Independent Joe #29: December/January - The Millennials by Dunkin' Donuts Independent Franchise Owners

December 2014/January 2015

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A VISION FOR DDIFO IN 2015 Back in the 1980’s, I was running a real estate trade organization when housing costs were exploding, with no apparent end in sight. Even luxury housing was difficult to come by, and not what buyers were really looking for. As it always does, the market responded to the need, and gave us… McMansions! Today, Wikipedia defines it as a pejorative, but back then – in the trenches – it was taking an existing structure and while still functioning, transforming it into the better and more effective accommodations its owners sought. Whether a negative or not, the phenomena worked and housing across the country was updated, enlarged and dramatically improved. Today, we are McMansioning DDIFO. We’ve kept the organization intact and functioning effectively during the makeover and will continue to do so. We’ve put a new database system in place and we’ve begun correcting, updating and cataloguing our membership information in ways that will dramatically help us better serve our members and meet their needs in the coming months and years. We’ve improved our members’ meetings and offered more of them in different locations than ever before in our 25 year history—including our extremely successful National Conference held this past October in Las Vegas. Our sponsor program, now known as “Business Membership” is stronger and healthier than ever with more Business Members belonging to DDIFO and participating through their support, sponsorship and offerings. And there’s much more in store… In 2015, we’re launching our first direct benefit program with a Business Member, SIB Fixed Cost Reduction, where DDIFO members can have SIB review their fixed costs, existing contracts and ongoing costs centers, to find the overcharges and collect savings and rebates for the members. SIB has an impressive record, finding savings and cost reductions in an astounding 98 percent of the cases they review. We’ve finalized our members’ meeting calendar for 2015 and will again be meeting and offering programs to members at a host of different locations around the country. These on-site, in-person meetings provide camaraderie among franchise owners and opportunities to meet with our Business Members and learn about the valuable products, goods and services they can offer franchise owners. We know, however, that not all members can take the time away from their stores and businesses to attend meetings in person, so we’re planning a number of

webinars this year so you can benefit from the valuable information discussed at DDIFO meetings without leaving your office. Many franchisees, particularly those in emerging markets, have told us they value the opportunities DDIFO provides to interact with other franchise owners and learn tools and best practices to help them overcome some of the challenges of operating Dunkin’ Donuts shops. To better assist that need in 2015, DDIFO will launch online communities that are safe and secure forums for discussing the latest brand initiatives or highlighting operational challenges. Many long-time franchisees tell us they are eager to share their experience, their wisdom and their guidance with those who are new to the system. In 2014 we celebrated a quarter century as the organization representing and defending the interests of franchise owners in the Dunkin’ Donuts system. During those years, we have witnessed times where relations with the brand were great and times when they were not so great. But, we all know, the interests of franchisors and franchisees are not always in sync. Just last month, for example, Dunkin’ mandated PCI compliance costs be paid by the franchise owner on a monthly basis; that’s an additional annual cost of $624 per store now being forced onto your bottom line. DDIFO will continue to stand guard on matters like these and, through our membership in the Coalition of Franchisee Associations (CFA), will continue to fight for the right balance in your franchise relationship. In past years, we’ve testified in a host of legislative settings around the country and will continue to make your voices heard and your interests considered again this year. As new legislative bodies take office and new initiatives are undertaken, know that DDIFO will be there to articulate the challenges facing the franchise owner and demonstrate the impact that these new initiatives will have on the franchisee community. Yes, we’ll continue McMansioning DDIFO—transforming the organization, making it more effective and more relevant to the issues you face. At the same time, we’ll continue doing exactly what you, our members, expect: Keep watch for your interests and keep you informed, aware and represented. Ed Shanahan DDIFO Executive Director

INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 1

SUB HEADLINE

CONTENTS

From the Executive Director: A vision for DDIFO in 2015 • • • • • • • • • • • • • • • • • • • 1 What’s Brewing: A Look at State Issues Around the Footprint • • • • • • • • • 5 Finding the Right Menu Balance • • • • • • • • • 10

Green is the New Black • • • • • • • • • • • • • • • 14 The Millennials• • • • • • • • • • • • • • • • • • • • • 18 Branding Out• • • • • • • • • • • • • • • • • • • • • • • 22 Franchisee Profile: Andy Rod• • • • • • • • • • • • • 25 Directory of Sponsors • • • • • • • • • • • • • • • • 32 Legal: Franchisees Face Challenges in Estate Planning ��30

2 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

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December 2014/January 2015 Issue #29 Independent Joe® is published by DD Independent Franchise Owners, Inc. Editors: Edwin Shanahan, Matt Ellis Contributors: Cheryl Alkon, Cathy Cassata, Seth Ellis, Esq., Cindy Atoji-Keene, Cristin Mitchell, Scott Van Voorhis Business Member Coordinator: Joan Gould Creative Director: Caroline Cohen

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WHAT’S BREWING A LOOK AT STATE ISSUES

AROUND THE FOOTPRINT By Scott Van Voorhis

race yourself: An avalanche of minimum wage hikes, mandated sick leave laws and new menu labeling requirements is headed your way with the arrival of winter. Republicans may have taken control of Congress during the watershed November elections, but activists scored their victories in states and cities across the country, as well—especially in the area of labor costs. Employees at quick service restaurants staged walkouts and protests around the country, grabbing headlines and scoring political will with lawmakers interested in raising minimum wages. Now, as a result, franchisees at Dunkin’ Donuts and other quick service restaurants will pay more for labor, even as prices for food, goods and services are rising—along with fees and taxes and healthcare. And, this may be just the tip of the iceberg, if other states and municipalities follow suit and raise their minimum wages, observers say. Meanwhile, federal regulators finally rolled out long-anticipated rules that will require calorie counts on menu items at

You have people who are advocating for the minimum wage say it’s just a couple bucks here and there. For most small businesses in the country, they run on razor-thin margins. many restaurants across the country, heaping another expense on the plates of franchise owners.

but that may be changing, with the effort now spreading to the nation’s heartland states as well.

And even as they prepare to digest that new calorie counting requirement, franchise owners could be faced with swallowing the bitter pill of GMO labeling as that effort begins to gain ground on the state and local level as well.

Four states voted to boost their minimum wage on Nov. 4, while a fifth, Illinois, passed an advisory recommending a $10 an hour minimum.

“It’s a very dangerous trend,” says Jason Stverak, president of the Franklin Center for Government & Public Integrity in Alexandria Va., who grew up in a small business family in South Dakota. “You have people who are advocating for the minimum wage say it’s just a couple bucks here and there. For most small businesses in the country, they run on razor-thin margins.” Minimum wage is all the rage Traditionally more liberal states like Massachusetts and California have been the hotbeds of minimum wage activity,

Arkansas will go to $8.50 an hour starting in January, 2017. Nebraska will ramp up to $9 an hour over the next year or so, while South Dakota will jump to $8.50 in January and then $9 in 2016. In Alaska, the minimum will increase to $9.75 by Jan. 2016 – and then be pegged to the inflation rate. Several cities also hiked their minimum wages. In California, San Francisco voters approved a jump to $15 an hour by 2018, while Oakland boosted the minimum to $10.25 an hour. San Diego, San Jose, Richmond and Berkeley also voted for a

INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 5

WHAT’S BREWING

CHICAGO’S BIG BOOST By Scott Van Voorhis

Chicago has become the largest city to date to jack up the minimum wage, a move that comes even as efforts to raise the rate across Illinois have bogged down. Workers in the Windy City will earn at least $13 an hour starting in 2019 after Mayor Rahm Emanuel won approval for the boost on Dec. 2 from the Chicago City Council. The city’s rate will increase gradually, rising from $8.25 to $10 next year, stepping up incrementally until it reaches $13. The vote came despite impassioned pleas by restaurant and retail groups for a lower increase of $10.10 an hour. Alderman Matthew O’Shea warned his Chicago district could see businesses move across the city line to the suburbs. “Make no mistake, this will cost thousands of low wage jobs throughout Illinois as businesses flee,” the Chicagoland Chamber of Commerce and statewide hotel and restaurant groups said in a statement. “Further, it puts at severe risk the small businesses in border communities throughout Chicago that neighbor the suburbs and Indiana,” the coalition of business groups warned. But while Chicago plunged ahead, franchisees in the rest of Illinois got a reprieve, after state lawmakers adjourned for the year without taking any action on the issue. The stall out came after Illinois voters approved an advisory question on the fall ballot recommending an increase in the minimum to $10.10 an hour.

The failure on the part of the House to take a vote was a parting blow to Governor Pat Quinn, a Democrat who made passing a minimum wage increase a major focus of his last few months in office. By contrast, the Senate went ahead and passed an increase to $11 an hour, but the proposal was moot with the decision by House Speaker Michael Madigan to officially adjourn the chamber for the year just a few hours earlier. The legislative inaction will now likely thrust the minimum wage question into the hands of Illinois’ incoming Republican governor, Bruce Rauner. Barring a decision by Quinn to call a special session in January to deal with the wage issue, the bill will have to be refiled in the next legislative session. Rauner did not make a major stand on the wage issue one way or another during the gubernatorial campaign, though he is not seen as opposed to the increase. Rather, he is likely to couple any wage increase with pro-business reforms, observers say. The Windy City’s wage ruling is expected to cause significant confusion in the marketplace where a patchwork of competing wage standards will co-exist along the city’s borders. “Neighborhoods that border suburban municipalities will be placed at a distinct disadvantage now that businesses will be required to pay a higher wage than those just across the street,” the Chicagoland Chamber Commerce stated.

6 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

higher minimum. Outside the Golden State, voters in Las Cruces, N.M., also jumped on the minimum wage bandwagon, while several cities and towns in Wisconsin, including Milwaukee, passed advisory questions recommending $10.10 an hour. Looking ahead, activists in Philadelphia, Los Angeles and New York are also pushing citywide ordinances to boost wages. “The problem for business owners is that the cost of labor will increase, but the quality of labor will remain low, thus the only outlet will be rising consumer pricing,” contends Ben Litalien, founder and principal of FranchiseWell LLV, a consulting firm. The impact of wage hikes goes far beyond those franchises paying the bare minimum, though. A higher minimum will force wages up across the board in the quick service industry, forcing those franchises that already pay a bit more than the minimum to up the ante as well in order to attract the right employees, notes Mary Chapman, senior director, product innovation, at restaurant consulting firm Technomic. “The people who are the next level above them, the more the skilled people, will demand that their rate be a little higher, and it will index,” she says. And the impact can spread beyond the city or state to surrounding communities and states as franchises in those jurisdictions face greater competition for labor. Franchise owners, in turn, face limited options in absorbing the additional costs. Some quick service restaurants have to choose between raising prices, cutting staff or reducing already thin, low-single-digit profit margins. And customers, at least initially, do not appear all that sympathetic to the impact on small business owners. Surveys show wide support for minimum wage increases among restaurant customers, Chapman says. “We did a consumer survey earlier in the year and found that 83 percent of restaurant goers

support increasing the minimum wage,” she says. “It’s an uphill battle.” Along with higher wages, a growing number of franchise owners will also have to budget for employee sick days as well. On Election Day, Massachusetts became the third state to mandate sick leave for workers, joining Connecticut and California. Several cities, including New York City, Trenton, NJ and Oakland have also instituted sick leave measures. The Oakland measure calls for businesses to pay for five sick days a year for each employee—two more than the rest of California. Menu madness If that weren’t enough, the U.S. Food and Drug Administration, after years of hemming and hawing, recently unveiled its final regulations requiring calorie labeling on menus at restaurants across the country. The quick service sector is right in the bulls-eye of the new rules, which cover

all restaurant chains with 20 or more locations under the same name. The calorie counts are one of the many mandates tucked into the Affordable Care Act, better known as Obamacare. Franchise owners will bear the cost of posting calorie counts on menu boards and drive-through displays alike. The calorie counts can’t be posted in small print either, with the FDA rules requiring the counts to be displayed generally in the same type face and color as the menu item or price. On top of that, all menu boards and menus will also have to carry the following statement: "2,000 calories a day is used for general nutrition advice, but calorie needs vary." The new rules are slated to kick in next November and, while they faced tough criticism that the regulations would add another compliance cost for

small business owners, the National Restaurant Association supported the rules change because they would create a uniform national standard instead of the current patchwork of state and local regulations. Studies show posting calorie information has little effect on consumer’s eating habits. A review by the National Institutes of Health found, “overall the best designed studies (real world studies, with a comparison group) show that calorie labels do not have the desired effect in reducing total calories.”

INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 7

WHAT’S BREWING

On the heels of menu labeling, consumers interested in transparency in their food choices are pressing federal and state lawmakers to mandate disclosure of genetically modified organisms (GMO) in a range of foods. According to Chapman, the restaurant consultant at Technomic, GMO labeling could create even greater headaches for restaurant operators because there is little public understanding of what GMOs are – or their positive benefits – but the use of the term is likely to create images of “frankenfoods” in the mind of some consumers. Brands believe creating healthier choices, like the DD Smart menu, help consumers reduce their caloric intake. Not long after New York City required McDonald’s to post calorie counts in 2012, the chain rolled out a cheddar burger with grilled

So far, attempts to impose GMO labeling in Washington, California, Oregon and Colorado have been defeated at the polls. Vermont lawmakers passed GMO labeling, but the state now faces a lawsuit from the Grocery Manufacturers Association.

drive thru

“Because consumers are increasingly interested in transparency, it will continue to play out,” she says.

photo credit: Stephen D. Melkisethian via photopincc

onions last year that had only 310 calories, a 44 percent drop from a similar version the year before, a survey by the New York City Department of Health found.

Eyes on 2015 Looking into 2015, franchise owners will face continued fallout from the Affordable Care Act. Businesses with more than 100 employees are now required to provide health insurance – starting in 2016, that bar will drop to 50 employees. Meanwhile, smaller businesses and franchise owners already face rising premiums as insurance companies cope with mandated coverage required under the ACA. There will also surely be more minimum wage, sick leave and GMO labeling proposals as well as we head into the spring, the time of year that state lawmakers around the country come out of their winter slumbers and kick into high gear. Stay tuned – we’ll keep an eye out for you.

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All programs and offers are subject to final credit approval by Direct Capital.® Please contact Direct Capital for eligibility and program terms. Dunkin’ Brands® trademarks and logos are registered trademarks of Dunkin’ Brands® and used with permission. Photo courtsey of ViewPoint Sign and Awning.

By Matt Ellis

etween 2007 and 2013 McDonalds added five dozen new items to its menu, bringing the total number of offerings to 145. The brand was following the long-established tenet that new choices keep a brand relevant and exciting. Then during an earnings call this year, McDonalds Chief Operating Officer Tim Fenton changed direction. “We need to do fewer products with better execution.” That thinking has started to permeate the industry, punctuated by this recent comment from Chipotle Founder Steve Ells, “The gimmicks that have driven the fast food sector for years—dollar menus, limited-time offers, and merchandising partnerships— are not producing results like they used to.” Brands are noticing. According to data compiled by Datassential Menu Trends, U.S. restaurants are now offering slimmer menus. In 2014, the average U.S. restaurant menu had just under 93 items, after reaching a peak of nearly 100 items per menu in 2008. One outlier is Starbucks, which has bulked up to 255 products, raising questions about whether the new product offerings are gumming up the works behind the counter. Starbucks is working hard to improve efficiency so “people aren't waiting in line,” Chief Operating Officer Troy Alstead told the Wall St. Journal. It’s the same challenge facing Dunkin’ Donuts franchise owners.

10 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

Have it your way Earlier this year, Burger King changed its famous slogan from, “Have it Your Way,” to “Be Your Way.” Burger King has had trouble keeping pace in the growing burger market (which may explain why it bought Tim Horton’s). And, this slogan shift may send the wrong message to the 18-34 year olds who make up the highly sought after Millennial Generation. Their buying habits indicate they definitely want it their way. According to Rob Branca, who serves on Dunkin’s Innovation Task Force and is the chair of the Northeast Regional Advisory Council (RAC), one of Dunkin’s advantages in the marketplace is the ease with which they can cater to a customer’s wishes. Sugar or no sugar; sausage or bacon, cream or skim milk; French roll or croissant; turbo or flavor shot? When you think about it, Dunkin’ Donuts is the place to “have it your way.” Crew members are trained to customize how a beverage or sandwich is prepared, but the process can still be a challenge. Branca estimates there are over a thousand choices of drinks and sandwiches. “Our guests have learned that they can design their own beverages and sandwiches, mostly without any extra charge whatsoever, and that is powerful,” says Branca. “The trick is to make sure that we can manage that behind the counter as we develop new products for our guests, and that is hard work.”

Photo by Gary Goodman

Finding the Right Menu Balance

That’s one of the factors that determine whether an item will stay on the menu or fall off.

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“It can be a tricky proposition,” says Ken Blum, an Ohio franchisee who also sits on the brand’s Innovation Task Force and chairs the Profitability Subcommittee. “If you put ten franchisees in a room and ask them what should be cut from the menu, you’ll probably get ten different answers. Everybody has a different sales mix in their market.” Blum says a group of franchisees, working with the brand, routinely examines sandwiches, snacks, beverages and even donut toppings and cream cheese flavors to decide which products should stay and which should go. It’s a necessary exercise, he says, to reduce consumer confusion, operational complexity and supply chain issues. “When you do a menu analysis, you have to look at a product’s percentage of sales as well as the number of sales use incidents,” says John Gordon, principal of Pacific Management Consulting Group and DDIFO’s restaurant analyst.

Banking Designed Around Your Business

Scrubbing under-performing items also creates space for limited time only (LTO) items. Dunkin’ successfully uses limited time offerings to “stay relevant in the marketplace,” according to Branca. “LTOs are a huge competitive advantage when properly executed. People love trying new things, particularly our younger guests. We have to be mindful not to introduce too many of them at same time or too close in time to one another. That’s where some brands get it wrong,” Branca says.

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According to Gordon, the lifecycle of the typical LTO is six to seven weeks in today’s fast changing world of consumer products. “That’s because the marketplace keeps moving.” Gordon says, in general, sales for a limited time only product will peak on week four, then cool off. Some buck the trend—like the Big N’ Toasted and the Wake Up Wraps, which earned a permanent place on the menu after successful LTO launches.

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But, earning permanent status is not the primary goal of an LTO item, as Dunkin’ CFO Paul Carbone explained in a 2013 interview with QSR Magazine. “The importance of the LTO is that it's given me permission to talk to the consumer, more so than the actual dollars the item gives us.”

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MENU BALANCE Gordon agrees, menu choices matter. “New product development is a best practice for franchisors and Dunkin’ does a good job of testing new products and using data to drive decisions,” and he says Dunkin’ understands consumer trends so they can answer the question: “Who is the audience and what do they want? Is it an initial purchase or is it an add-on transaction?” In general, those decisions match what Dunkin’ customers want and expect from the brand, unlike Starbucks which has expanded its evening menu to feature, among other things, truffle macaroni and cheese and white wine. “We are trying to deliver to guests what they want, when they want it. We feel we can be an effective competitor in all day parts where our guests are looking for us,” says Branca. In the delicate game of menu balance there are always going to be winners. For every Big N’ Toasted, there’s also a serving of McDonald’s Mighty Wings. Typically, it’s the customer who decides and sometimes they make the choices very simple. Other times, brands have to wrestle with the decisions. “If it was easy to manage the choices and the speed, every other brand would be able to do it well. That’s clearly not the case,” Branca says.

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GREEN

is the

New Black Franchisee Finds Benefits in Green Building By Cristin Mitchell

mall business owners of all kinds are realizing that environmental awareness and eco-friendly business models are not only appealing to their customers, but are also beneficial to their bottom line.

For the Barnetts, going green wasn’t necessarily their first thought. “It was time for us to remodel and we had to relocate so we could build a store with a drive-thru. That’s when the brand became involved and asked if we would like to build a LEED store,” says Pat Barnett.

Dunkin’ Brands knows their franchisees are no exception. In 2012, the brand used its Corporate Social Responsibility Report to announce its commitment to using better and more sustainable approaches in their stores. In late 2014 Dunkin' Brands announced the launch of DD Green, a unique green building certification program that will help franchisees build energy efficient and sustainable restaurants. The goal? To build 100 new DD Green certified restaurants by the end of 2016.

The couple operates a network of six Dunkin’ locations, but because this was their first experience with a LEED store, the Barnetts wanted to make sure they had a full understanding of what that meant and if it made good business sense. They knew coffee and they knew baked goods, but they wanted to know more about the green options for building and running their business. In advance of the groundbreaking, the couple spent countless hours meeting and working with the construction team and the contractors who would be involved in the project.

The seeds for this ambitious program were planted in Florida, home to three inaugural shops designed and built to meet LEED (Leadership in Energy and Environmental Design) standards as designated by the U.S. Green Building Council. Two are located in St. Petersburg, on Florida’s west coast, and the other is owned by long-time franchisees Pat and Peter Barnett, whose development area is in Edgewater, Florida, about 20 miles south of Daytona Beach.

Since the early 1990s, LEED certification has been considered the construction and real estate industry standard for building high performing and sustainable buildings. The U.S. Green Building Council developed the rating system through which a building earns points for meeting certain environmental standards. The number of points earned determines the rating: Certified, Silver, Gold or Platinum. Once the building is complete, the rating is awarded.

14 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

SUB HEADLINE

The new DD Green program follows a similar protocol, but one customized for Dunkin’ stores. Franchisees and their building partners will follow a five-stage program that includes site development, store efficiency, healthy indoors, sustainable operations and innovation and community. Each stage focuses on sustainable strategies for the restaurants. Costs of constructing a green Dunkin’ can be anywhere from one to three percent higher than a traditional shop, according to John Herth, the brand’s senior director of construction and design. He told Forbes.com, “Many of these additional costs are associated with strategies that have an impact on energy and water reduction, which we expect will pay for themselves over time.” That was the pitch Dunkin’ made to the Barnetts for their Edgewater location. Peter says the brand offered to cover the cost of construction, materials and the LEED application in exchange for the Barnetts paying monthly rent to them. It

INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 15

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sounded like a great opportunity, but the couple was still eager to see if their speciallyoutfitted restaurant would truly lower energy costs. Because the shop they were replacing didn’t have a drive-thru, it was difficult to draw an even comparison of the expenses each location generated. But Peter says, since it’s opened, sales at the new Edgewater shop are up and expenses are down. “We’re saving money on the power costs, water bills and so on. So you can see fairly quickly that it’s beneficial in terms of cost. We’re going to save over the years to come,” he says. It’s been a learning experience—albeit a fascinating one the couple says. They enthusiastically describe some of the features in their green Dunkin’ shop, from smart lighting to better insulation. Pat calls the smart lighting “phenomenal,” noting the benefits go beyond longer light bulb life. The restroom and office lighting goes out when nobody is in the room and high windows in the dining area allow the sun to light the store during much of the day. As the sun sets, the lights brighten automatically. Other environmental elements that improve their restaurant's efficiency include a rainwater harvesting system for the outside plant wall and low flow plumbing fixtures along with a waterless urinal in the men's restroom. Greywater, recycled water from washbasins which saves on water usage and sewage costs, is used to irrigate the planter areas around the store. The Barnetts and their 25 employees are inviting their guests to be part of the eco-friendly process. Dunkin’ Brands has partnered with TerraCycle to help recycle some of the brand's packaging. There is a program under development where guests at the Edgewater restaurant can return their empty one-pound coffee bags in exchange for a discount off their purchase of a new bag. Going forward, the program may be expanded to include other brand packaging. Pat and Peter Barnett have taken the green initiative one step farther to connect with their community. They are working with a local Girl Scout Troop to plant a vertical garden wall inside the patio area in the front of the restaurant and another vertical garden wall behind the restaurant, where vegetables and herbs are grown and then donated to a local homeless shelter. They get gardening help and tips from The Urban Farming Company, a local group made up of U.S. military veterans. In the spring, they’ll plant flowers that the Girl Scouts will care for and then deliver to area nursing homes and hospitals. The plants are watered with a solar powered pump that uses rain water. “We thought this was a good way to utilize the LEED part of our store to connect with the community, to do more and give back,” Pat says.

16 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

GREEN BUILDING

What do customers think? Some have commented about the lights; others have noticed the garden and asked (jokingly) if the couple is planning to start selling vegetables. (They’re not!). The Barnetts are proud of their new shop and are confident its innovative design and features are having a positive effect on the environment. Now that they’ve been through the exhaustive process of obtaining LEED certification for a Dunkin’ shop, the Barnetts say they’d do it again if the opportunity presented itself. “This is a long term investment not only for us, but for the community, too,” says Peter, but he’s quick to point out that their number one priority remains serving delicious beverages and tasty food items to their customers.

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INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 17

The

Millennials Brewing tomorrow’s profits!

18 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

Photos by Gary Goodman

n the push to grow same-store sales, franchisees across the Dunkin’ Donuts footprint are focusing on Generation Y—the generation known as millennials. There are more than 80 million of these 18-33 year olds with over a trillion dollars in buying power and a huge influence on older generations like the Baby Boomers. According to the Pew Research Center, Generation Y is forging a distinctive path into adulthood unlike any generation before them. They are digital natives, racially diverse and socially networked. A force to be reckoned with, people born between 1981 and 1996 are also showing they know what they want when it comes to food and restaurants. “There’s no question that this is an important demographic that we are working to attract,” says Rick Albert, a Dunkin’ Donuts franchisee with ten stores in New Hampshire and Pennsylvania.

Why Dunkin’ appeals to millennials In the McDonald’s system, millennials are also highly prized, but studies show the Golden Arches lag behind Dunkin’ Donuts and Starbucks for coffee and snacks. The study, by the marketing company ClickZ, finds the two coffee giants are especially popular among 20-and 30-somethings. One reason millennials like Dunkin’ Donuts, according to the research, is Dunkin’s robust digital presence. Those in the know say it’s entertaining and offers relevant rewards while creating a social environment where millennials can do what they love best: Share.

In November 2014, Dunkin’ Brands announced the ten millionth download of the Dunkin’ Mobile App. As digital natives, millennials are target users for the app and DD Perks program.

Dunkin’s social media platform – and the “Share Your Dunkin’ Story” initiative – inspires millennials to post videos, tweet, and tout the praises of new products like Dunkin’ Dark Roast – or old favorites – on social media sites like Twitter, Vine and Instagram.

Another Florida franchisee, Andy Patel, who operates nine stores throughout Jacksonville and Orange Park, says the look and feel of the “Fresh Brewed” concepts make these consumers feel at home.

Franchisees also point to the experience of the shop – and Dunkin’s new interior concepts – as a way to appeal to millennials. “Starbucks has the steam and the baristas,” Florida franchisee Charles Cutler remarked during a panel discussion at the DDIFO National Conference to make the point that the theater makes the Starbucks experience appealing to millennials.

“We are seeing that Wi-Fi access, digital screens, and menu boards are needed to cater to this growing group,” says Patel. His Bartram Park Boulevard location in Jacksonville, Fla. draws a suburban crowd of younger consumers that are inclined to sit and linger in the shop’s 35 seats, enjoying their drinks, snacks and screens all day. Patel has noticed Gen Y customers dropping by for breakfast,

then returning for a working lunch or a late-afternoon or evening snack. That trend is also in step with the research. A generational consumer trends report produced by Technomic, a Chicago consulting firm, finds millennials seek out restaurants that allow them to eat at all different times of day and night as they look for convenient, quick meals. The industry journal Restaurant Development and Design, writes, “You see millennials eating more throughout the day as opposed to a traditional breakfast, lunch and dinner.” Millennials themselves write about the

INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 19

COVER STORY: MILLENNIALS importance of places like Dunkin’ Donuts in their daily lives. Emily Wilson, a twenty-something who blogs on the site, Trending Millennial, says coffee shops are the new cubicle for millennials. Her generation, she says, has a unique relationship with coffee not just because it’s something over which one can linger while connecting with friends online, but also because millennials are socially conscious shoppers who are likely to follow a product’s sourcing, Coffee, because its grown in the jungles and rainforests, can be a cultural touch point that allows its consumers to feel connected to farmers and their agrarian lifestyle. Neal Faulkner, who operates a network of 19 Dunkin’ Donuts shops in the suburbs

west of Boston, says millennial customers are aware of Dunkin Brands’ participation in the Rainforest Alliance and that Dunkin’ Espresso beans carry the Fair Trade Certified™ label. And, he is aware of what taste profiles these consumers like. Faulkner says Dunkin’s new iced green tea and other flavored beverages are popular with the younger crowd. They also like to customize their coffee with new French Vanilla and Hazelnut Swirls to create a sweeter, more indulgent beverage. “Being able to customize the drink is also important to millennials,” he has learned. This is also borne out in the research. According to a new study from Datassentials, a Chicago foodservice research firm, those on the younger side of the millennial generation favor sweeter, specialty coffee drinks early on, but eventually graduate to traditional hot brewed coffees over time. “We need to provide products that millennials will want to have, as well as those that they will transition to as they mature,” Faulkner says. “It’s important to

20 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

build customer loyalty and provide flavors they appreciate now as well as those they will enjoy later.”

Tech appeal For digital contact, the Dunkin’ Mobile App appears well received among the millennial crowd. They use it to follow company news, get coupons and pay for their coffee and snacks. “I’ve seen steady growth among those using the app to pay at the register,” says Faulkner, who held an employee contest to encourage his staffers to talk to customers about the app. The employee who facilitated the most app downloads won an iTunes card or passes to a local movie theater. Two things all retailers have learned about dealing with America’s fastest growing generation: 1) they despise bad food and slow service; 2) if they are disappointed by their restaurant experience, they’re sure to complain about it on social media. For franchisees, that means paying closer attention to quality control and customer

wait times—as well as social media sites like Yelp, which are popular repositories for comments about local eating and drinking establishments. Jacksonville’s Andy Patel says it’s a priority to make sure orders are placed smoothly. He also Googles his stores to see what customers are saying online. He was encouraged by this Yelp review from a person named Angela D., “Great stop for breakfast. So far wonderful customer service. They are the quickest Dunkin' I have ever been to!!” There is no getting around the millennials. Estimates are they will compose 75 percent of the workforce by 2025 and also make up the majority of hourly workers for quick service and fast casual restaurants. Dunkin’ Donuts franchise owners in every region are taking note of the likes and dislikes of their Gen Y customers. Many are encouraged by what they are finding, as exemplified by this Yelp reviewer. “I feel like an iced coffee or latte can solve almost any issue!!!” That’s a millennial for you.

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INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 21

Branding Out

By Cathy Cassata

hen Aziz Hashim’s family left London and moved to California, he found work at his uncle’s Burger King Restaurant and was immediately immersed in the franchise world. The job helped him pay for college. After graduating and landing a position as an electrical engineer, Hashim thought his days spent in the retail franchise business were long gone. “I made it 90 days as an electrical engineer, and I knew it wasn’t for me, so I quit,” says Hashim. The entrepreneurial spirit of franchising kept calling him, and Hashim took a loan from his parents to purchase and sell an auto parts business. With the proceeds from that, he built his first KFC in Atlanta in 1996. “I was very in tune with the QSR industry and felt that I had a better chance at success pursing that than sticking it out as an electrical engineer. The tough part was figuring out where I would have the best chance since LA was very expensive. I decided to go with Atlanta,” notes Hashim.

Building a multi-unit franchise business

Hashim says he didn’t think beyond owning one KFC. “I was just focusing on making one work,” but he says, after establishing his first KFC, he began thinking about more. “I expanded one at a time and as the enterprise got bigger and the availability of financing became easier then I was able to open more than one in the area and eventually was able to acquire other brands, as well.” Since then, Hashim has owned 14 different brands (including Taco Bell, Subway, and Pizza Hut) and at his peak operated 70 units. His success didn’t happen by chance though, and the more he owned, the better he became at choosing brands and running them successfully. Some franchisees choose to invest in another franchise system because they

can’t expand within their current brand, or because they want to increase their earnings potential; some see it as a way to spread their financial risk. Whatever the case, there are several issues to consider before making the move.

Invest in infrastructure

Some franchisors naturally worry that a franchisee who takes on other brands without establishing a strong operational infrastructure could spread himself too thin. Hashim agrees. “There are complexities of running different brands. It’s difficult enough to run a Dunkin’ Donuts, so you can’t afford to lose your focus on what you’re doing.” That’s a consideration Bryce Bares also shares. Bares opened his first Dunkin’ shop outside Omaha, Nebraska in May 2013, and has quickly expanded his footprint in the market to four stores. He’s looking into other franchise concepts, but doesn’t want to jeopardize the growth of his Dunkin’ Donuts business. “I want to be sure that my time isn’t spread so thin between other concepts that I can’t give my Dunkin’ stores the attention they require to run effectively. After all, it’s better to do one thing well, than many things mediocre,” he says. The key is to create a clear division of infrastructure, says Hashim.

22 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

“If you try to cross-pollinate and get people who run your first brand to run your second brand, that can be a big mistake. Just because you have one supervisor for five units of one brand, doesn’t mean that if you open three units of another brand in the same area, the same supervisor can run those too. When you go into multi-branding, the one area you should not think about cost-savings is in operations infrastructure.” Hashim assigns one manager to serve as the point person for each brand—attend brand meetings, ensure the franchise is up-to-date and comply with the franchise agreement. “This is why franchisors haven’t had a problem with me multi-branding. I know it’s impossible for me to do everything for all my brands, so they always have a point person to communicate with,” he says. However, there are some things on which you can double up, according to Robert J. Hoffman, past CEO of Metromedia Steakhouses, founder of RJH Hospitality Consulting and now owner of a Fricker’s Wings sports bar franchise. “Many things you learn from one brand, you can carry over to another, such as operational execution, importance of metrics, success measurements, and cash flow management,” he notes.

What to consider

Based on his experiences, Hashim advises sticking with what you know when first venturing into another brand, so there is a natural synergy. “If you have a Dunkin’ Donuts, you know QSR, so if you buy a full service, sit-down restaurant with servers, tips, alcohol and all that, now you’ve taken on a totally different business that you may not have expertise in, which makes for a more difficult type of multi-branding. It’s not to say it’s impossible, but the learning curve is huge and you have to be prepared to invest the time and energy, and bring on the right people.

Robert J. Hoffman has experience as a franchisor and as a franchisee. He delivered the closing keynote address at the DDIFO National Conference in Las Vegas Hashim agrees that certain back office functions for all brands, such as payroll, accounting, and human resources can be done by the same people.

Hoffman points out that taking on brands with different sales cycles can help stabilize earnings throughout the year. “For instance, my peak time at Fricker’s is during football season, but during baseball season it’s slow, so having another franchise during the spring and summer that does well could off-set the slow time I have at Fricker’s.” But, making the choice to invest your hard-earned capital should come after careful consideration of all the pros and

Advice from one MultiUnit Franchisee on how to choose your next brand: Aziz Hashim, multi-unit franchisee of more than 14 brands at one point, says he strategically picked brands based on what he calls the “5 Ps”:

cons. Some franchisees find the economics or the logistics of a concept may not fit their ideal picture. Charles Cutler, who owns eight Dunkin’ Donuts and two Baskin Robbins in Florida, recalls his experience investigating a franchise concept that sells chicken wings. “In Dunkin’, we know six to eight months out what the price of coffee is going to be to us, but at this chain, chicken wings are their staple and they’re dependent on the price of poultry, yet they aren’t able to anticipate the cost of it. At the time I was considering getting into the franchise, chicken was at an all-time high so I decided I didn’t want to be part of a business that, one week we’re doing great, but three months later chicken prices go through the roof and my prices suddenly get out of line.” Hashim has found other systems offer a simplicity that could never exist in a busy QSR system. With five well-established QSR brands under his belt, Hashim invested in Pet Valu stores in Canada. “Not only did I have a great operating

• Whether he would (or would want his family to) consume the brand’s products or use its services • Processes designed to support multi-unit growth • Whether the brand is profitable, despite offering quality products or services • Only if the management team has a partnership mentality with franchisees • Outstanding people at the brand management level

To help franchisees determine which brands to purchase, Hashim founded NRD Capital, the first multi-unit franchisee sponsored and managed private equity firm. “If you want to buy shares of Coca-Cola, you can read hundreds of analyst reviews on that, but if you want to spend hundreds of thousands of dollars on something that could be life-changing like purchasing a franchise, there’s nowhere to go,” he says. “Most investors in franchising are truly financial. They’re bankers who are managing people’s money and making decisions on franchising based on their financial point of view. As operators, our team at NRD is able to pick winners and losers a little more reliably since our metrics for whether we can buy a franchisor is based in large part on whether we’d be a franchisee of that system.” Most of the investors in NRD Capital are multi-unit franchisees. “It’s the most natural hedge of all for a franchisee to have some money invested in a franchisor,” says Hashim. “If you’re a franchisee, you’d want to have money in a franchisor someplace because then you’re participating on both sides of the trade. On one hand, you’re paying royalties for a living, but on the other hand, you have investments in the royalty collection business.”

INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 23

MULTI-UNIT FRANCHISES partner there, but I chose a retail brand, which is several layers lower in complexity. I went from quick service restaurants where there are 25 to 30 employees per unit down to a Pet Valu where there are only four or five employees per unit. Plus, all that is involved is stocking shelves. There is no food risk, exhaust hoods, or health department to worry about,” he says.

Get a grip on geography

We’ve all heard the saying, “location, location, location,” as it refers to real estate. Well, Hashim reminds us it’s an important element of successful multi-unit franchising as well. “If you don’t pick the right spot you’re not going to be successful, so it’s best to expand your franchises within an area you know until you completely understand that brand, then you can move it out to other areas,” he says. Maximizing your real estate is something else to keep in mind. “As a multi-unit owner, I’d come across really good real

estate that was too big for one brand, but having access to three or four brands, I was able to put more than one brand in that real estate, giving me a real estate advantage,” notes Hashim. This is one reason Bares is attracted to becoming a multi-concept owner. “Part of my business strategy is to own the real estate wherever we can. Owning additional brands would enable us to leverage that business decision by allowing us to put multiple concepts in one building. For example, if we were to build a five base strip center, right now we can put a Dunkin’ in there and it makes it attractive to other tenants, but say we have a Dunkin’, Super Cuts and a dry cleaner in there that we own, then a center that is more than 50 percent full off the bat is going to be incredibly marketable to other concepts,” he says.

Do your homework

As a successful multi-brand franchisee, Hashim is quick to highlight the benefits of developing more than one concept. “History shows that franchisors who

have diverse franchisees bases are able to withstand difficult times the most because their franchisees aren’t totally dependent on their brand to survive. By multi-branding, you’re helping yourself and the brand.” But, he says, be sure to do your homework. “Thoroughly investigate the brand. Choose brands you’d consume or feel comfortable having your loved ones consume. And most importantly, know that multi-branding can get very complicated, but by doing your homework, you can do it.” Cutler notes that while “you could hit a home run by multi-branding, if you take everything you’ve made in Dunkin’ and bury it into another brand that ends up not doing well, you’ve taken a big risk.” “Not that we’re not taking a risk every day in opening a Dunkin’, but Dunkin’ has positioned itself pretty well, and expanding within Dunkin’ can feel like much lower risk if multi-branding isn’t a good fit for you,” says Cutler.

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Andy Rod's Dunkin' Family R

unning several Dunkin’ Donuts stores in Virginia isn’t just a job for Andy Rod. It’s about spreading the feeling of home and supporting family.

Rod, who is 52, grew up in Wyckoff, New Jersey, where the Dunkin’ shops were a familiar sight. “We went to Dunkin’ all the time as a kid and I really remember it,” he says. “I was an incredible sour cream donut fan.” His love for the brand continued after he graduated from Lehigh University and joined his family’s office supply business in Passaic, New Jersey. “Our warehouse was down the street from a Dunkin’ and I’d go there all the time back in the days of Roast Beef Sandwiches and Beef Barley Soup,” he says. “I think that when you grow up where Dunkin’ has been around forever, it’s almost a part of your life.”

Family Roots Rod attended private school with Randi Pickelny, the woman who he would eventually marry, though they were four years apart at school. “I was a senior when she was a freshman, and we didn’t know each other,” he says. “But my sister saw her at

Virginia franchisee Andy Rod sponsors a someone’s graduation 5k run for the Virginia Institute of Autism. party, and after some At right: Rod with his wife Randi and son conversations, we met Spencer, who is a student at the Institute. and began dating. I loved to ski and she looked good in stretch pants.” The couple met in 1986 and married three years later. Their daughter Jordan was born in 1994 and son Spencer was born two years later. Their third child, Julia, was born in 2001. Rod always knew he had, as he called it, “the entrepreneurial disease.” He not only helped build the family’s office supply business, he later developed a roster of business consulting clients and also invested in a dot-com venture in Boston. Wherever his travels took him, he would stop at Dunkin’ Donuts whenever he could. “In Boston, you can’t help but trip over a Dunkin’ Donuts,” he says. In 1998, he joined Value America, an Internet company based in Charlottesville. He and Randi relocated to Virginia with toddlers Jordan and Spencer. “We wanted to stay in Charlottesville and I thought, ‘What doesn’t this city have? A Dunkin’ Donuts.’”

INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 25

FRANCHISEE PROFILE: ANDY ROD

Bringing Dunkin’ to the South Rod approached Dunkin’ to open Stores in Central Virginia, where none yet existed. The brand asked him to write a business plan, which they ultimately approved. Rod and his father-in-law, Norman Pickelny, established Norson, Inc. – later renamed Central Virginia Management Services – and brought Dunkin’ Donuts and Baskin-Robbins to Central Virginia. It’s a family affair; Norman provides financial guidance and oversight, while Rod’s sister-in-law, Stephanie Pickelny, oversees the operational details. Rod operates the business along with a small central management team headed by his manager of Accounting and Operations, Stephanie Woodson. Today, six years after launching, the business operates a network of nine Dunkin’ Donuts shops clustered from Richmond to Charlottesville to Roanoke. Like many other northern transplants who open Dunkin’ Donuts shops south of the Mason-Dixon line, Rod has learned that the sales mix features a higher percentage of donuts and a smaller

percentage of beverages.

Rod partners with the VIA to provide work-study jobs for young adults with autism. Simple tasks like decorating donuts and wiping tables help foster independence

“We didn’t realize it’s a donut business down here,” says Rod. “We had a business plan based more on a northern model, but we’ve had to plow the donut fields and work to turn them into beverage fields. We actually have people come in our stores that don’t know we sell coffee. We’ve had to learn to overcome that.” Another challenge is geography. You would have to drive fourand-a-half hours to visit all nine stores in their network. In between the cities there is little else but rural countryside. “We can’t take advantage of a central kitchen because we’re more spread out. It’s significantly different than doing business in the Northeast,” he notes. Still, Rod believes the brand is a welcome sight. “We are a small part of two of the world’s best known brands and I think it just gives everyone a smile,” he says. “The neatest part of the business is the vast majority of the people who come in, are so happy to be in a Dunkin’.”

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Jordan Rod, now 20, attends Piedmont Valley Community College, and Julia, 13, goes to the Henley Middle School in Charlottesville. But one of the biggest draws for Rod to stay in Charlottesville is the Virginia Institute of Autism (VIA), where his son Spencer, now 18, has been a student since he was three years old. The school is dedicated to helping its students thrive through education, outreach, and adult services. Students with autism lose support from the school systems at age 22. As the first VIA students approached adulthood, the VIA community knew they had to come up with a solution for continued learning. VIA started delivering adult services in 2011, and Rod was instrumental in connecting the students with their first work-study opportunity at his Dunkin’ Donuts. Some students can work independently, while others need more oversight. Students can get involved in tasks such as portioning out or decorating donuts, filling napkin dispensers and wearing the Cuppy costume to welcome guests outside the shop – all important tasks that go into the daily operation of a Dunkin’ Donuts store. “We’ve had some kids work with us for a year or two, and some

“Our late-night business has grown from .04% to 4% of sales. It’s a HUGE increase.” - Matthew Tenore Dunkin’ Donuts®, Brockton, MA

Learn more at watchfiresigns.com/donuts

of the highly functioning kids can get into a routine very well,” says Rod. Not long ago, Georgia Webb, a 22-year-old from Charlottesville, who graduated from VIA’s James C. Hormel School in June 2014, became the first VIA student in the new program to receive a paycheck. Others, like Rod’s son Spencer, are happy to work for food. In Spencer’s case that consists of a plain toasted bagel with cream cheese – cut into fourths – and iced tea served in a cup with a straw. “He’s a simple guy,” says Rod affectionately. “He can’t read, but we can be driving anywhere and see a Dunkin’ Donuts and he’ll say, ‘Dunkin’ Donuts! I want a bagel hot cream cheese!’” The program helps foster independence. “Adults need places to continue learning,” says Rod. “I believe people get satisfaction when working with us. I am not sure they understand the concept of work, but they understand what they like. If we can make some small difference in one person, it means a lot to us.” The feeling is mutual, too. “We are excited about the partnership and we hope to expand it and see more adults involved,” says Kristin Twiford, VIA’s communications coordinator. “It sets an example of how VIA and organizations like ours can work with businesses in the community.”

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Bederson LLP - CPAs and Consultants

Tom Colitsas 609-452-0889 • tcolitsas@tcacpa.com 103 Carnegie Center, Ste. 309, Princeton, NJ 08540

Robert Costello 617-621-0500 • cpas@gasparco.com 1035 Cambridge Street, Ste. 14, Cambridge, MA 02141 www.gasparco.com Steven Bortnick, CPA 973-530-9113 • SBortnick @bederson.com 100 Passaic Avenue, Fairfield, NJ 07004 www.bederson.com

Cynthia A. Capobianco, CPA

Cynthia Capobianco 401-822-1990 • cynthia@capobianco.necoxmail.com 60 Quaker Lane, Ste. 61, Warwick, RI 02886-0114

Honkamp Krueger & Co., P.C.

Ryan Hauber 608-620-4794 • rhauber@honkamp.com 251 Progress Way, Ste. 200, Madison, WI 53597 www.honkamp.com

Marcovich, Mansour & Assoc. Inc.

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

Neovision Consulting Inc.

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

Thomas Colitsas and Associates, CPA

BACK OFFICE

Jera Concepts

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

BUILDING

Poyant Signs

Bill Gavigan 125 Samuel Barnet Blvd, New Bedford, MA 02745 508-717-4930 • bgavigan@poyantsigns.com www.poyantsigns.com

Trane HVAC

Jonathan Ralys 225 Woldwood Avenue, Woburn, MA 01801 781-305-1335 • Jonathan.Ralys@Trane.com www.Trane.com/commercial

WatchFire Signs

Devon Mourer 217-442-0611 • devon.mourer@watchfiresigns.com 1015 Maple Street, Danville, IL wwwwatchfiresigns.com

BUSINESS BROKER National Franchise Sales

Ellen Hui 949-428-0498 • eh@Nationalfranchisesales.com 1601 Dove Street, Ste. 150, Newport Beach CA 92660 www.nationalfranchisesales.com

COMMUNICATIONS

AT&T Corporate Business Solutions

Sophy Englund 954 383-8133 • SE1885@ATT.COM 13450 W Sunrise Blvd, Ste. 602, Sunrise FL 33323 http://att.com/wireless/dunkindonuts

Charter Business

Mary Ewals • 303-267-9964 • mary.ewals@charter.com 6399 South Fiddlers Green Circle Ste. 600 Greenwood Village, CO 80111 www.charter.com

Comcast Business Services

Comcast National Sales • 866-407-6338 Dunkin_National_Sales@comcast.com 500 South Gravers Road, Plymouth Meeting, PA 19462 www.business.comcast.com/internet

Sonu Satellite

Neil Doshi 1-877-999-7668 • neil@sonusatellite.com 430 Commerce Lane, Ste. F, West Berlin, NJ 08091 www.sonusatellite.com

Sprint

Heath Stone 603-793-2129 • heath.h.stone@sprint.com 3 Van De Graaff Drive, Burlington, MA 01803 www.sprint.com/ddifomembers

Time Warner Cable Business Class

Tricia Petway 919-654-4115 • tricia.petway@twcable.com 4200 Paramount Parkway, Morrisville, NC 27560 www.twc.com/business

Verizon

Kevin Tatten 508-380-1807 • kevin.tatten@verizonwireless.com 77 Boston Turnpike, Shewsbury, MA 01545 www.verizonwireless.com

COST RECOVERY

Performance Business Solutions, LLC

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

DDIFO® does not endorse or recommend commercial products, processes, or services. A DDIFO® Business Member is paying to advertise, and it is not to be considered a product or service endorsement by DDIFO®. Furthermore DDIFO® does not control or guarantee the currency, accuracy, relevance or completeness of information provided by sponsors in their advertising.

28 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

2015

Photos By Zoran Dobrijevic

Directory of Business Members

BUSINESS MEMBER

ENERGY

Centrix Bank & Trust

Joyal Capital Management Franchise Development

Plotwatt, Inc.

Deborah Blondin 603-589-4071 • dblondin@centrixbank.com 1 Atwood Lane, Bedford, NH 03110 www.centrixbank.com

FINANCE Bank RI

Robyn Gault 603-433-9476 • rgault@directcapital.com 155 Commerce Way, Portsmouth, NH 03823 www.franchise.lendedge.com

BMO Harris Bank N.A.

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

Brendon Pierson

Richard Riecker 201-326-4021 • Richard.riecker@firstfcc.com 2715 13th Street, Columbus, NE 68601 www.firstfranchisecapital.com

www.santanderbank.com 508-890-6880 • mmcgwin@santanderbank.com 446 Main St., Worcester, MA 01608 www.santander.com

GE Capital, Franchise Finance

TCF Franchise Finance

Business Financial Services

Christine Keating 203-229-1804 • christine.keating@ge.com 201 Merritt 7, 2nd Floor, Norwalk, CT 06851 www.gefranchisefinance.com

Scott Vautrin 919-883-5679 • scottvautrin@plotwatt.com 1715 Six Gables Road, Durham, NC 27712 www.plotwatt.com

Tom Fitzgerald 401-574-1119 • tfitzgerald@bankri.com One Turks Head, Providence, RI 02903 www.bankri.com Angelo Maragos 949-293-0152 • angelo.maragos@bmo.com 7700 Irvine Center Drive, Ste. 510, Irvine, CA 92618 www.bmoharris.com/franchisefinance Jeffrey Kotch 732-681-4800 • jkotch@brendonpierson.com 6333 North State Highway 161, 4th Fl., Irving TX 75038 www.brendonpierson.com

Scott Kantor • 954-509-8019 skantor@businessfinancialsservices.com 3111 N. University Dr, Ste. 800 Coral Springs, FL 33065 www.businessfinancialservices.com

Direct Capital Franchise Group

Fidelity Bank

First Franchise Capital

Daniel Connelly 508-747-2237 • dconnelly@joycapmgt.com 50 Resnik Road, Plymouth, MA 02360 www.jcmfranchise.com

Pacific Premier Franchise Capital

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

Marlin Franchise Finance Group

Josh Rouswell 856-505-4450 • jrouswell@marlinfinance.com 300 Fellowship Rd, Mount Laurel, NJ 08054 www.marlinfinance.com

Santander Bank

Bill Johnson & Brittney Weber 952-656-3268 • bjohnson@tcfef.com 11100 Wayzata Blvd., Ste. 801, Minnetonka, MN 55305 www.tcfef.com

INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 29

2015

BUSINESS MEMBER

Directory of Business Members Please Visit The DDIFO Business Members Directory online at www.DDIFO.org HK Payroll Services, Inc.

Laurie Fleming 732-968-2700 Ext: 41916 • lfleming@honkamp.com 2345 JFK Rd, PO Box 3310,Dubuque, IA 52004 www.hkpayroll.com

Snagajob

Chris Wirt 804-433-2761 • chris.wirt@snagajob.com 4851 Lake Brook Drive, Glen Allen, VA 23060 www.snagajob.com/employers

INSURANCE

Insurance World Agency Inc.

Anil K. Sharma 630-654-6067 • info@iwainsurance.com 100 E Ogden Avenue Ste. 203, Westmont, IL 60559 www.iwainsurance.com

KK Insurance Agency

Ashish Vadya 866-554-6799 • ashish@kkinsuranceagency.com 541 Broadway, Long Branch, NJ 07740 www.kkquote.com

Leavitt Group

Angela Newman 626-384-3717 • angela.newman@leavitt.com 1820 East First Street, Ste. 500, Santa Ana, CA 92705 www.leavitt.com

Starkweather & Shepley Insurance Brokerage, Inc.

Brian Frank 203-761-3818 • brian.frank@td.com 40 Danbury Road, Wilton, CT 06857 www.tdbank.com

CareerBuilder

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

Sabrina San Martino 800-854-4625 ext. 1121 • ssanmartino@starshep.com 60 Catamore Boulevard, East Providence, RI 02914 www.starkweathershepley.com

United Capital Business Lending

First Advantage

Mark Stokes 813-636-5301 • mark.stokes1@wellsfargo.com 2502 North Rocky Point Drive, #400, Tampa, FL 33607 wfis.wellsfargo.com

TD Bank

Trey Grimm 410-771-9600 • tgrimm@ucbl-inc.com 215 Schilling Circle Ste. 100, Hunt Valley, MD 21031 www.unitedcapitalbusinesslending.com

Suzanne Cormier 317-245-1665 • Suzanne.Cormier@fadv.com 9800 Crosspoint Blvd., Ste. 300 Indianapolis, IN www.fadv.com

FOOD PRODUCTS

Granite Payroll Associates

Quaker Oats A Division of PepsiCo

Marco Schiappa 401-263-7921 • marco@granitepayroll.com 176 Granite Street, Qunicy, MA 02169 www.granitepayroll.com

HUMAN RESOURCES ADP

Jim Ferreira 203-530-3512 • jferreira@ovationpayroll.com 90 Linden Oaks Ste. 110, Rochester, NY 14625 www.ovationpayroll.com

Bill.com

Tina Maxwell (585) 218-6781 • franchisesolutions@paychex.com 1551 S. Washington Ave., Ste. 200 Piscataway, NJ 08854 www.paychex.com

Ed Bowes 610-948-8309 • Ed.bowes@pepsico.com 402 Kilarney Way, Royersford, PA 19468 www.pepsico.com

John Stefko 908-625-7966 • john.stefko@adp.com 99 Jefferson Rd. MS 322, Parsippany, NJ 07054 www.adp.com

Heartland Ovation Payroll

Paychex

Wells Fargo Insurance Services

LEGAL

Lisa & Sousa Attorneys at Law Ltd.

Carl Lisa, Sr. 401-274-0600 • clisa@lisasousa.com 5 Benefit Street, Providence, RI 02904 www.lisasousa.com

Paris Ackerman & Schmierer LLP

David Paris 973-228-6667 • david@paslawfirm.com 101 Eisenhower Parkway, Roseland, NJ 07068 www.paslawfirm.com

OPERATIONS

3M Company

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

Becky Riffis 650-353-3301 • briffis@hq.bill.com 3200 Ash Street, Palo Alto, CA www.bill.com DDIFO® does not endorse or recommend commercial products, processes, or services. A DDIFO® Business Member is paying to advertise, and it is not to be considered a product or service endorsement by DDIFO®. Furthermore DDIFO® does not control or guarantee the currency, accuracy, relevance or completeness of information provided by sponsors in their advertising.

30 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

2015

Directory of Business Members

BUSINESS MEMBER

Thank You to Our Busin ess M emb ers!

Bunn-O-Matic Corporation

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

Cardtronics

Doug Falcone 973-599-0600 • dougf@cardtronics.com 628 Route 10 - Ste. 8, Whippany, NJ 07981 www.cardtronics.com

Delphi/Fast Track 2+2 Drive-Thru Timer

Mike Pierce 714-850-1320 • mike@phaseresearch.com 3500 West Moore Ave., Ste. M, Santa Ana, CA 92704 www.fasttracktimer.com

DTT Surveillance

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

Dunbar Security Products

Dustin Gosewisch • 800-766-9145 dustin.gosewisch@dunbararmored.com 8525 Kelso Drive, #L, Baltimore, MD 21221 www.dunbarsecurityproducts.com

Ecolab

KD Kanopy

Angela Bechard 888-966-6337 • angela@nedrivethru.com 12 Wildwood Road, Auburn, NH 03032 www.nedrivethru.com

Green Turtle Americas

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

Hi-Tech Sound

Gary Hanna 508-624-7479 • gary@hitechsound.com 19 Brigham Street, Unit 10, Marlboro, MA 01752 www.hitechsound.com

HME Drive-Thru Headsets

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

Hockenbergs

Tom Schrack Jr. 402-609-5111 • tomjr@hockenbergs.com 7002 F St., Omaha, NE 68117 www.hockenbergs.com

Jarrett Services ATM, Inc.

Eric Johnston 732-572-0706 • ej@jarrettforcash.com 1315 Stelton Road, Piscataway, NJ 08832 www.jarrettforcash.com

Paola Kerns 561-683-5090 • stephanieh@shoesforcrews.com 250 S. Australian Ave. West Palm Beach FL 33401 www.shoesforcrews.com

New England Drive-Thru Communications

Arliene Bird arliene.bird@ecolab.com 8300 Capital Drive, Greensboro, NC 27409 www.ecolab.com/Businesses Eric Hancock 704-295-1733 • ehancock@greenturtletech.com 2709 Water Ridge Pkwy Charlotte NC 28217 www.greenturtletech.com

Shoes For Crews

John Behrens 303-650-4707 • john@kdkanopy.com 1921 E. 68th Ave. Denver, CO 80229 www.kdkanopy.com

SKAL East, Inc

Kevin Huerth 508-238-0106 • kevin@skaleast.com PO Box 303, 31 Eastman Street, Easton, MA 02334 www.skaleast.com/index.cfm?keyword=dunkin

Pentair Filtration & Process

Tryad Solutions

Nick Restivo 630-549-0079 • nick@tryadsolutions.com 2015 Dean St. Ste. 6A, St. Charles, IL 60174 www.tryadsolutions.com

R.F. Technologies

UAS Security Systems

Jennifer Morales 618-377-4063 ext. 121 • jenm@rftechno.com 542 South Prairie Street, Bethalto, IL 62010 www.rftechno.com

Chris McGurk 800-421-6661 • chris.mcgurk@uas.com 700 Abbott Drive, Broomall, PA 19008 www.uas.com

QualServ

PCI COMPLIANCE

Becky Dubose 800-643-2980 • bdubose@qualservsolutions.com 7400 28th Street, Fort Smith, Arkansas, 72906 www.qualservsolutions.com

SensoScientific

ANXeBusiness

Mark A. Wayne 313-268-1606 • waynem@anx.com 2000 Town Center Ste. 2050, Southfield, MI 48075 www.anx.com

Zary Lahouti 800-279-3101 ext. 475 • ZaryL@sensoscientific.com 685 Cochran St, #200, Simi Valley, Ca 93065 www.sensoscientific.com

ServSafe/NRA Solutions, LLC

Kevin Scott 540-868-8292 • kscott@restaurant.org 175 W Jackson Blvd. Ste 1500, Chicago, IL 60604 www.servsafe.com

TAX DEFERRED EXCHANGE Exchange Authority

Marie Dias 978-433-6061 • mdias@exchangeauthority.com 9 Leominster Connector, Ste. 1, Leominster, MA 01453 www.exchangeauthority.com

INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015 31

A LOOK ON THE LAW

Franchisees Face Challenges in

Estate Planning L

ao Tzu, the ancient Chinese philosopher, said, “A journey of a thousand miles must begin with a single step.” For Dunkin’ Donuts franchise owners, that first step began with the acquisition of their first shop. Whether that journey ends with the death of the franchisee, or continues into the next generation, rests largely with the path he or she chooses—will it be clearly spelled out in legal documents, or will it be up to his survivors and the courts to rule?

Dunkin’ Donuts franchise owners face certain restrictions and obstacles in their succession plans. The brand’s Franchise Agreement contains specific language regarding transfers during the franchisee’s life, upon the eventual sale of the franchise and upon the franchisee’s death. These restrictions make it imperative the franchisee create a succession plan that is clearly mapped out well in advance.

should determine whether or not the business should pass at the time of the franchisee’s death or during his/her lifetime. If the business is going to pass at death, the team should determine what steps are necessary to create a transition to the next generation and what attributes the purchaser should have.

Preparing the next generation If a franchise owner is considering passing the business to his/her children, these questions should first be addressed: 1) What is the level of education they need? 2) Should they work in other franchise businesses before joining the family business? 3) Is there any impediment which might prevent the child from taking over the business? Once these questions are addressed, the franchise owner can help facilitate the paperwork necessary to designate the child a qualified franchisee.

The Franchise Agreement also restricts what type of entity may own the shares in the business. In recent years, Dunkin’ Brands permitted a franchisee to transfer their corporate shares to a qualified Dunkin’ Donuts Franchise Trust (DDFT), an instrument with limited purpose and very specific terms. It must be approved by Dunkin’ Brands before any transfers of stock are made to the DDFT. Failure to follow the requirement imposed by Dunkin’ Brands can trigger a default under the Franchise Agreement.

Another important consideration is how to equalize the balance of the estate for those family members who are not going to become qualified franchisees. Many Dunkin’ Donuts franchise owners own the real estate on which their shops sit. Some franchisees choose to equalize their estate by passing the operating businesses to one child and the real estate holdings to another. While this move creates equity on paper, it can present real-life challenges by potentially creating competing interests for each child.

The battle plan

Consider the troubles that could arise when the next-generation franchisee is at the mercy of his/her sibling who owns the real estate. That child can determine rent and lease terms which create uncertainty in the business plan. Furthermore, the next-generation franchisee may at some point decide to relocate the business to a location he/she purchases or controls, thus leaving the sibling’s property without a tenant but with continuing expenses. Issues such as these must be addressed in the estate plan.

It is imperative for the franchisee to lay out the key aspects of his/her succession plan—the battle plan, if you will. This includes when and how the business will be transferred, to whom it will be transferred and whether there are any obstacles to making the transfer. The franchisee should consult his/her accountant, business advisor, attorney, and insurance agent when making these decisions. After identifying a successor, the team

32 INDEPENDENT JOE • DECEMBER 2014/JANUARY 2015

Avoiding tax penalties

BY SETH ELLIS

A franchisee’s succession plan cannot consist of just wills and trusts. Additional documents which specifically deal with the day-to-day operation and transition of the business must also be drafted. Typically, an operating business will have in place a shareholders’ agreement or an operating agreement, if the entity is designated a limited liability company. These agreements can outline the life events that will trigger transfers for the franchise owner, opportunities for the franchise owner to retire, or for the business to continue or be sold. If the franchise owner is looking to retire and pass the interest to a family member, additional complications are present. He/ she has to decide whether the sale of the business to the younger generation will be for full fair market value, as a gift, or as a combination of the two. The decision can affect the income needs of the retiring franchisee as well as state and federal estate and gift taxes. U.S. tax laws say an individual may transfer assets worth up to $5.34 million to a person of their choice; a married couple can transfer twice as much without triggering the estate tax. If the value of assets is higher, the government will impose an estate tax of approximately 40 percent of that excess amount. Careful weight must be given to determining the value of the business so the plan can ensure the transfer does not warrant excessive tax payments whether the transfer takes place during the owner’s lifetime or upon his/her death. According to the International Franchise Association (IFA) only 30 percent of franchise businesses continue to the second generation, and only 12 percent survive into the third generation. In most cases it’s because the franchisee failed to properly plan. Franchisees work hard to build their business and accumulate wealth; how and to whom that success is transferred is your choice. An estate plan that is well-constructed and frequently reviewed, ensures your wishes are followed.

•

Seth Ellis is a Director with the law firm Tripp Scott, P.A. with core focus areas in estate planning and asset protection for entrepreneurial clients.

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Find out how JCM can help you grow and plan today. We have helped many Dunkin’ Donuts franchisees and we can do it for you.

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B e v e R ly H I l l S

Start a Relationship Today: 1-800-56-JOYAL Gary F. Joyal

Richard P. Joyal, Jr.

Stephen M. Stabile

Managing Partner gjoyal@joycapmgt.com

Managing Director rjoyal@joycapmgt.com

President ss12@att.blackberry.net

Daniel F. Connelly

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Managing Director dconnelly@joycapmgt.com

Managing Director krebello@joycapmgt.com

Chief Financial Officer sobrien@joycapmgt.com

PROUD TO Be:

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Watch client testimonials at: www.JoyCapMgt.com OR www. JCMFranchise.com