your AKFCF president, I want you all to know that family is the most important part of my life. Both my immediate family and my KFC family are the reasons I do what I do every day. I am thankful to be blessed with great people around me who will help make this year a success. I know I can count on all of you to help drive our success into the future. Together WE ALL WIN! Thanks again for the privilege to serve this year as YOUR AKFCF president! I am honored and excited to serve you all. See you all at the fall meetings! Su m m er 2 016

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Critical Appointments 6

By Tom Slater, NCAC Vice-Chair

As I write this, we are preparing for our June NCAC meeting, which includes the Annual Meeting. Lately, we’ve been hearing some questions about how this whole process works, so I wanted to take this opportunity to share with you what happens at this “annual meeting.” Based on the NCAC Bylaws, the purpose of the meeting is for “electing the vice chairman, selecting an executive board, and for the transaction of any other business” (Section 4.16 (b)). As established by the Bylaws, each year the Nominating Committee is made up of the franchisees whose terms expire in the following year. This year, those representatives are Region 3 (Marcus Shelton), Region 6 (Brian Denman), Region 10 (Pushpak Patel), and Region 12 (Todd Stewart). Their responsibility is to recommend to the full board a franchisee to assume the role of the vice-chair, and three additional franchisees to serve on the executive board. Since the passage of the Acceleration Agreement, the Nominating Committee also recommends two candidates to serve as the franchisee Brand Committee representatives. The Nominating Committee then presents a slate to the full Committee, who then has the opportunity to consider other options and to vote on those representatives. The vice-chair, Executive Committee and Brand Committee terms begin July 1 and run through June 30 of the following year. I have had the honor of being nominated and subsequently elected by the 10

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full Committee as vice-chair for the past four years. But this is not a role that I—nor my predecessors—have taken lightly. The responsibilities of this role are spelled out clearly in the Bylaws and include presiding over meetings, overseeing the executive director, and working with KFCC on developing the agenda for the meetings. Frankly, these tasks are the easy part of the job. During meetings, the vicechair also must make sure everyone has a chance to ask questions of the presenters and to have their opinions heard. But the Bylaws also give me the responsibility to appoint members of the sub-committees, and that is without a doubt the most difficult part of the job. There are 13 franchisee members of the NCAC—and a minimum of 32 spots to fill on the Marketing, Operations, Operations Excellence and Contract & Facilities committees. There are currently two ad-hoc committees (Beverages and Technology) as well as the Restaurant Economics Committee, and that’s all before you include the “elected” committees noted above. It’s important to note here that these committees cannot be rubber stamps for what the Company is proposing. They must listen carefully, review the data, and provide meaningful and actionable feedback to KFCC, as well as to their fellow franchisees on the subcommittee. And sometimes, they’re not going to agree with the outcome of the work. That is why it is absolutely critical that the vice-chair appoints the very

best people for these roles, regardless of whether or not they are elected representatives or franchisees from within the system in general. Whoever fills those seats must have the ability to focus on the big Brand, not his or her own business, or even that of the Region. They must have a passion for excellence and more than a basic understanding of the Committee’s subject matter. They have to be able to influence KFCC and sometimes, equally important, the other franchisees in the system as well. With more than 500 franchisees in the KFC system today, it’s impossible for a single person—the vicechair—to select the representatives alone. Personally, I have relied on the franchisees on the Executive Committee, as well as other leaders throughout the system, to help me identify the best people for the roles. This year, we added a new process where any franchisee could nominate themselves or another franchisee for a role on either of the Operations sub-committees, or the Marketing subcommittee. We received about 20 nominations, a few of which opted out of the process. As your re-elected NCAC vice-chair, I am faced with the daunting task of filling those important roles. Those people will serve the Brand and the system for at least the coming 12 months. These representatives are actively working on your behalf, and I ask that you support them in their efforts, as this is no small sacrifice on their part. I wish you all the best in profitable sales growth over these coming summer months!. w ww. akf c f . c o m

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Overtime Eligibility Increase to Have Big Impact on Restaurants New federal overtime rules will be effective Dec. 1 Restaurateurs and other employers have until December to comply with a new federal overtime standard that will dramatically increase the number of workers who qualify for extra pay. The final rule doubles the salary threshold for employees to be considered exempt, from $23,360 to $47,476— meaning that managers would have to receive at least $47,460 to be considered salaried workers. The rules are expected

to make another 4 million workers eligible for overtime pay. The new rule also increases the threshold every three years so the standard keeps pace with inflation. Yet the Department of Labor in its final rule gave restaurants more time than expected, setting the effective date at Dec. 1. In addition, the rules do not include a so-called duties test that would have required exempt employees to be providing management-like jobs, rather than helping to make food or bus tables, for instance.

Nevertheless, the new rules could force restaurants to pay millions in additional salaries to assistant managers and managers while forcing them to more carefully manage overtime. And critics were quick to hammer regulators over the new requirements. “The threshold for exempt employees in the final regulations is still too high,” Angelo Amador, senior vice president of labor and workforce policy and regulatory counsel at the National Restaurant Association, said in a statement.

Know Your Acronyms In our business, there is a great deal of terminology and jargon. As more processes and systems are added, the acronyms continue to pile up. Thus, AKFCF Quarterly decided it is time for us all to brush up on the many acronyms you will hear in your daily lives and read about in this magazine. Be sure to pass this along to your employees, or post a copy in your offices. 76(5P) – 1976(5P) KFC Franchise Agreement AKFCF – Association of Kentucky Fried Chicken Franchisees ABR – Achieving Breakthrough Results ARL – Above Restaurant Leader ASAP – American Showman Asset Program AUM – Assistant Unit Manager BDP – Best Demonstrated Practices BOGO – Buy One Get One BOH – Back-of-house BSC – Balanced Scorecard CER – CHAMPS Excellence Review CFF – Cleanliness Friendliness & Food CMS – CHAMPS Management System COB – Chicken on the Bone CREST – Consumer Reports on Eating Share Trends CSTM – Customer Service Team Member DMA – Designated Marketing Area FA (Or F/A) – Franchise Agreement FSC – Food Safety Consultation FSTM – Food Service Team Member FTF – Freezer to Fryer GAC – Government Affairs Committee HFFU – Heavy Fast Food Users IAYF – International Association of Yum Franchisees (formerly known as the IAKFCF, International Association of KFC Franchisees) KFCC – Kentucky Fried Chicken Corporation LAC – Local Advertising Council LOR – Loss of Revenue NAC – National Advertising Cooperative (merged with NFAC to become NCAC)

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NCAC NFAC

– National Council and Advertising Cooperative – National Franchisee Advisory Council (merged with

NMS NPC NPS OEC PAC POP POS QSR RAF REC RGM RMI ROCC ROI ROMI RRP RSCS

– National Marketing Subcommittee – National Purchasing Cooperative (i.e., KFC NPC) – Net Promoter Score – Operations Excellence Committee – Political Action Committee – Point of Purchase – Point of Sale – Quick Serve Restaurant – Refer a Friend – Restaurant Economics Committee – Restaurant General Manager – Restaurant Margin Improvement – Restaurant Operations Compliance Check – Return on Investment – Return on Marketing Investment – Restaurant Ready Process (aka The Model) – Restaurant Supply Chain Solutions (formerly UFPC) – Supplier Business Relationship Agreement – Technology Capability Builder (the KFCC support team for Merit installations) – Territory Operations Leader – Taking People With You – Targeted Rating Point – Voice of the Customer (formerly CBCC) – Weekly Activities Report – Yum! Brands – Yum! Restaurants International

SBRA TCB TOL TPWY TRP VOC WAR YUM YRI

NAC to become NCAC)

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“Restaurants operate on thin margins with low profits per employee and little room to absorb added costs. More than doubling the current minimum salary threshold for exempt employees, while automatically increasing salary levels, will harm restaurants and the employer community at large.” Rob Green, executive director of the National Council of Chain Restaurants, called the new standard “outrageous.” “By dramatically increasing the wage threshold for determining a restaurant manager’s overtime eligibility, key management positions will be eliminated, restaurant employee career advancement will be derailed, and workplace morale will plummet,” Green said in a statement. “We will continue to fight this punitive regulation and will work with Congress to make the Labor Department go back to the drawing board to find a workable solution.” Congress, controlled by Republicans, is considering doing just that— but any such changes are expected to be vetoed by President Obama, who is in the final year of his presidency. Labor activists have pushed hard for the changes, arguing that the previous threshold left managers working long hours for low pay. The National Retail Federation estimates that the new rules will cost retail and restaurant businesses $745 million to comply with the new rules. Many believe that operators will simply calculate their managers’ hourly pay based upon how much they work—so they’d make the same salary but would be considered hourly workers. “Far from ‘giving America a raise,’ the new overtime rule will compel many franchise businesses to reduce their managers’ take-home pay to simply comply with the extreme new salary level,” Robert Cresanti, president and CEO of the International Franchise Association, said in a statement. He noted that the top salary threshold, $47,476, far exceeds the highest state minimum salary threshold in California of $41,600.

What chains will be affected by the regulations will depend on how much they pay their managers. But Piper Jaffray has estimated that restaurants would have to raise prices by more than 5 percent to offset the higher costs associated with the new threshold. Source: nrn.com KFC South Africa Wins at the 2016 PRISM Awards KFC South Africa took home the Silver 2015 South African Campaign of the Year Award for their recent Add Hope World Hunger Relief campaign at the Annual PRISM Awards ceremony that took place in April. KFC Add Hope is a nationwide fundraiser dedicated to feeding hungry children that supports 12 national beneficiaries and 79

franchisee programs on the ground. Thus ensuring the children supported by these organizations have access to nutritious meals every day. Thanks to the generous $3.7 million donated by customers for 2015, KFC South Africa was able to feed more than 100,000 children every day. KFC South Africa is committed to the plight of child hunger, filling tummies so children can grow, learn, and thrive to become the nation’s next doctors, teachers, and lawyers. The PRISM Awards are Africa’s most sought after awards in the public relations industry. Now in their 19th year, the PRISM Awards are presented to public relations and communication professionals who have successfully incorporated strategy, creativity, and professionalism into public relations and continued on page 15

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Special Section: Industry News (A special advertising section)

Small Changes in Kitchen Plumbing Can Have a Big Impact Walk through enough kitchens, and you’ll start to see all the ways plumbing equipment is being abused, misused, or downright neglected — to the detriment of businesses’ bottom lines. But sometimes all it takes to make a big impact is a small change, to items such as faucets, hoses, and spray valves. Plumbing products that use more water than necessary cost money in both water and energy, and faucets or fixtures that don’t perform well absorb excess time and labor. These kitchen hot spots may offer opportunities for simple solutions that lead to significant savings: • Two- and three-compartment sinks Adding a T&S Brass aerator to reduce flow rate from 7 gallons per minute (gpm) to 2.2 gpm saved one operator $4,400 on one faucet annually. • Spray valves Some operators consider spray valves a onesize-fits-all product, but an array of available flow rates and spray patterns are designed to suit specific needs. And if the spray valve’s been around a while, it might be time to upgrade to a more efficient product. Older spray valves could use in excess of 4 gpm; most QSR operations need only 0.65 gpm to 1.42 gpm. • Hose reels Traditional hoses or mops and buckets can be tripping hazards and don’t clean as efficiently or as effectively as a compact, self-enclosed hose reel that can be mounted in a variety of accessible locations.

• Handsink faucets Audits of kitchen plumbing equipment show many handwash sinks have flow rates well above the code maximum of 2.2 gpm. Vandal-resistant aerators or flow control devices in the spout or faucet body reduce water consumption. • Dipperwells Dipperwells often feature a 5 gpm standard flow rate, well above what is needed. T&S Brass’ standard 0.25 gpm model can save more than 1.2 million gallons of water a year for one dipperwell. • Pre-rinse tees End users will often cut into pre-rinse units to install soap dispensers. Not only does this practice void the warranty, it can also cause leaks in the riser. Retrofitting the pre-rinse unit with a manufacturer-supplied tee will keep the unit functioning well.

CONDOLENCES John Antonio Daluz Jr., 81, died May 10, 2016 after a lengthy illness. A KFC franchisee for more than 40 years with restaurants in both Providence and Westerly, R.I., John was among the most senior African American franchisees in the KFC family. He is survived by his daughter, Tobey M. Daluz, and her husband, Eric M. Rutherford; two grandchildren; and two sisters.

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Kenneth James King Jr., 75, died April 27, 2016. Kenneth was a retired franchisee from Cleveland, Ohio. Kenny attended Villanova University and joined his father in the family  business, Kenny King’s Family Restaurants. Kenny Jr. served the company as president for  nearly three decades, during which the restaurant chain grew to 60 locations in Northeast Ohio. He leaves his wife of 54 years, Mary Anne; four children; 14 grandchildren; and three great-grandchildren.

Phil Buller, 63, died June 20, 2016 in Enid, Okla. A hard worker, Phil began working for Bill and Marjorie Bunch at the age of 16, which began his life-long career with KFC. Phil served two terms as president of the Southwest Region and represented Oklahoma as a state director for the KFC board. He married Lisa Lawver in 1982 and they both worked to grow their business while giving back to the community they loved best, Enid. He is survived by his wife, four children, and six grandchildren.

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communication programs and strategies that showcase a successful public relations campaign. With more than 200 entries for this year’s awards, KFC also was honored with the following accolades: • Corporate Responsibility: Silver Award for Add Hope: The Story of Hope • Sponsorship: Bronze Award for KFC Mini-Cricket Kids vs Proteas Tour 2015 The company’s collaboration with partners at Ogilvy and Mather

Johannesburg and Playmakers, was once again awarded for their great work in the public relations and communication industry. Together, they were able to deliver campaigns that effectively transformed and changed the perception of KFC customers, by showing them the greater positive impact Add Hope and KFC Mini-Cricket delivers to communities, and ultimately adding hope and value to the future of our country’s leaders. Source: yum.com

Yum! Named to Newsweek’s 2016 Green Rankings Yum! has been named to Newsweek’s 2016 Green Rankings, one of the world’s most recognized assessments of corporate environmental performance. This year, Yum! increased in ranking on both the U.S. and Global lists compared to 2015, moving up 37 spots to #201 out of the 500 largest

publically traded U.S. companies and up 39 spots to #293 out of the 500 largest publically traded global companies. Environmental sustainability is key to reducing Yum!’s carbon footprint and part the larger corporate social responsibly strategy. View the full list online at newsweek.com. Source: yum.com

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GAC Special Report:

Election Update & Candidate Profiles By Dan Gans and Mary Donohue 16

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he accusations of both parties and their surrogates combined with tabloid style media coverage have masked the profound differences the candidates have on many issues such as immigration, climate change and energy, healthcare reform, tax reform, second amendment rights, and many others. Your GAC has created the following candidate profiles to help you sift through the candidates and how their positions might impact your businesses and employees.

Donald Trump: Issue

Trump Position

AKFCF Position

Immigration

In favor of increased restrictions on illegal immigration & building a wall to protect the U.S. Southern border

In favor of strengthening safeguards against illegal immigrants

Ethanol/RFS

In favor of strengthening the RFS

In favor of abolishing the RFS

Minimum Wage

Position unclear (conflicting statements)

In favor of keeping the minimum wage at its current rate

Overtime Reform

Position unclear (conflicting statements)

In favor of opposing the Obama Overtime Rule

Tax Reform

In favor of lowering taxes and for tax In favor of lowering taxes on busireform nesses and for tax reform

Small Business

New business income tax rate within the personal income tax code that matches the 15% corporate tax rate to help small businesses grow

Immigration: Trump would like to build a wall along the Southern border of the United States and believes that Mexico should pay for the wall. His justification is that illegal immigrants are taking jobs away from Americans. He further believes that the porous border with Mexico is providing an opportunity for ISIS and other terrorist organizations to infiltrate the United States and cause harm. Ethanol/RFS: Trump is a supporter of ethanol. He has stated, “We need every form we can get. Ethanol is terrific, especially with the new process. And I am totally in favor of ethanol 100-percent, and I will support it.”

Minimum Wage: In an interview with CNN, Trump said he is “looking at” increasing the minimum wage because it has to be “something that you can live on.” Yet just months ago he said wages in the United States are “too high” and the minimum wage has to be left “the way it is” so that the country can compete internationally.

In favor of giving small businesses more opportunities to expand and grow

Overtime Reform: There are no precise comments about his position on overtime reform. It is likely that Trump will follow the lead of Congressional Republicans who oppose the Obama Rule, but he has not made any definitive statement at press time. Tax Reform: Trump would like to simplify the tax code

to reduce the headaches Americans face in preparing their taxes and let everyone keep more of their money. In order to achieve the American dream, he says, let people keep more money in their pockets and increase after-tax wages.

Small Business: Trump’s tax plan would lower taxes

for small businesses that are taxed at high personal income tax rates. He believes that the current system stifles small businesses and tax reform because efforts to reduce loopholes and deductions available to the very rich and special interests end up hitting small businesses and job creators.

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Hillary Clinton: Issue

Clinton Position

AKFCF Position

Immigration

Enact comprehensive immigration reform to create a pathway to citizenship, keep families together, and enable millions of workers to come out of the shadows. Promote naturalization and support immigrant integration

In favor of strengthening safeguards against illegal immigrants

Ethanol/RFS

In favor of strengthening the RFS

In favor of abolishing the RFS

Minimum Wage

In favor of increasing the minimum wage

In favor of keeping the minimum wage at its current rate

Overtime Reform

In favor of strengthening overtime rules

In favor of opposing the Obama Overtime Rule

Tax Reform

In favor of cutting taxes for hardworking families to increase their take-home pay

In favor of lowering taxes and for tax reform

Small Business

Provide targeted tax relief for small businesses and simplify tax filing

In favor of giving small businesses more opportunities to expand and grow

Immigration: Clinton would like to enact comprehensive

Overtime Reform: Clinton also supports the Obama administrationâ&#x20AC;&#x2122;s expansion of overtime rules to millions more workers. The Obama rule will require employers to pay overtime to any employee who makes less than $47,000 per year if they work more than 40 hours per week.

Ethanol/RFS: Clinton would like to strengthen the RFS so that it drives the development of advanced cellulosic and other advanced biofuels, protects consumers, improves access to E15, E85 and biodiesel blends, and provides investment certainty.

Tax Reform: Hillary would cut taxes for hard-working families to increase their take-home pay as they face rising costs from childcare, healthcare, and sending their kids to college. She is calling for extending a tax cut of up to $2,500 per student to help deal with college costs and for cutting taxes for businesses that share profits with their employees.

immigration reform to create a pathway to citizenship, keep families together, and enable millions of workers to come out of the shadows. She would like to promote naturalization and support immigrant integration.

Minimum Wage: Hillary believes we are long overdue in raising the minimum wage. She has supported raising the federal minimum wage to $12, and believes that we should go further than the federal minimum through state and local efforts, and workers organizing and bargaining for higher wages, such as the â&#x20AC;&#x153;Fight for 15â&#x20AC;? and recent efforts in Los Angeles and New York to raise their minimum wage to $15.

Small Business: She has put forward a small-business agenda to expand access to capital, provide tax relief, cut red tape, and help small businesses bring their goods to new markets.

Get the Vote Out! We hope this guide will provide you with some insight on how the policy positions of both major party candidates could impact you and your business. We also strongly encourage all franchisees to vote, even if you cannot ultimately vote for one of the presidential candidates. We would like to remind you that both the House and Senate are very much in play this election. It is very possible that pro-business majorities in both the House and Senate are at risk. It is critical that KFC franchisees support congressional candidates who support your businesses against attacks from organized labor and other anti-business groups. For more information about congressional races, please do not hesitate to reach out to your local GAC representative or Mary Donohue (mdonohue@polariswdc.com) at Polaris Consulting.

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AKFCF – P o l i t i ca l A c t i o n C o m m i t t e e (PAC) The AKFCF created a Political Action Committee (PAC) to make sure our voices are heard in Washington, D.C. The AKFCF Government Affairs Committee and the AKFCF PAC Board of Directors would like to thank the franchisees listed below for their contributions to the AKFCF PAC. Each quarter, we list the names of the franchisees who have supported the PAC at time of print as a token of our appreciation. This list is all the contributions, broken down by region. We encourage you to please join your fellow franchisees and support your AKFCF PAC. For information on how you can become involved, or if you don’t see your name and should, please contact Ray Aley, treasurer of AKFCF GAC/PAC at (802) 318-4705, or via e-mail at KFCRay@aol.com. GREAT LAKES Jeanine Bagshaw David Bell Kathy Bouwman Joe Campbell Keith Chambers John Coldwell Brian Denman Alessio DiFranco Anne Goodnight Kirk Gurney Mary Beth Hamilton Lesley Hottinger Teresa Kelly LaDonna Lewis Lynn Mayer Jim Mikula Diana Myers Marvin Payne Dana Rudoni Susan Stuver Scott Vorrath

Rodney Walker Brian Wheeler NORTHEAST Ray Aley III Adil “Eddie” Banani Tony Cameron Tom Cecconi Keith Cole Joe Farley Frederick Gallant Syed-Talal Kirmani Don Lopes Dale Moulton Alex Rosenblum Larry Starkey James Waters David White NORTHWEST James & Sandra Beglin Jeffrey & Debbie Gray

Ralph Harman Brett Harris Fred Jackson James Jackson Joe & Charlene Oleinik Sam Sibert Todd Stewart William Vollenhals Calvin White SOUTHEAST Bobby Davis Wiley Dean Eric Felker Chris Fowler Mike Fulenwider Joseph Kendall C. Doug Knipp Eric Overcash John Pankratz Larry Peak Vic Peeples

Terry Rogers Linda Rosenbalm Gurpreet “P2” Sandhu Leslie Sharp Bill & Bonny Shelton Marcus Shelton Jay & Kelly Shoffner Jack Sims Bill West Charles “Tim” West Richard West Steve West Daniel Yagoda SOUTHERN CALIFORNIA Charles Buckner Israel Diaz Robert Prendiville SOUTHWEST Debra Ashmore Sheila Boespflug Krystal Burge

Richard Cahill Rajeev Jain Franklin Nye UPPER MIDWEST Dale Black Robert & Sharon Clawson Margaret Duenow Gene Duenow Peter & Holly Helf Michael Kohlman Michael Kulp Terry Moffit Jim Olson Kevin Schlutz Susan Schmidt Doug Smith Justin Stewart Pete & Mary Wasilevich

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7 Tax Planning

INSIGHTS

KFC Franchise Owners Should Leverage in

2016

New and extended rules mean you may be able to deduct more of your business expenses upfront. Plus, you should make sure youâ&#x20AC;&#x2122;re not headed for any Affordable Care Act or tax-filing surprises next year.

Three safe harbors will help you get current deductions for some capital expenditures. Congress has extended or made permanent several tax provisions that may affect you. Thereâ&#x20AC;&#x2122;s a higher dollar threshold for expensing property and equipment. There are higher penalties for not timely filing or furnishing correct information returns. Next year will bring new deadlines.

By Kip Knight, H&R Block President, U.S. Retail Operations

The Affordable Care Act comes into full effect for all businesses. Consulting with a tax expert is always a good investment. Su m m er 2 016

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hether you own one or many KFC franchise locations, chances are you never run short on tax questions. As former head of marketing for KFC International, I worked with hundreds of franchise owners. I understand the important questions you have for your business. And that’s especially true when it comes to tax questions. In my current role as president of U.S. Retail Operations for H&R Block, I talk taxes and franchise issues every day with our national network of office owners. This year, maybe you’re going to renovate your restaurant, buy some new kitchen equipment, or just proactively plan ahead a few years. Either way, understanding these seven areas of business tax and consulting with a tax professional will help you be prepared for this year and beyond.

1. Three safe harbors will help you get current deductions for some capital expenditures. If you remodel, make certain improvements, or perform regular repairs and maintenance for your restaurant, there are some tax rules you should know. For these kinds of expenses, the IRS has outlined safe harbor rules. Safe harbor means that the IRS will allow certain taxpayers to take advantage of an easier, streamlined benefit if the taxpayers are eligible.

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Remodeling your restaurant? If you remodel or redecorate the physical appearance and/or layout of your restaurant, you may be able to take advantage of a special tax benefit. That would include projects such as: • Upgrading the kitchen or dining areas • Relocating walls within the existing footprint of the building • Updating bathroom or lighting fixtures with more efficient models • Replacing wall or floor coverings What you need to know. The remodel/refresh safe harbor allows taxpayers with audited financial statements to deduct more of their remodeling expenses up front. If you qualify under this safe harbor, you can change your accounting method to deduct 75 percent of your “qualified costs” to remodel or refresh a “qualified building” for the tax year that you made the renovations. For the other 25 percent of the expenses, you would capitalize them—meaning that you would add them to your depreciation schedule and depreciate them. Here’s an example: A restaurant owner spends $10,000 remodeling her kitchen in 2015. On the business’s 2015 tax return, she deducts $7,500 of the

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expenses. The remaining $2,500 would be added to her depreciation schedule and depreciated as long as a 39year recovery period. The remodel/refresh safe harbor is available for taxable years beginning on or after Jan. 1, 2014. If you aren’t eligible for the remodel/refresh safe harbor, you may be eligible for the small taxpayer or the routine maintenance safe harbors discussed next. Average annual gross receipts of less than $10 million? If so, and you own or lease a building with an unadjusted basis of less than $1 million, you may fall under the small taxpayer safe harbor. Gross receipts generally means total revenue without reduction for any expenses. Unadjusted basis generally means the original cost of the property. What you need to know. If you qualify under the small taxpayer safe harbor, you can currently deduct (rather than capitalize) the costs of repairs, maintenance, improvements, or similar activities. Generally, the total amount you paid during the tax year for repairs, maintenance or improvements on your building property can’t be more than 2 percent of the unadjusted basis of your building, or $10,000 (whichever is less). Here’s an example: Alexander owns a restaurant. Alexander’s building has an unadjusted basis of $750,000. In 2015, Alexander pays $5,500 to replace the fixtures in the restrooms. In addition, he incurs $4,000 for repairs, maintenance, and similar activities for the restaurant. The total amount Alexander paid during 2015 for repairs, maintenance, improvements, and similar activities doesn’t exceed the lesser of $15,000 (2 percent of the building’s unadjusted basis of $750,000) or $10,000. If Alexander properly makes the election for the restaurant, he can deduct the $9,500 in 2015. Have regular maintenance expenses? If you perform regular maintenance on building structures or building systems, and you expect to complete the maintenance more than once over a 10-year period, you may fall under the routine maintenance safe harbor. What you need to know. If you qualify under the routine maintenance safe harbor, you can currently deduct (rather than capitalize) the cost of recurring maintenance for buildings. This safe harbor also applies to tangible property other than buildings, although the maintenance timeframes vary based on the type of property. Generally, routine maintenance doesn’t include expenses for betterments, adaptations, or restorations. You would capitalize those costs as improvements. Here’s an example: In 2012, Hampton acquires a new restaurant building. Hampton reasonably expects to pay an outside contractor every four years to perform detailed testing, monitoring, repairs, and preventative maintenance on the building’s HVAC system. In 2015, he pays a contractor to perform the scheduled Su m m er 2 016

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maintenance and replace a worn blower motor warranted by the manufacturer for four years. Hampton can deduct the amount he paid for the HVAC maintenance and replacement blower motor in 2015 because he can reasonably expect to replace the blower motor a second time within a 10-year period.

2 . Congress has extended or made permanent several tax provisions that may affect you. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended or made permanent the following important business tax breaks: For tax year 2016 and beyond, you can currently deduct $500,000 in qualified restaurant property under Section 179. First, some definitions will help explain this provision: Section 179. To help businesses quickly recover the cost of capital outlays for qualifying personal property, the IRS allows taxpayers to write off these costs in the same year they were incurred instead of recovering the costs over time through depreciation. The IRS makes the expense election available, on a tax-year by tax-year basis, under Section 179. That’s why it’s often called the “Section 179 election.” Qualified restaurant property. This is any building or building improvement where more than 50 percent of the building’s square footage is devoted to the preparation of meals, and seating for on-premises consumption of prepared meals. Qualified improvement property. This includes any improvement to the interior of a commercial building (e.g., cooling, heating, lighting, electrical, plumbing or ventilation items, including related energy management systems, whose purpose is general building habitability, permanent floor coverings, fire protection and alarm systems, many types of doors, ceilings not needed for building support or stability, permanent but non-load bearing walls, exit route signs, woodwork, rest-room accessories and partitions, and building security items). But that doesn’t include the enlargement of the building, any elevator or escalator, or the internal structural framework of the building. Before Congress passed this permanent provision, the dollar threshold for directly deducting expenses was set to drop significantly, to $25,000. The PATH Act also made the $500,000 limit for Section 179 apply retroactively to tax year 2015. After currently deducting up to $500,000 under Section 179, you can use bonus depreciation and/or depreciate the rest of the cost qualified restaurant property over 15 years. Before Congress made the 15-year depreciation period permanent, it was going to increase from 15 years to 39 years. Businesses still can use the 50-percent bonus depreciation on qualified restaurant property that also satisfies the requirements for qualified improvement property. 24

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Businesses use bonus depreciation (which is also called a special depreciation allowance or additional first-year depreciation) to expense a portion of the cost of qualifying business property in the year that the property is placed in service. Bonus depreciation is calculated as a percentage (generally 50 percent) of the cost of the qualifying property placed in service (after any Section 179 deduction has been applied, and before any regular depreciation deduction has been applied). Congress extended the 50 percent bonus depreciation amount through 2017, with a phase-out in place through 2019 (i.e., 40 percent in 2018, 30 percent in 2019, and 0 percent in 2020).

3 . There’s a higher dollar threshold for expensing property and equipment. Businesses can now deduct (rather than capitalize) tangible personal property, such as furniture and equipment. Generally, this option applies to property costing $2,500 or less per item, or property with a useful life of 12 months or less. Before this recent safe harbor change, businesses could deduct items only up to $500. The increase is effective for tax year 2016, but the IRS won’t challenge businesses that use the $2,500 threshold in 2014 or 2015. 4. There are higher penalties for not timely filing or furnishing correct information returns (such as Forms W-2, 1042-S, 1095, 1099, 8027, Schedule K-1, etc). The penalty increased from $100 to $250 for 2015 information returns to be filed in 2016. The IRS can assess both penalties (timely filing with the IRS and timely furnishing to recipients) on each form, so the combined penalties are actually $500 per return. The penalty increases to $260 for returns to be filed in 2017. 5. Next year will bring new deadlines. For tax year 2016 returns filed in 2017, there are new filing deadlines for the following forms: • Form 1065 is due March 15 instead of April 15. • Form 1120 is due April 15 instead of March 15. • Fiscal year company due dates are adjusted accordingly, except C corporations. With a fiscal year ending on June 30, C Corporations will continue to have a file date of Sept. 15, until 2026. • Form 1120-S is still due March 15. 6 . The Affordable Care Act comes into full effect for all businesses. 2015 was a transitional year for businesses with fewer than 100 full-time equivalent employees. For tax year 2016, ACA rules mandating that employers offer affordable health insurance coverage will go into full w ww. akf c f . c o m

effect for employers with 50 or more full-time (including full-time equivalent) employees. Businesses face potential penalties for failing to offer coverage to full-time employees or failing to offer them coverage that is not up to the minimum standards required by the ACA. The penalty for businesses that don’t offer affordable coverage is the same for tax years 2015 and 2016. There are two penalties that apply differently based on the situation. Each penalty is applied slightly differently and can be substantial depending on the number of full-time employees. For instance, a business without insurance for its 65 full-time employees could owe a penalty of $70,000. If you have questions about your business’s ACA compliance, it’s best to speak with your insurance and tax advisors to get advice tailored to your specific situation.

7 . Consulting with a tax expert is always a good investment. When dealing with business expenses and other franchise considerations on your tax return, you will

benefit from understanding these essential knowledge points. Consulting with a qualified tax professional is always a good idea, because he or she can help you optimize the application of these rules to your circumstances, with the confidence that your return will be accurate and complete. Granted, working on your business taxes is not nearly as much fun as enjoying some delicious Finger Lickin’ Good chicken from KFC. But it certainly can be very satisfying for your bottom-line! Kip Knight is president of U.S. Retail Operations for H&R Block, responsible for driving service delivery of tax and financial services to the company’s 13 million U.S. retail clients throughout its nationwide network of company and franchise offices. Prior to joining H&R Block, Knight’s 35-year career has included senior management and marketing positions with Procter & Gamble, PepsiCo, Yum! Brands, and eBay.

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Digital MARKET ING KFCC FINDS BRANDING OPPORTUNITIES AND IMPROVED SERVICE WITH NEW, ONLINE ENDEAVORS.

BY PAUL GEREFFI

apid advancements in digital technology are changing the way we live, the way we work, and the way we do business. Increasingly, consumers opt to embrace

technological changes that allow them to conduct their daily routine more quickly and on their own terms. Automated teller machines at banks, self-service checkout at the grocery store, and cashless toll booths on the highway are just a few examples. Speed and convenience are what drives this technology, and anything that can give us an increase in the precious commodity of time is invaluable. 26

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Sample social creative for National Star Wars Day (May the 4th).

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Marketing

Further, the proliferation of smart phones and other handheld devices has made the exchange of information and communication nearly immediate. The ability to share thoughts, ideas, and opinions instantaneously and on a widespread basis has increased exponentially. News and information, and sometimes misinformation, spreads at warp speed. The advent of social media sites, such as Twitter, Yelp, Facebook, and others provide a forum for virtually anyone. The ability to react quickly and respond accordingly to this phenomenon is crucial. Savvy retailers realize this and are changing the way they do business.

KFCC gets social

at KFCC. â&#x20AC;&#x153;This technology allows us to get immediate feedback and instantly optimize our marketing strategies,â&#x20AC;? he says. For instance, KFCC has leveraged a partnership with NetBase, a provider of social media analytics platforms. The NetBase platform analyzes millions of social media posts daily to help brands and agencies obtain valuable business insights. Consumer reaction to news events mentioning the KFC Brand can allow for quick intervention to stave off a potential crisis. Previously, myths and untruths about KFC sometimes circulated for weeks or months before the company could react by issuing a statement or press release to counter the inaccurate information. Now, KFCC can respond via social media, getting the accurate information out immediately, and in a forum that many people are reading. In addition, the latest commercials can be analyzed quickly for effectiveness. If social media shows any kind of negative reaction to the newest advertising spot, changes, if necessary, can be implemented immediately. Further, the company can monitor trends in

A screen grab of KFCCâ&#x20AC;&#x2122;s Netbase pulse dashboard (displaying the Nashville Hot social conversation).

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real time, before, during, and after current ad spots to gauge reactions—positive or negative. “Every morning, our marketing team holds a ‘daily download’ led by Jill Leedom, social intelligence specialist, to see the overnight reaction about KFC, competitor news, and cultural trends,” Kelly says. To facilitate these strategies, KFCC established “The Coop,” its social intelligence center. The Coop is used to inform the broader business with social data, to identify engagement opportunities, and to defend the Brand from potential crisis situations by mitigating damage with quick action. A recent example can be found in the firing of a transgender employee, which quickly sparked outrage and sharing on Twitter. By identifying the issue, connecting with PR and franchise leaders and responding to the issue within hours of posting, KFCC was able to make their action part of the headlines that were later written. (The Huffington Post published

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an article on this topic, which can be found here: http://huff.to/24zbA6A.) Previously, the response to issues was mostly reactive instead of proactive, and it took a long time for KFCC to react. Some voices simply were not being listened to. Now, with NetBase, the company can quickly interact with their influencers. KFCC is able to keep its ear on customer reactions to new product launches and to monitor social media reaction. Trending terms are analyzed and can offer insight into what consumers are thinking about and how they feel about individual products and ad campaigns. For example, says Kelly, consumer reaction to the KFC Nashville Hot menu offering can be measured on a global scale and customer feedback can be analyzed via a campaign dashboard. Another tool being explored is Conversocial, which would streamline customer service initiatives across online channels, and allow native response to issues that previously couldn’t be seen. Conversocial would be utilized by the same vendor that manages 1-800 complaints, creating a unified guest recovery and resolution stream for the Brand. An added source of KFC information is chickenchattin.kfc.com, a recently launched blog site where customers can read about a variety of information about KFC. With the moniker of “Chicken Chattin’ with the Colonel,” its posts seek to tell the KFC food story, debunk myths, provide historical information, and highlight the return of the Colonel in everything we do. “It tells the food story of KFC and why we should get credit for cooking chicken the hard way,” Kelly says. The blog also explores myths, misconceptions, hoaxes, and inaccuracies about KFC and its products. Some of these have lingered in the public’s perception for years, while others quickly take root in social media and spread throughout the Internet unchallenged. Inquiring minds can find answers at this site, which contains about four new articles each month. w ww. akf c f . c o m

“If we don’t tell our story, somebody else will. If consumers know the truth about how we source and cook our chicken they wouldn’t be so quick to believe outlandish claims, and if they search for them, they’ll find our perspective first,” Kelly says. “This can mitigate potential crises.”

“Dream” continued KFCC’s current campaign, in which comedian Norm Macdonald plays the fast food chain’s iconic mascot, Colonel Sanders. The new ad paints Macdonald’s portrayal as a bad dream, but when the Colonel wakes up, he’s still not himself—instead, he’s played by another comedian, Jim Gaffigan.

KFC on-demand

Delivery for KFC now is an option in some U.S. markets with DoorDash, a technology company that connects customers with local businesses. Through the DoorDash marketplace, people can purchase goods from local merchants and have them delivered in less than 45 minutes. DoorDash builds on the on-demand delivery infrastructure in local cities and is investing in the future of local, on-demand delivery. KFCC partnered with DoorDash in Los Angeles and San Francisco in October 2015 and has expanded into Houston and Chicago. Testing is focused on operations, food safety, and marketing effectiveness. “KFCC is working on national agreements with DoorDash that will soon allow any KFC within the coverage area to setup direct agreements with DoorDash that leverage our scale,” Kelly says.

Online advertising

While traditional television advertising still is an important part of the medium, the power of digital advertising through social media was proven during Super Bowl 50. According to YouTube, users of its Adblitz channel voted Kentucky Fried Chicken’s “Dream” as one of their favorite Super Bowl ads, even though the 30-second spot didn’t air during the game itself. Instead, it was featured prominently within CBS’ digital stream of the game, and through that method, it gained as much attention as ads with in-game slots. Su m m er 2 016

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While it did have a placement during CBS’ televised pregame show, “Dream” didn’t air during the game itself, but its second-half slot during CBS’ live stream broadcast introduced it to the millions of viewers who chose to watch the game online. Those digital-conscious consumers also are far

more likely to be Adblitz users, and with that context in mind, KFC’s appearance among YouTube’s top ads makes sense. The positive reception garnered by “Dream” further validates a theory that has become quite evident in recent years. For Super Bowl brands, participation in the broader advertising “event” is more important that the actual broadcast of an ad. Create something memorable, and viewers will take notice—even if they don’t turn on their televisions, KFCC proved. A teaser for the “Dream” ad ran on social media in the week leading up to the game, with targeted digital media. The result was that there were 30 million video views the first six weeks. “We had a live ‘war room’ during the game that featured a creative team from our agency, partners from Google and Twitter, and the KFCC digital marketing team responding to conversation and producing real-time content,” Kelly says. “The results are in,” says Kelly, and the Brand experienced a +334-percent growth in social engagements year over year, a 93-percent increase in social impressions, 130 million video views, and seven years of engagement on ColonelSanders. com to bring the Colonel’s rich history to life.

Taking advantage of emerging technology

Looking forward, a lot of exciting things are happening at KFC from an employee and POS perspective. KFCC is rolling out mobile payments in late July 2016, according to Ted Hardy, director, development & digital at KFCC. “We’ll be supporting ApplePay, Android Pay, and Samsung Pay,” Hardy says. 32

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“Restaurants will receive more information, along with stickers for their point of sale systems, in June.” The technology will be available both in restaurants and at drivethru’s. These changes offer an update to KFC’s mobile-payment infrastructure to increase security, especially as retailers migrate to EMV chip technology. Further, it could improve speed of service as more units make the mandated switch to the EMV chip-card payment, which takes slightly longer than a magnetic stripe swipe. Emerging payment technology will shake up, and speed up, the quick-service industry. For example, new technology permits customers to order and pay via a mobile device and their food or beverage is prepared while they travel to the restaurant. Geo-fencing, a software program that uses GPS, or RFID or other beacon technology to establish a virtual boundary that triggers an action when a device enters or exits a specified area, makes this a reality. If the customer opts in to the program, when the mobile device crosses the boundary an alert can be sent to the restaurant staff to prepare a specific order. Ideally, customers can enter the restaurant or proceed through the drive-thru and

KFCC created posters with the legendary Hatch Show Print, a Nashville treasure that’s worldfamous for making show posters by hand, the hard way, just like we make our chicken. Posters were given away on Facebook, Snapchat, and Twitter to keep fans excited for the return of Nashville Hot.

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their order will be listed on an ambient digital display as ready for pick-up. In addition, loyalty programs, personalized service, and mobility can align with hyper-local connectivity through beacon technology, resulting in a seamless customer experience. This new mobile payment capability is especially important for younger consumers. The Millennial generation emMother’s Day video—Designed to give mom a bit of “me” time while the Colonel entertains the children braces brands that fit their by teaching them how to cook the world’s best fried chicken. lifestyles, and the expanse of possibilities that digital The future is arriving faster than some can keep and mobile technology brings is integral to engaging up, and those that don’t adapt quickly may be left this group. behind.

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Protect Your Assets

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Family Limited Partnerships By David Zammit

AN EFFECTIVE PLANNING TOOLâ&#x20AC;&#x201D; WHEN DONE CORRECTLY

Family limited partnerships (FLPs) have long been versatile tools to accomplish many objectives for families. FLPs can impact income taxes, estate taxes, gift taxes, asset protection, family control objectives, and family legacy values. The limited partnership form of the business entity helps to shield assets from claims of creditors. More recently, however, the IRS has contested the validity of FLPs, and in many cases, has been successful. From those contests comes a guideline as to how to implement and operate an FLP correctly. Done correctly, FLPs are still excellent estate planning and asset protection tools.

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How an FLP works Often, an FLP is created by a parent (the “Founder”) to satisfy those multiple wealth transfer and estate planning needs. Here’s how that might work:

Bill and Mary wish to reduce their gross estate because upon their death, their estates will be subject to estate taxes. Their estate consists of closely held business interests and commercial real estate, in addition to their personal residence, liquid assets, and retirement plans. The business and commercial real estate are assets that have been passed down from previous generations and are subject to significant exposure to risk. Bill and Mary would like to keep the family tradition going and want to educate their children on how the businesses work. The assets are worth a total of $10 million. 1. They decide to create an FLP with the help of their attorney and CPA, and transfer the business and commercial real estate into the FLP to increase asset protection, as well as to keep the assets within the family. The FLP is structured so that there is a 1-percent general partnership interest and 99-percent limited partnership interests. At inception, Bill and Mary own all of the general and limited partnership interests. General partners control the operations and decisions of the partnership. Limited partners are more akin to silent investors. 38

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2. Bill, Mary, and the FLP also enter into an agreement to restrict the transfer of partnership interests, as well as to spell out the terms for operating and managing the FLP. 3. A year later, and each year thereafter, Bill and Mary start to gift out 1 percent of the limited partnership interests to their three adult children. Bill and Mary start to include their three children in the operation and management of the FLP. The nominal value of each 1 percent is $100,000, but for gift tax valuation purposes, that’s not really true. The reason is that valuation discounting may be available to lower the gift value of that 1 percent. The discounting may apply because each gift is of a minority interest (“minority discount”), the fact that the interest is of limited partnership interests (“control discount”), and perhaps because of restrictions placed in the partnership agreement to limit transfers (“marketability discount”). A qualified appraiser is required to determine the value of that 1 percent, but it might possibly be anywhere from $90,000 to $60,000. w ww. akf c f . c o m

As you can see, significant wealth can be transferred at a reduced gift tax cost. It may also be possible, depending upon the size of the gift, to qualify the gift for the annual gift exclusion amount, although that is an area that the IRS also is contesting. Although the example only mentions children, it also may be possible to include grandchildren and other family members, depending upon the goals being addressed. There also may be other variations of this general FLP structure and wealth transfer method, such as having adult children contributing with the parents to found the FLP. The FLP is a complicated planning strategy, but it also is effective when done correctly. Family issues Often, the founders create FLPs without any real consideration to the future of the FLP or to the other family members who will receive partnership interests. –– Will the children and grandchildren who might eventually be recipients of these limited partnership interests know what this all means? –– Is the FLP truly a separate, legal business entity operated and managed like a business, or managed and

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operated in the same manner as it was prior to the creation of the FLP? Do the founders actually consult with the limited partners in the operation and management of the FLP? Do the founders make proportionate distributions to the partners or do they make most of the distributions to themselves regardless of the percentage ownership? What kinds of restrictions will be placed into the partnership agreement? Will the FLP continue to operate after the deaths of the founders? Who will succeed to the general partnership interests, and is there a business succession plan in place? Do the founders use the FLP to pay personal expenses? Do the founders make gifts of partnership interests immediately after the creation and funding of the FLP?

To create, fund, and operate an FLP requires the advice of experienced legal counsel and tax advisors. In addition, there are significant costs and expenses to create

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A KFCF Q uar te rl y

Protect Your Assets

and maintain an FLP, including the use of a qualified professional appraiser. Generally, FLPs are only used in families with significant wealth. The following is a checklist for many of the items that must be followed or are highly recommended (or should NOT be done) in order to have an FLP be an effective tool for your estate and asset protection planning needs. This list is not all-inclusive and there may be other items to consider, so you must be sure to engage competent legal counsel if you are considering using an FLP for your planning needs:

1. FLPs must be formed for legitimate and significant non-tax business purposes. Remember, that an FLP is a business entity and must be operated, managed, and respected as such. Legitimate purposes may include using an FLP to: a. Actively manage assets such as operating a business or managing commercial real estate; b. Engage in profit-making activities; c. Maintain assets within the control of the family and restrict outsiders from gaining access; d. Protect assets from potential creditors; e. Avoiding fractionalization of assets (i.e., having many individuals own a small fraction of each individual asset); f. Train and educate partners (i.e., younger generations) on how to manage and operate assets; and g. Pool assets for ease of management and administration. 2. Transactions that have no economic effect other than for tax purposes will not be recognized. 3. The FLP must be operated with economic substance (â&#x20AC;&#x153;form over substanceâ&#x20AC;? is not enough). 40

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Merely creating an FLP, without operating it as a separate business entity, is insufficient for planning purposes. 4. Partners of an FLP must intend to join together in the FLP to share profits and losses and to pursue the legitimate business purposes of the FLP. a. The creator of the FLP should not be operating and managing the FLP to the exclusion of the interests and wishes of the other partners. b. Individuals who are partners at inception should be contributing assets to the FLP in proportion to his or her ownership interest. 5. Formalities of a partnership should be respected. These include: a. The partnership should be formed in accordance with state law, including all required state filings done on a timely basis. b. Each of the partners, if more than one at formation of the FLP, should be represented by their own tax and legal advisors. c. There should be a partnership agreement that adequately spells out the operation and management of the FLP, as well as restrictions imposed upon the various partners. Obviously, the partnership agreement should be adhered to. d. The partnership agreement should adequately state all of the business and non-tax reasons for the creation of the partnership. e. Separate books and records for the partnership should be maintained. f. There should be regular meetings of the partners. g. Actions taken by the partnership are properly recorded in the business records. h. Distributions are made proportionately to all partners. i. Assets should be primarily managed by the FLP, not by outside parties. 6. The partnership should not be treated as a personal asset of the founder. a. Personal assets are not commingled with the assets of the partnership. b. Distributions, particularly to the founding partner, should not be made for living expenses and basic needs. c. All, or substantially all, of the founderâ&#x20AC;&#x2122;s assets should not be placed into the FLP upon formation. d. The personal residence of the founder, in which he or she still resides, as well as personal property, such as cars, furniture, jewelry, etc., should not be placed into the FLP. e. The general partner, typically the founder, has a fiduciary duty to the FLP and should invest partnership assets, and manage and operate the partnership pursuant to the goals of the FLP, and not the founder. w ww. akf c f . c o m

Definite “DO NOTs” The following is a list of things that you should definitely NOT do if you want to have a reasonable chance of success with your FLP strategy. This list is taken from the many court cases that successfully attacked FLP planning strategies. 1. Do not use a prepackaged FLP creation service. You should always consult with competent tax and legal advisors. 2. Do not create an FLP and simultaneously transfer limited partnership interests. The IRS will view this as an FLP created for the sole purpose of tax avoidance with no legitimate business, no-tax purpose, especially if you are elderly, in extremely poor health, mentally impaired, or have a terminal illness (so-called “death bed FLP”). 3. Do not gift limited partnership interests before the FLP is even funded. 4. Do not discount the value of the limited partnership interests transferred unless you have a qualified professional appraiser support the discount. 5. Do not take excessive discounts. 6. Do not treat the assets in the FLP as personal assets. Remember that the FLP must be operated, managed, and respected as a separate business entity. Don’t pay personal expenses with FLP assets. 7. Do not fund the FLP with just liquid assets. The IRS may not view these types of FLPs as legitimate businesses. 8. Do not fund the FLP with personal property or a primary residence. 9. Do not use FLP assets to pay the estate taxes and final expenses of the founder, particularly when the assets were transferred to the partnership shortly before death. 10. Do not place all, or virtually all, of your assets into the FLP. Ensure that you, as the founder, have sufficient assets in your own name to maintain your lifestyle needs. Conclusion While the list of do’s and don’ts may seem daunting, you’ll notice that a lot of the items on the lists are, pretty much, simple common-sense. Unfortunately, there have been many cases where common sense was lacking, or where greed or desperation was in play. Those are the types of cases that the IRS looks for, contests, and wins. Done correctly, however, family limited partnerships are still excellent tools to use for certain high net worth families in the estate and asset protection planning. David Zammit is a financial strategist with Alliance Financial Group in Miami/Ft. Lauderdale, Fla. For more information, visit www.afgfl.com. The foregoing information regarding personal, estate, charitable and/or business planning techniques is not intended to be tax, legal or investment advice and is provided for general educational purposes only. Neither Guardian, nor its subsidiaries, agents or employees provide tax or legal advice. You should consult with your tax and legal advisor regarding your individual situation. Su m m er 2 016

A KFCF Q uar te rl y

Beverages Report

Summer Is Peak Beverage Season 6

By Jody Luihn

As we gear up for peak beverage season, I wanted to remind everyone that beverages are one of the most profitable items in our restaurants, and increasing our beverage sales is the easiest way to contribute to profit growth. Our goal on the Beverage Squad is to equip the system with the necessary know-how, tools, and tactics to sell quality beverages. I’m happy to report we’ve made significant gains on beverages this year. Total beverage sales are up more than 26 percent from this time last year. Beverage sales as a percent of menu mix have grown more than 24 percent. We’ve even seen a 17-point gain on drinks per transaction (D/T) as a result of continued support from $5 Fill Ups and the new menuboards with bundled beverages. It is clear the calendar and menuboards have driven significant growth for beverage sales and profits. Our beverage strategy remains the same and we should continue to focus on the three key pillars: 1. Variety: Be relevant to our guests and have the beverages they prefer; 2. Value: Drive trial by offering “wow” value; 3. Visibility: Remind guests they need a beverage to spark impulse purchases. Variety We all know having the right beverage variety is key. If a restaurant doesn’t have the beverage guests want, 42

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Our GOAL on the

BEVERAGE SQUAD is to equip the

SYSTEM with the

necessary KNOW-HOW,

TOOLS, AND TACTICS to sell quality beverages.

they will either buy a meal without a beverage or leave the restaurant; that is an automatic 33-percent loss of sales, which is why it is important for KFC to offer the right beverage variety to our guests. After extensive research from Pepsi, this has led KFCC to recommend a fountain lineup that ensures guests will get the beverages they prefer, that enables KFC to merchandize a wider set of beverages, and that delivers a consistent guest experience. Restaurants with the recommended lineup see +3 percent D/T compared

with restaurants without optimized fountains. Pepsi is funding $1 million to optimize the system’s fountains, and NASMs are currently working with franchisees to ensure they have the recommended lineup in their restaurants. For additional information, contact your Pepsi NASM. Another opportunity to have the right variety of beverages is with brewed iced tea. Iced tea is a growing category that is larger than diet carbonated soft drinks and, most importantly, ranks second for best beverage paring with fried chicken. The Beverage Squad set out on a journey to find one tea supplier that could develop a unique and proprietary “Colonel’s Iced Tea” blend that will enable KFC to execute a consistent brewed iced tea program throughout the system and enhance our beverage portfolio. Consolidating to Tetley enables significant cost savings for the system and is a huge win financially. We are in the beginning phases with the brewed tea journey, so stay tuned to TeamKFC for more information or contact Richard.Fischer@ tetleyharris.com to get on brewed tea. Value $5 Fill Ups continue to deliver great value to our guests by offering a real meal at a sharp price point—leading to strong transactions, sales, profit growth, and huge growth in D/T. As the guest experience is an important part of the value equation, make sure your teams are focused on ops execution. Remind your teams to always fill w ww. akf c f . c o m

cups to the rim with ice when serving beverages. This is even more important when serving lemonade. Unlike fountain beverages that are chilled because their lines run through ice, the lemonade in the urn is room temperature. Nobody wants a warm cup of lemonade on a hot summer day, so make sure your guests get a cool, refreshing cup of the Colonel’s Lemonade every time. Finally, ensure team members always add the Colonel’s Lemonade label when serving half-gallon jugs, and use the clear 20 oz. branded cup for individual servings. The clear cup differentiates the lemonade as a premium beverage and restaurants that used the clear plastic cup during testing drove more units and beverage sales than restaurants that used the standard 20 oz. paper cup. Visibility Every restaurant in the system should have the BAB yard sign to

merchandise beverages in the drivethru. This yard sign will support beverages throughout the year and will refresh again in September. If your restaurant is unable to display the BAB due to city ordinances, make sure you contact POP Central so that they can provide you with something smaller. Because of the number of issues we have been hearing from the system on lost or damaged hardware, please look for an extra set of screws and washers to arrive in the Extra Crispy POP Kit. The menuboards that rolled out last October also increased beverage visibility. The new design provides more combo presence while also highlighting beverage variety through combo pairings. Due to bundling beverages with nearly all low-end items, in-meal beverage sales increased by 8 points after the rollout.

Here are a few other things you can do to drive beverage sales at your restaurants. 1. Suggestive Sell: Make sure your team members ask every guest if they would like to add a drink to their order. Franchisees who are focused on suggestive selling significantly outperform the national average for drinks/ transaction. 2. Focus on the Drive-thru: KFC is above average in drink incidence for dine-in customers, but we lose significantly at the drive-thru. Add a drink to every meal and upgrade every drink to a large. We will bring you more ways to drive your beverage sales—and profits—in the coming months. But in the meantime, please reach out to any of the team with questions or ideas.

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A KFCF Q uar te rl y

Communications Update

AKFCF…There’s An App For That 6

By Kevin Schlutz

According to Harrison Coerver— an expert on the subject of association governance and management, and author of three books on the subject—one of the biggest and worst mistakes most associations make is failing to properly communicate all of their successes and benefits to their members. Those leading and involved with the organizations see the successes and incorrectly assume that all of the members see and understand them as well. According to Coerver, that generally isn’t the case, and it’s extremely important that the AKFCF and the regions don’t fall into the trap of assuming their members understand all of their accomplishments and the benefits they have generated. Working together, we always accomplish so much more and it’s important that every member understands the milestones their association has achieved and how the system as a whole has benefitted. Knowing what has already been accomplished will hopefully encourage them to attend more meetings or volunteer for a committee or board to feel that same sense of accomplishment that many of us already have. That is just one of the subjects on the agenda for our Regional Secretaries/Communication Committee meeting in September, as we prepare for the fall regionals and our next AKFCF Convention in Austin. For all of you who regularly attend the annual Convention and 44

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use a smart phone or tablet, the last three years you surely have enjoyed the opportunity to use the AKFCF Convention app, which has been improved each year with more information and possible uses. Following much research and discussion by the Executive Committee and staff, the AKFCF Board has approved the development of a year-round app that will be used for all AKFCF and Regional meetings, bringing this invaluable resource not just to our various meetings, but for many other uses all year long. The year-round app will have different levels for the various Regional meetings and many different uses. Under the “My Shows” icon will be a list of different meetings you can choose from. Imagine what a valuable resource having all of the included information right at your fingertips all of the time will be: contact information of vendor partner representatives and other members; dates, times and schedules of events; hotel information; maps and local attractions around the meeting sites; the possibilities are endless. We can send notifications; we can do surveys to get instant feedback; we can discuss current issues; and much of the information can be exported into your other programs. There’s also the opportunity to share recognition or best practices. All of the uses it has at Convention will be available for the Regional meetings. We encourage you, once you have it, to suggest even more ways it can be

*Not final version of app.

used for the benefit of the members. What a powerful communications tool! Now, this doesn’t mean that will be the only source for that information. One thing we have learned over the years is that different people prefer to get their news and information in different ways. There still will be printed materials for the foreseeable future, but for those who choose the app, a tremendous wealth of information and capability will be opened up to them. It’s truly an exciting time for meeting planners and committee chairs to use this new tool for great communications. This summer, the Regional secretaries, committee chairs, and AKFCF staff will be learning how to build events and add all the details so that by the fall Regional meetings, we’ll be ready to provide great capability to those smart phone-wielding members. Look for the announcement that your next Regional meeting can be accessed on the year-round AKFCF app and take advantage of all the possibilities. w ww. akf c f . c o m

K F C / N P C

Re p o rt

Pay Attention To Signs 6

Dale Black

DEER

CROSSING

This picture appeared in the local paper along with an impassioned letter to the local police. The writer was very upset that the police had placed this sign along the road she took to and from work. You see, TOO many deer were being injured by cars. She admonished the police to take down THAT sign and the action she believed was prescribed by the sign. Sure, we can all have a smile at the woman’s view that the sign was the signal for the deer to cross HERE! Signs are important if one understands their meaning AND what action they need to take. Here at the RSCS there is a sign— some might technically call it a chart— but just like a sign, if you understand the meaning and take action regarding

your business plan, you’ll be better prepared to weather commodity fluctuations. It’s Cost of Goods (COGs). How do you get this sign for commodities? Instructions are included at the end of the article. Upon your first viewing, the data may appear daunting, but let’s try looking at just one item: shortening. Scanning horizontally across the line, you’ll see pluses or minuses broken out by calendar quarters. So a positive number in the second quarter means an increase in price by that amount over what you paid that quarter one year ago. Be aware this chart is not store-door precise, but rather a national average. As you continue to scan to the right, you come to an annualized number for just shortening. The annualized

Signs are important if one understands their meaning AND what action they need to take.

number is used by RSCS staff and directors, but for business planning, you’ll want to pay more attention to the “weighted” number in the far right column. The RSCS uses “spend” (how much we as operators purchase) to calculate how the annualized increase in shortening will affect your COGs. The calculation is very important as operators may see a significant increase in a line item, but for a low volume of purchases, the impact will be nominal. Conversely, a significant price increase coupled with large purchases will be a SIGN (signal) you may wish to alter business plans. The 2016 KFC Cost of Goods Market Summary is now posted to the Cost of Goods webpage on www.rscs.com. Using your rscs.com user name and password: • Log on to www.rscs.com • Choose “My Info” on the top menu selection • Choose “My Docs” drop‐down list PLAN SAFELY. Pay attention to SIGNS. Su m m er 2 016

A KFCF Q uar te rl y

O E C

Re p o rt

Your NEW Operations Excellence Committee 6

By Tom Broome

This is the FIRST step in our JOURNEY to being operationally READY for the SANDWICH

LAUNCH next APRIL

Hello KFC, I have been recently appointed the chairman of the NEW Operations Excellence Committee. The OEC is a sub-committee of the NCAC of which I am a representative for Region 4. Earlier this year, the NCAC realized the OEC needed better definition and role clarity, separating clearly from the Operations Sub Committee (OSC) work. While the OSC works on development, the OEC will work on implementation, measurement, and communication. The NCAC agreed that the past committee was too big and decisions could be made quicker with a smaller group. Also if the vice chairman was able to select the members, after getting feedback from 46

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fellow franchisees on the talent levels of the people who applied, we could get and maintain the most talented franchisees on this committee. I was honored to be asked by Tom Slater to lead this new committee, and to help him identify the best franchisees to participate from among many quality nominations. I look forward to working with some of the best operators in the system, including Shawn Brady (Harmanâ&#x20AC;&#x2122;s), Steve Dean, Matt Hansen (KBP Foods), Teresa Kelly, Jim McKenzie, Bryan Robinson, and Justin Stewart. So now, we have eight franchisees along with the COO, CREX, CIO, and the CPO from KFCCâ&#x20AC;&#x2122;s leadership team. While I will lead the committee, Kamau Witherspoon will lead the KFCC team that will work with us. We had our first meeting in midJune as part of the NCAC meeting week, and everyone felt the new format is more than worthwhile. Our biggest focus was reviewing in detail

the plans for the upcoming RGM rallies, especially around labor deployment. This is the first step in our journey to being operationally ready for the sandwich launch next April. We feel KFCC has a first-rate team, and Kathy Gosser and her team are doing outstanding work with e-training and development of the rallies. We feel these rallies are a great way to build passion around this great brand. Without passion, simply put, we lose. We need motivated managers and franchisees to drive our attributes up to better compete against our competition. We need to change in so many ways in order to win this war we are in. The OEC will stay focused on the implementation of training and ways to measure how well we are doing. Our attributes are on the way up, but as you know, we have a long way to go to reach the sales and profits we all want and deserve. I hope you will feel free to reach out to me with questions or suggestions as we continue on this journey. w ww. akf c f . c o m

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A KFCF Q uar te rl y

R S C S

M e m b e r

P ro g ra m s

Helping Operators GROW THEIR SAVINGS! 6

The RSCS Member Programs Team is focused on ensuring you get great value on the products and services that you use to operate your business every day. We are very excited about our recently delivered 2015 Operator Savings Reports, which outlined each operator’s savings in our Top 10 Programs. This is the first year that we have had the ability to collect this type of data from our suppliers and organize it into a report that will assist you in determining areas of potential opportunity for your organization. If you didn’t receive your copy of the 2015 Operator Savings Report, email us at memberprograms@rscs. com. See below for highlights of each of these programs and how KFC operators are saving with RSCS Member Programs: WASTE AND RECYCLING—Systemwide, Yum! operators are saving $3.6 million annually on their waste spending through participation in our National Waste Program. Currently, there are 759 KFC locations in the program that are enjoying a combined savings of $1.57 million per year! That’s a PRA of $2,068! While we recognize that some locations are in closed markets and cannot take advantage of this program, we believe that with our current participation rate of 17 percent, we still have a lot of opportunity for growth. To have your locations analyzed for potential savings opportunities, please send a copy of your recent invoices and your current service levels to Cindy Dahl at cindy.dahl@rscs.com. 48

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By Lainie Yarmuth (left) and Cindy Dahl

PEST CONTROL—The Yum! pest standard provides an effective restaurant pest program that helps ensure a sound, proactive pest prevention program in our restaurants. The standard supports the pest control approach commonly referred to as Integrated Pest Management (IPM). IPM uses preventive (proactive) and corrective measures for an effective pest control program. The specifications of the program are somewhat more robust than those that are commonly used in our industry. Because of this, service may be more costly than standard treatments. The current negotiated pricing is approximately 20 percent less than the supplier’s regular pricing for these same services, a $2.7-million annual savings for the Yum! system. KFC operators enjoy an annual savings of $1.4 million on these services. If you would like more information, please contact Cindy Dahl at cindy.dahl@rscs.com. SHIPPING—Up to 75 percent OFF! UPS is our long-standing shipping partner offering unprecedented shipping discounts. If you think you are getting a better deal on ground shipping, we want to hear about it! We are happy to compare rates to test our claims with both UPS and FedEx. We even ask that our suppliers leverage our UPS discount when conducting Yum! business to ensure the shipping savings are realized throughout the supply chain. Currently, there are 26 percent of KFC operators enjoying

an annual savings of $3.5 million! Visit the Digital Directory to get an account set up for your shipping needs at www.rscs.com/memberprograms, or contact MemberPrograms@rscs.com today to see if you are getting the UPS discount. SMART SAFES—Several operators are leveraging the Smart Safe Program through Brinks to simplify the RGM duties of getting change or taking deposits to the bank. RSCS recently renegotiated the contract to include the latest smart safe technology to communicate with your bank regarding deposits, flexible pick up options to satisfy volume needs at your restaurants, and negotiated program pricing. For more information, contact Al Ringer at 678-354-5343 ext. 678-555-2270, al.ringer@brinksinc.com. LAUNDRY SERVICE—There are 67 KFC operators that took advantage of our discounted laundry/mat service with Cintas, saving a total of $92,000 annually. Towels keep surfaces clean and free of debris, reducing the likelihood of cross-contamination. When used with a surface sanitizer, towels remove pathogens such as E. coli and salmonella. Aprons provide a barrier of protection from clothing to other surfaces. Get an average of 15 percent off all Cintas products and services. If you would like further information on the services provided by Cintas, please contact Steve Mitrione at 513-573-4258, or mitriones@cintas.com. w ww. akf c f . c o m

OFFICE PRODUCTS—There are only 7 percent of KFC operators who are leveraging Staples discounts for more than just office supplies. Staples offers terms, or you can use a credit card in store to benefit from negotiated rates on copy paper, toner, breakroom supplies, office furniture, and much more! There are locations across the country, but shipping is free for orders over $35, which keeps your staff in the office vs. making a weekly or daily run for supplies. Office Depot/Office Max also are part of the RSCS program with great discounts. View all of the details at www.rscs.com/memberprograms, or contact MemberPrograms@rscs.com for more information. PAYROLL—Are you considering leveraging a payroll supplier to administer your payroll due to changing reporting requirements? Currently, 19 KFC operators are leveraging one of the suppliers in the RSCS Payroll program. This program provides up to a 40-percent discount. Also, take advantage of the partnership with ADP to help you identify and capture the various tax credits and incentives for which your company may be eligible—and at up to a 45-percent discount off of the base contingency fee! Visit the RSCS Digital Directory to find out about ADP and all suppliers in the program and the benefits of each at www.rscs.com/memberprograms, or contact Lainie Yarmuth at lainie.yarmuth@rscs.com, 502-891-2720. ENERGY REBATES—Did you purchase any major equipment in the last 90 days, or have plans to purchase any in the future? Are your restaurants participating in the American Showman Project this year or next? If so, you could get a rebate from your utility supplier by simply signing up for the RSCS Energy Rebate Program. This program maneuvers through the 33,000 available rebates from utility companies across the country, and applies for the rebate on your behalf. So far this year, the program has provided $20,000 in rebates to operators across the system. Lighting rebates from American Showman are averaging $350 per site. Currently, only seven KFC operators

have signed up for the program. View more information on the program at www.rscs.com/memberprograms, or contact MemberPrograms@rscs.com to ask any questions. IN-STORE MUSIC—KFC operators saved $750,000 in 2015 using the In-Store Music Program from Mood, which offers saving of up to 55 percent off music packages. There are 142 operators leveraging the music service. You can choose from more than 150 available music programs. If you would like

for your restaurants to catch the beat, contact Jason Bills at 303-601-0767, or jason.bills@moodmedia.com. CO2—KFC operators saved approximately $340,000 in 2015 using our CO2 Program to carbonate their beverages with Certified Beverage Grade CO2. Members also receive a discounted flat monthly rate for bulk CO2 tank rentals. If you would like further information on CO2, please contact Jeff Desmond at 800-472-2855 ext. 3363, or jdesmond@nuco2.com.

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A KFCF Q uar te rl y

Regional Short

KFC Franchisees Care! 6

By Deborah Ossanlo

The Southern California region has invited the Northwest to join them in a combined Fall Meeting for 2016, which will be held this September at the JW Marriott in Palm Desert, Calif. The two regions are looking at holding an 18-hole miniature golf rally to raise money for a local charity. Vendors will have an opportunity to sponsor a hole and “give back to the community.” For the third year in a row, Southern California has adopted this annual charity giving at our fall meetings. The charity that is selected is always a charity local to the meeting location. The first year, we selected the Guardian Angel School in Pacoima, which is a Catholic school in an impoverished area of the city. The donation helped to buy books and much-needed supplies for the children. Last year, we selected Rady’s Children’s Hospital in San Diego, which helps treat children’s illnesses. The idea of giving back to an organization that involves children is close to our hearts and we want to continue the effort for years to come! SoCal also has encouraged the restaurants in our region to choose a school or children’s organization in their area to sponsor. Many restaurants have selected elementary schools, and sponsor their music programs or sports teams. This community involvement and “making a difference” is an awesome way to let the world know that KFC franchisees care! 50

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Above and left: Kids from the Guardian Angel School in Pacoima performing during a charity event in fall 2014.

Parents of a child treated at Rady’s Children’s Hospital came out to tell their story and thank us for the generous donation. w ww. akf c f . c o m

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A KFCF Q uar te rl y

Executive Director Update

Overused Clichés We Need to Stop Using 6

By Kelly Rodenberg

The language you use can affect the impact you make as an owner/ leader. Choose positive words that will get the attention of your team members and even the people with whom you share your home life.

Words connect us, and when the right words are used, they extend those connections. For you as restaurant owners trying to connect with your managers, ARLs, and team members—all of whom are as busy as you are—you need to be able to not only get their attention, but do it quickly! Think about and focus on the words and phrases you use. If you find yourself using clichés and words that don’t provide clear intentions, consider using replacements instead, Watch your personal brand as a restaurant owner grow stronger as your communications connect you more quickly and deeply with others. Below are a few that I hear constantly in conversations:

new challenge—if you can stay positive and calm, you will achieve greater results. 4. Should. Please stop “shoulding” on people! When someone says, “You know what you should do?” do you listen? I don’t. Replace “should” with “Would you consider?” It’s more inclu-

3. Issue. Replace “issue” with “challenge,” for the same reason that makes “problem” problematic. For busy employees, every day includes a 52

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7. My team. Start saying “our team” instead. 8. Take it to the next level. I hate that phrase (yep that’s harsh language) because it is an overused cliché. Get more creative with your words; i.e., “accelerate results,” “create progress,” or “improve performance”—these phrases will sound even stronger to your team members. 9. Push the envelope. Just when I thought this crazy phrase was eliminated, I heard a colleague use it in a meeting recently. Don’t use it. Get creative! Use phrases such as “explore boundaries” or “overcome objections” or “be more innovative or creative.”

1. But. No one believes what you say before “but,” only the words you use after it. Don’t replace it with “however;” simply make your point and stop talking. 2. Problem. If you ever say to someone, “You know what your problem is?” you can bet they don’t want to listen! Problem is a negative word. Use “challenge” or “opportunity” instead to put a positive spin on a negative word, and your team is more likely to help.

6. They work for me. Replace this with “they work with me.” It’s more inclusive—and we all know it takes a village to pull off some of our tasks.

sive language and has a positive impact on the listener… and it gets their buyin quicker if you need immediate help.

10. Pick your brain. This is the ugliest phrase in our language— not a great visual! Instead replace it with “Can I tap into your brilliance?” and voila, you have someone’s attention!

5. I can’t. Replace with “You could do this,” or “You have the capacity to do this.” We are always being asked to do things outside the scope of the project, and these phrases show that we’re a leader who is in charge of a situation.

The language you use can affect the impact you make as an owner/ leader. Choose positive words that will get the attention of your team members and even the people with whom you share your home life. w ww. akf c f . c o m

B u s i n e s s

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Legal Update

The New Overtime Rules— What You Need To Know 6

By Ron Gardner

On May 18, 2016, the Obama administration announced significant changes to the rules governing the payment of overtime for employees making less than $47,446 annually, or, more concretely, $913 per week. This change is likely to have a significant effect on many KFC franchisee store-level employees, and even some above store-level employees. In a nutshell, employees who make less than this amount cannot be classified as “exempt” for purposes of an employer’s obligation to pay overtime for anyone who works more than 40 hours a week. In many KFC restaurants, that means that there are many RGMs, Assistant RGMs, and perhaps even some shift supervisors, who franchisees can no longer classify as “exempt,” and pay a salary (thereby avoiding overtime). The rule is effective beginning with any pay period in which Dec. 1, 2016 falls—although, if overtime were due, it would only be due for hours worked on or after Dec. 1, 2016. Additionally, the $913 per week is subject to adjustment every three years. That adjustment will be equivalent to maintain the “standard salary level, at the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage Census Region in the United States.” The first update will take place on Jan. 1, 2020, with future updates taking place on Jan. 1, 2023, 2026, and so on. The Department of Labor said that it would publish the update rates on its Wage and Hour Division’s website at least 150 days prior to any adjusted numbers taking effect. The last detail you likely need to know is that up to 10 percent of the employee’s salary can be paid quarterly in a “non-discretionary” bonus. A non-discretionary bonus is payment that is made to someone based on 54

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objectively identifiable performance (e.g.¸ reaching certain profitability levels, retention bonuses, etc.). So, it would be possible to pay someone 90 percent of the $913 per (e.g., $821.70 per week) with a $91.30-perweek bonus at the end of each quarter for achieving some landmark. However, there is a catch here. If, at the end of any quarter, an employee has failed to make enough money under the non-discretionary bonus provi-

The rule is EFFECTIVE beginning with any PAY

PERIOD in which DEC. 1, 2016 falls—although, if OVERTIME were DUE, it would only be due for HOURS

WORKED on or after DEC. 1, 2016.

sion, employers are required to go back and either pay enough money to close that gap or pay the overtime that would be due to that employee based on the number of overtime hours that they worked in the quarter that would qualify as overtime (e.g., more than 40 hours in any particular week) if the bonus is not paid.

Strategies for dealing with the new rules Obviously, this new rule could cause heartache for some of you. Restaurant Managers and Assistant Managers whom you have treated as salaried exempt employees—and have paid more than $23,660—have been exempt from overtime, and now, you are facing the prospect of increased labor costs as a result of the change in this rule if your employees continue to work on the same sort of schedule. How you deal with these new challenges will depend, in large part, on how much you already pay these employees. To begin with, if you pay a manager something less than $47,446, but you are within $1,000-$2,000 of that amount already, it might make sense to simply consider giving that employee a raise, keeping them exempt, and not making big changes. This is obviously the simplest solution—but one that probably only makes economic sense if the raise is not extensive. A second strategy is equally simple, but perhaps impractical: make certain that your employee does not work more than 40 hour a week. It doesn’t matter what you pay someone (so long as you are paying at least the required minimum wage); they are not entitled to overtime unless they actually work overtime. Third, you could take the amount of money you paid your manager last year under their salary, divide it by the number of hours that they actually worked, and adjust their pay under a new hourly paid structure that would allow you to estimate the amount you need to pay per hour to end up in about the same place. Here is an example: Let’s say that you paid a manager a salary of $40,000 a year, and that manager has, on average, w ww. akf c f . c o m

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worked 2,340 hours a year (that would be 45 hours a week). This means that had your manager been paid on a straight hourly basis, with no overtime, he or she was earning approximately $17.10 per hour. Using this information, you could then calculate how much you would have to pay your manager on an hourly basis to pay them “straight time” for the 40 hours a week that they were working, and overtime for the 5 hours that they typically work, to project where you would need to be to end up in about the same amount of salary for about the same number of hours. You should probably get the assistance of your accountant to help you calculate what that number is, and obviously, you are going to have to have a heart-to-heart discussion with the manager whose salary structure is changing, as it is quite conceivable that some managers would not initially understand that this change means that they will continue to make approximately the same amount of money, but is necessary in order to avoid violating the new Department of Labor regulations. You also will want to consult with your local lawyer to make sure that you are complying with all the other labor laws that are required when you are dealing with hourly employees, as opposed to exempt employees, if you make this type of conversion. There is no question that this change is going to cost people money. Its stated intent is to shift money away from management to employees who are actually doing the work. We can have a healthy debate on whether or not that is good or bad for society, but the reality is that our members are the ones that are going to have to implement this change, and figure out how to make it work. I am hopeful that these tips will spur you into some creative thinking of your own about how you can handle this important change.

INDEX

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32 American Security Products

49 Koch Foods

23 Auspex Capital

15 McCain Foods

30 Café Valley Bakery

39 NDA Inc.

31 Chart Industries

35 Pacific Premier Franchise Corporation

47 Coca-Cola

C2 The Dallas Group of America Inc.

11 Del Monte Foods Inc.

C3 Dr Pepper Snapple Group

3 Ecolab Kay Chemical Company

5 Pepsi Cola 19 Pilgrim’s Pride 1 Procter & Gamble Distributing 43 R.F. Technologies 6, 7 RSCS

33 Frontline International Inc.

13 Sprint Wireless

53 FSV Payment Systems

34 T&S Brass

53 George H. Pastor & Sons

25 Verdad Real Estate

29 Gycor International

C4 Winston Industries

53 Hyginix LLC

53 Worcester Industrial

41 KFC Foundation

This column is for the general information of members of the AKFCF and should not be relied upon as legal advice. Please see your own attorney or professional advisor for questions concerning your franchise agreement. Ron K. Gardner is General Counsel of the AKFCF and Managing Partner of the law firm of Dady & Gardner, PA. Su m m er 2 016 017

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