To Keep Guests, Fast Food Loses the Fiberglass Decor

Brandweek reports that with slate floors and subdued lighting, Arne Jacobsen-inspired egg-chairs and printed wall panels by French architect Philippe Avanzi, a certain lunch spot in Manhattan’s uber-hip Chelsea district fits right in with the nearby boutiques and art galleries. Less predictable is the place’s name: McDonald’s.

Late last year, the franchisee Paul Hendel became the first operator in the Golden Arches’ 14,000-unit system to adopt the “urban redesign” aesthetic—one that the burger chain had earlier used to update its locations throughout the E.U. At roughly the same time, archrival Burger King an-nounced plans to make over its 12,000 American units with an industrial look featuring corrugated metal and brick walls—all in the name of décor. Menus, prices and clientele will largely remain the same. The upshot? Expect fast-food interiors to change.

What’s going on here? Well, in large part, it’s because of Starbucks—or at least the effect that Starbucks and other so-called “fast-casual” restaurant chains have had on the QSR segment. Roughly translated, it boils down to, get hip or risk losing market share.

For decades, QSRs adopted some variation of the standard layout of fiberglass seats and mustard-colored wallpaper. The materials were cheap to buy, easy to keep clean—and who cared what the restaurants looked like? Most fast-food customers didn’t stay much longer than 15 minutes, anyway. But fast food’s strategy is changing. Not only do quick-serve chains have to hold their own against encroachment of fast-casual competitors like Chipotle and Panera (which offer nicer settings and higher-end fare for only a modest bump in the average ticket), but consumer eating habits are also getting more sophisticated. In a category whose main culinary attribute has always been “fast,” companies are increasingly catering to consumers who want to linger. Wi-Fi is a given and among other new features are laptop plugs, upholstered chairs and flatscreen TVs.

Read More at: Brandweek

Tension Rules Franchisor-Franchisee Relationships

David Farkas writes in  Chain Leader that attorney J. Michael Dady claims that restaurant chain discounting ruins franchisees’ profits and insists more disclosure would keep franchisors honest.

J. Michael Dady of Dady & Gardner has been arguing case law on behalf of franchisees for more than 30 years. Today, Dady’s list of adversaries includes just about every major restaurant brand including Starbucks, McDonald’s and Burger King. Chain Leader recently asked the Minneapolis-based attorney to bring us up to date on legal issues currently affecting franchisees.

Can you offer a brief overview of restaurant franchisor-franchisee relations?

Across the board today there is an unusually significant emphasis on discounting to get people through the front door or to the drive-thru. There are pluses and minuses to that strategy from a franchisor’s perspective. They make their money based on a percentage of total revenues. But my clients make their money based on bottom-line profitably. You can’t lose a little on every deal and expect to make it up on volume, which is one of my criticisms of Burger King’s $1 double cheeseburger.

What are the legal implications of that situation?

There is attached to the franchisor-franchisee relationship a two-way street called the covenant of good faith and fair dealing. This means franchisees in their relationship with franchisors, and vice versa, have to act in a way that is fair and reasonable and is not discriminatory and in a way that does not deprive the other party of the fruits of the relationship. [Franchisees] buy into a franchise opportunity because they expect a franchisor will help them on the road to profitability. To the extent franchisors are imposing obligations on [franchisees] to sell goods below their actual costs, it violates that contract.

Has there been good news from a legal standpoint for franchisees lately?

We like the Randall, et al. vs. Lady of America case that came out recently in federal court in Minnesota. It says a franchisor may not disclaim the protections afforded to a prospective franchisee by applicable federal or state laws–be they statutory or common law principles–by a [written] disclaimer.

Can you elaborate?

I’ve said often that despite doing this for 30-plus years, I’ll still bet one of these super salesmen could probably talk me into signing just about anything. What the law says, and it varies some from state to state, but in general it says that when you are selling someone a franchise, you’ve got to do it like they did after the ‘33 and ‘34 [Securities Exchange] Acts were passed for selling stocks or bonds. You have to do it with full and fair disclosure so buyers can make informed decisions based on good information.

And the fact that you might oversell somebody, and the in process get them to sign some kind of disclaimer that says we didn’t say or do anything unlawful, that doesn’t work. If you indeed do or say something unlawful, you can’t avoid liability because as a great salesman you got them to sign the disclaimer. That’s a very important point. Before that case, which incidentally is mine, there were cases that suggested the contrary.

Has there been good news from a legal standpoint for franchisors?

I like to talk about my wins. Let someone else talk about my losses.

Let me put it this way, then. In your article “Calling a Penalty on Your Partner,”  you mention that some franchisees forced to close early are still responsible for future royalties. Do franchisors easily get away with that?

It’s the number one point I raise with potential clients. People think intuitively, “If I enter into this franchise opportunity, I’m optimistic things will work out with my good effort and my franchisor’s partnership. But if after three or four years, I have lost lots of money, I will be able to shut my business down and go to law school without further liabilities to the franchisor.”

Lo and behold, if they have assets apart from what they poured into the business, franchisors will say, “You signed up for a 20-year franchise. You closed after five years. I have 15 more years of royalties coming. You’re obligated to keep your doors open and fund your operating losses so I can get my royalty check. Send me a check for 15 years worth of royalties. You owe me hundreds of thousands of dollars.”

And there are cases out there that say that’s right. I say to prospective franchisees that you want to have the express right to get out early if you can’t make it despite your best efforts.

How likely is it that a national franchise brand would require those royalties?

It varies dramatically, much more than you’d think. Let me ask this: How would you like to be a CEO of a company that says to prospects, “Whether you make money or not, you’ll be on the hook for royalties for 20 years”?

Read more at: Chain Leader

Gov’t Intervention a Top Industry Concern

Nation’s Restaurant News reports that the increase of government legislation targeting the foodservice industry, on the federal, state and local levels, is one of the largest challenges restaurateurs face, industry executives and operators said Monday during the International Restaurant & Foodservice Show of New York.

Jon Luther, chairman of Canton, Mass.-based Dunkin Brands Inc., the parent to Dunkin Donuts and Baskin-Robbins, said the intrusion of government through such proposed legislative measures as menu labeling, card check and health care reform, would have the most profound effect on the industry’s future cost of doing business.

“Government, that’s the greatest single threat we have,” Luther said Monday during a panel discussion at the New York State Restaurant Association’s trade show. “Every time something happens, it affects the bottom line.”

Luther added that although some of the plans making their way through the Obama administration “are well thought out,” more needs to be done to ensure the success of business “for the long term.”

He told attendees a story about the late Roberto Goizueta, who, he said was “one of the most wonderful CEOs” in the foodservice industry. “The venerable CEO of Coca-Cola,” Luther mused, “was once asked why [the company had] a huge government relations office overlooking the White House. He said, ‘government could put me out of business.’”
Rick Sampson, chief executive of the New York State Restaurant Association, also weighed in on the subject of increased legislation during a presentation on environmentally friendly restaurant initiatives within the New York restaurant community.
“It’s coming,” he said. “We’re already starting to see [mandated] deposits and sales tax on bottled water. You will be paying higher taxes, fees and on and on. The last thing we want is mandates on how to run our business.”
He suggested that restaurants that work to initiate green programs now will get ahead of the legislation curve, as well as manage to do something good for the environment.

Michael Oshman, executive director of the Green Restaurant Association, the Boston-based nonprofit group that assists operators going green through the association’s certification program, agreed with Sampson, saying that initiating green practices before many become law is the smartest way to circumvent future problems.

“California is legislating left and right,” he said. “The question is, do you want to [make changes] now when you can or wait until 2013 when you have to do it? I don’t know of any restaurant [company] that wants to be mandated to by government.”

NYSRA formed a partnership last year with the GRA to increase eco-friendliness among industry members. According to Oshman, there are 120 restaurants in New York that have either obtained or maintained green restaurant certification since the program began and another 40 to 50 locations are on deck. He said there are a total of 650 restaurants throughout the United States that have so far been GRA certified.

Read more: Nation’s Restaurant News

Independent Joe Attended the March 4th DDIFO Members Meeting

Watch the Videos and see what Independent Joe had to say:

Video 1: Welcome to the DDIFO Members Meeting! Congratulations to the World Champion Yankees and Happy 60th BirthDDay Dunkin’ Donuts.

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Video 2: Competition and Introduction to Street Fighter Mark Slutsky!

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Video 3: Politics and Introduction to DDIFO Legislative Affairs Coordinator Joe Giannino!

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Dunkin’ Donuts has announced the result of its most recent Brand Advisory Council (BAC) election with 26 franchise leaders representing five regions.

Chain Leader, reports that Dunkin’ Donuts, America’s all-day, everyday stop for coffee and baked goods, has announced the result of its most recent Brand Advisory Council (BAC) election with twenty-six franchise leaders representing five regions.

The members serve a two year term, providing strategic advice and guidance on brand initiatives. They attend regular meetings with the senior leadership team at Dunkin’ Brands corporate headquarters in Canton, Mass. This group represents the entire franchise community and serves as a forum to exchange ideas, provide feedback, observations and suggestions.

For 2010-2011, eleven new representatives were elected to the Dunkin’ Donuts Brand Advisory Council by their colleagues from a slate of candidates for each respective region. They include:

* Nick Apostoleres (Florida)
* Rob Branca (Shrewsbury, MA)
* Mark Cafua (North Andover, MA)
* Jim Cain (Norwalk, CT)
* Dan Costa (Acton, MA)
* Jason Duffy (Phoenix, AZ)
* Barkat Gillani (Chicago, IL)
* Sid Mody (New Brunswick, NJ)
* Parth Patel (Clayton, NC)
* Vipul Patel (Chicago,IL)
* Vishal Shah (Chicago, IL)

The new franchise leaders will serve alongside returning members, Jim Allen (co-chairman). Danny Bouzianis (Biddeford, ME), Scott Campbell (Great Neck, NY), Neal Faulkner (Upton, MA), Lou Garcia (Manasquan, NJ), Ram Javia (Westminster, MD), Dinart Serpa (Beverly, MA), Perry Shah (Philadelphia, PA), Dave Sisson (Cleveland, OH), Clayton Turnbull (Boston, MA), Rod Valencia (Woodhaven, NY), Mike White (Atlanta, GA), Ed Wolak (Scarborough, ME), George Zografos (South Yarmouth, MA) and John Justo (Providence, RI).

“It is a privilege and honor to serve on the Brand Advisory Committee again this year to represent the Dunkin’ Donuts franchise community,” said Dunkin’ Donuts BAC co-chairman, Jim Allen of Lexington, MA. “I look forward to working with my fellow franchisees and senior management to help address many of the topics that are important to the Dunkin’ Donuts network.”

“We are always working towards building a stronger franchise system and the BAC plays a critical role in providing senior management with thoughtful and valuable advice and worthwhile perspectives to further strengthen the business,” said Nigel Travis, Dunkin’ Brands CEO and Dunkin’ Donuts President. “We look forward to the contributions of our newly appointed members who join a strong group of dedicated franchise leaders that takes its commitment to Dunkin’ Donuts seriously.”

Dunkin’ Donuts senior leadership consults with the Brand Advisory Council on a wide variety of topics, including the brand’s strategic direction, marketing strategies, menu innovation, operations, technology issues, education and training needs, regional and national meeting agendas and more.

The Dunkin’ Donuts Franchise Advisory Council system has been in place for more than three decades and includes operators located in 35 United States across the country.

Tim Hortons Plans 900 New Sites By 2013

Judy McKinnon, of  Dow Jones Newswires reports that Tim Hortons Inc. (THI) plans to open about 900 locations in North America by 2013, including about 600 in Canada, and is forecasting 2010 earnings of C$1.95-C$2.05 a share, well ahead of the C$1.64 a share it recently reported for 2009.

The big coffee and doughnut chain said new locations in Canada will focus on growth markets in Quebec, western Canada and major urban locations, as well as Ontario. The company had about 3,000 stores in Canada at the end of 2009 and sees potential for another 1,000 across the country.

U.S. expansion will focus on existing regional markets in New York, Ohio and Michigan. It plans to differentiate its brand through a new concept restaurant design to be piloted in at least 10 existing locations. The new concept features a “dramatic re-imaging” to define itself as a cafe and bake-shop destination.

At an investor conference, the company said a key part of its U.S. strategy is to become “famous” for its core coffee and baked goods, and so it will add the words “Cafe & Bake Shop” to its logo. “We have to call out what we are,” said David Clanachan, chief operations officer for U.S. and international at Tim Hortons.

He said the company’s new U.S. store concept will have the feel of a cafe inside and out, with goods baked before customers' eyes, equipment moved out of the way to create more opportunities for interaction with staff, and tables and chairs that aren’t fastened together or to the floor.

The company also plans to complement its standard restaurant-development activity in Canada and the U.S. with non-standard formats and locations, extending its reach in hospitals, universities and colleges, airports and other non-traditional sites.

As part of its overall development strategy, Tim Hortons will target smaller communities in Canada, mostly with standard restaurants, though it will also test a new, flexible restaurant design in these communities.

The chain will extend its co-branding initiative with Cold Stone Creamery and plans to convert up to 60 locations in Canada in 2010 to include the Cold Stone Creamery concept. In the U.S., it plans to co-brand 15 to 20 existing locations and open 10 to 15 new restaurants as co-branded locations in 2010.

It's also exploring the idea of co-branding with other companies.

For 2010, Tim Hortons is also projecting operating income growth of 8% to 10% and same-store sales growth of 3% to 5% in Canada and 2% to 4% in the U.S. Capital spending for 2010 is projected at C$180-C$200 million.

Beyond 2010, it’s targeting share earnings growth of 12% to 15% on a compound annual average growth rate basis from 2011 to 2013.

Executives said that, while Tim Hortons does most of its business in the morning and snack periods, it sees room for growth at all times of day, notably lunch and dinner through the launch of new products that appeal to its “on-the-go” customers.

In Toronto Friday, Tim Hortons is up 81 Canadian cents to C$32.73 on 723,000 shares.

Tim Hortons Plans Menu Expansion to Compete with Starbucks, Dunkin’ Donuts

The New York Daily News reports that Tim Hortons is brewing up a fresh strategy to take on Starbucks and Dunkin’ Donuts.

The big Canadian coffee chain said Friday it would open hundreds of new cafés, including in New York City, that break the mold of Tim’s iconic coffee shops north of the border.

Tim Hortons already has 11 shops in the city – nine in Manhattan and two in Brooklyn.

As part of a plan to open 900 stores in North America over the next three years, the company said it will build 300 more outlets in the U.S. That will increase its total of U.S. stores by more than 50%.

Rather than sticking with a format that has become a part of Canadian culture, Tim’s said it would open what it described as “redesigned upscale café/bake shops” that feature a menu that differs from the Canadian fare, including pastries baked on premises.

“The bottom line is that the Tim Hortons you know today will be dramatically different in four years from now,” CEO Don Schroeder said.

The company told industry analysts Friday it would locate the 300 new cafés in parts of the U.S. in which it already had a presence – mostly in New York, Ohio and Michigan.

“They are making the right move by targeting current markets. You just can’t continue to throw more stores out there. It’s like throwing bad money after bad money,” Edward Jones analyst Brian Yarbrough told Reuters.

Tim Hortons currently has 3,015 shops in Canada and 563 in the U.S. Those numbers pale compared with Starbucks, which has more than 11,000 outlets in the U.S. alone, and Dunkin’ Donuts, which has 6,400 in its home market.

Also for 2010, the company expects sales at stores open for at least a year to increase by 3% to 5% in Canada and by 2% to 4% in the U.S.

Read More:  New York Daily News

The Real Scoop on Coffee and Caffeine, Studies Show: it’s Good for You!

 JoAnn E. Manson, MD, DrPH, of Harvard Medical School writes at Bottom Line Health that if you worry that coffee could harm your health? Relax.

Studies suggest that, when consumed in moderation — meaning two to four eight-ounce servings daily — coffee may in fact be good for you.

It is not clear whether the benefits come from coffee itself or its caffeine. Even decaffeinated coffee may have some caffeine, and there is limited research on other caffeinated beverages, such as tea. Per cup, coffee has about 100 mg of caffeine… black tea has about half as much.

Studies show that coffee may… Reduce risk for some cancers. An analysis of nine studies found that drinking two cups of coffee daily lowered liver cancer risk by 43%. Coffee also may protect against colorectal cancer.

Help prevent diabetes. Among 200,000 study participants, those who drank four to six cups of regular or decaffeinated coffee daily were 28% less likely to develop type 2 diabetes than people who drank two cups or less daily.

Possible reason: Chlorogenic acid, an antioxidant in coffee, slows sugar’s release into the bloodstream. 

 Protect memory. In a study of 7,000 seniors, women who drank more than three cups of caffeinated coffee or six cups of caffeinated tea daily had less memory loss than women who drank two cups or less.

 Prevent gallstones. In a study of 80,000 female nurses, drinking two or more cups of caffeinated coffee daily cut gallstone risk by about 20%.

Why: Caffeine may aid the digestive fluid bile, reducing formation of cholesterol crystals that become stones… and stimulate gallbladder contractions, flushing away crystals.

 Lower Parkinson’s disease risk. In the nurses’ study, women who drank one to three cups of caffeinated coffee daily were 40% less likely than nondrinkers to develop Parkinson’s, a movement disorder caused by loss of brain cells. 

 Improve physical performance. The amount of caffeine in two to five cups of coffee boosts endurance… helps the body burn fat instead of carbohydrates… and eases muscle soreness.

Reassuring: Coffee drinkers are no more likely to have heart attacks or chronic high blood pressure than nondrinkers. Coffee oils can raise cholesterol, but paper filters remove these oils. Coffee doesn’t appear to increase risk for ovarian or breast cancer. Some women say coffee worsens premenstrual syndrome and fibrocystic breast disease (benign breast lumps), but research does not support this.

Cautions: Both regular and decaf coffee can cause digestive upset. Caffeine can trigger migraine or cause insomnia. Animal studies suggest that at high doses, caffeine may weaken bones by blocking calcium absorption. Moderate amounts of caffeine do not impair fertility or cause birth defects, but consuming more than 200 mg daily may double miscarriage risk — so limit caffeine to 100 mg per day while pregnant.

C-Stores Feeling the Heat

Linda Lisanti writes in Convenience Store News that there’s good news and bad news in the coffee category these days.

The bad news is a double whammy is impacting convenience retailers’ sales and margins in this all-important area of the store. With unemployment at record highs, once-core customers are out of work and no longer making their usual morning commutes — or their daily java stops. Coupled with that is the increasing coffee competition c-stores are facing from quick-service restaurants, doughnut shops and gourmet coffee houses.

The good news, though, is c-stores are holding their own. Coffee servings across all U.S. convenience stores were up 2 percent in 2009 vs. the prior year, and the channel is holding steady in its share of total restaurant coffee servings. In 2009, c-stores held an 8 percent share of brewed coffee servings, and a 9 percent share of specialty coffee servings, according to market research company The NPD Group. That’s compared to c-stores’ 2008 share of 9 percent brewed, and 8 percent specialty.

“We’ve got our challenges cut out for us,” said Bonnie Riggs, NPD’s restaurant industry analyst. “We’re going through the most prolonged downtrend ever seen in the restaurant industry. But c-stores are holding up better than others. C-stores have done some pretty aggressive promoting of their products — specifically foodservice and beverages — and they will have to continue to do so; the forecast [for 2010] is more of the same.”

In spite of all the negative projections, Brian Matlock, director of foodservice for Rockland, Mass.-based Tedeschi Food Shops, is optimistic. He said the chain had a great year in 2009, and he expects an even better performance this year. “Of course, we can’t let our guard down for a second,” he said. “This isn’t the time for complacency.”

That’s why for the last year, the 189-store convenience retailer has taken “a back-to-basics approach” in its coffee program execution, narrowing the offering and focusing on quality and consistency. Currently, 161 Tedeschi Food Shops have a Green Mountain-branded program, while the rest feature either Honey Dew Donuts or Dunkin’ Donuts.

“We gave managers flexibility in bringing in products, but some stores had 16 to 17 coffee varieties [going at one time],” Matlock explained. In April 2009, the chain narrowed the program to eight core varieties, with a focus on light, premium and dark roast blends.

“Sometimes, less is more,” he noted. “When we looked at the demographics for our markets, it was apparent that six out of 10 people coming in for coffee were looking for a core blend. The rest was being divided between decaf and flavored.”

In addition to SKU adjustments, Tedeschi Food Shops concentrated on improving quality and consistency by re-energizing its foodservice training programs and reworking the company’s standards manual and store-level checklists for the coffee section. The changes made are showing some success so far, according to Matlock.

“We have been able to maintain our market share in coffee, and that was key for us. A lot of our competitors were deep discounting last year. There was a time when some were selling their coffee below 99 cents, others were at 79 cents and some were even giving it away. We were able to hold our market share in cup sales despite this, so I look at it as a win for us,” he said. “If your offering is compelling enough — if you have what the customer wants — you don’t have to deep discount to drive volume.”

Like Tedeschi Food Shops, 31-store NOCO Energy Corp., based in Tonawanda, N.Y., is feeling the heat from competitors, specifically Dunkin’ Donuts and Tim Horton’s.

Terry Messmer, director of merchandising for the chain’s NOCO Express convenience stores, said a new coffee shop seems to be popping up on every corner. “We’re in a highly competitive market, and that’s our biggest struggle,” he explained. “It seems every day a new Tim Horton’s is opening up here.”

Read more at: Convenience Store News

Carl’s Jr. Owner CKE Bought by Thomas H. Lee Partners

BusinessWeek reports that Thomas H. Lee Partners LP agreed to acquire CKE Restaurants Inc., owner of the Carl’s Jr. and Hardee’s fast-food chains, for about $619 million in cash. The shares jumped the most in almost nine years in New York trading.

CKE investors will receive $11.05 in cash for each share of CKE common stock they hold, the companies said today in a statement. That’s 24 percent more than yesterday’s closing price of $8.91. Thomas H. Lee also agreed to assume about $309 million in debt for Carpinteria, California-based CKE.

“It’s a fantastic company that produces a lot of free cash flow,” said Mark Smith, a restaurant analyst with Feltl & Co. in Minneapolis. He recommends holding the stock, which had climbed 28 percent in the past year before today. “They weren’t out looking and begging for a buyer,” he said.

CKE had free cash flow — cash flow from operating activities minus capital spending — of $11.5 million in the third quarter, more than double the average of 50 restaurant companies, according to Bloomberg data.

Sales at CKE restaurants open at least a year fell 6 percent in the quarter ended Jan. 25, as unemployment remained high and competitors lowered hamburger prices, the company said this month.

The stock jumped $2.25, or 25 percent, to $11.16 at 10:30 a.m. in New York Stock Exchange composite trading after reaching $11.24, for the largest intraday gain since April 2001.

Industry Pioneer

CKE has 3,147 restaurants in 42 states and 14 countries, including 1,221 Carl’s Jr. restaurants and 1,913 Hardee’s. Founder Carl Karcher borrowed $311 to buy a Los Angeles hot-dog cart in 1941 and became a pioneer in the industry, introducing salad bars, char-broiled chicken-breast sandwiches and self- service beverage stations. He died in 2008.

Thomas H. Lee, which also owns a stake in Dunkin’ Brands Inc., operator of the Dunkin’ Donuts and Baskin Robbins chains, has raised $22 billion of equity since its founding in 1974. The Boston-based firm, also known as THL Partners after founder Thomas H. Lee left the company he founded, has invested in more than 100 businesses with an aggregate purchase price of more than $125 billion.

CKE has through April 6 to solicit better offers from third parties, according to the statement. The deal values CKE at about 12.5 times earnings over the next year, below the 14 times average of other fast-food restaurants, Smith said. Barring other bids, the deal should close in the second quarter of this year, the companies said.

UBS Investment Bank and law firm Stradling, Yocca, Carlson & Rauth are advising CKE. Bank of America Merrill Lynch and law firm Ropes & Gray are advising THL.

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