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Dunkin' Brands Group Inc. chief financial officer Paul Carbone will resign effective April 21 to take a management position in the specialty retail industry, the parent to Dunkin' Donuts and Baskin-Robbins said Thursday.
Canton, Mass.-based Dunkin’ Brands named Kate Jaspon, the company’s vice president of finance and treasurer, to serve as interim CFO upon Carbone’s departure. Jaspon will report directly to CEO Nigel Travis.
The company said it “is undertaking a comprehensive search for a permanent CFO and will consider both internal and external candidates.”
Jaspon has been with Dunkin’ Brands for 11 years, joining in 2005 as assistant controller. She was later promoted to vice president, controller and corporate treasurer, and has held her current title since 2014.
“Kate is a talented financial executive with a deep understanding of Dunkin' Brands,” Travis said in a statement. “She has helped lead us through a number of important transactions, including our IPO and follow-on equity offerings, securitization and several debt restructurings, and has overseen the implementation of our enterprise risk management program.”
As of Dec. 27, Dunkin' Brands' fully franchised business included more than 12,200 Dunkin' Donuts locations and more than 7,800 Baskin-Robbins units.
Contact Ron Ruggless at Ronald.Ruggless@Penton.com
Follow him on Twitter: @RonRuggless
This post is part of the On the Margin blog.
The fast-casual bubble has popped.
Earlier this month, I discussed reasons for the challenges facing fast-casual restaurants, which averaged a same-store sales decline of 1.1 percent in the last quarter of 2016.
The sales problems are starting to result in unit closures. To wit:
In February, Noodles & Company said it plans to close 55 restaurants.
More recently, the fast-casual pizza chain Pie Five closed nine locations.
Neal Sherman, president of RestaurantEquipment.Bid, which helps sell equipment from closed restaurants, said that he’s been selling more equipment from fast-casual concepts recently. He specifically mentioned closed better burger restaurants and shuttered fast-casual pizza units.
To be sure, the closed locations are providing openings for other brands, as noted by news last week that Bibibop Asian Grill will move into the 15 closed ShopHouse Asian Kitchen locations — more than doubling the size of that chain virtually overnight.
One interesting nugget in that piece: Bibibop is considering “similar deals.”
The closures are likely a natural outgrowth of weak segment same-store sales and aggressive development, fueled by private-equity investment and pushes by many chains to be first in their respective markets.
That expansion intensified competition for leases, driving up costs and increasing the supply of such restaurants at a rate faster than demand. The closures are an outgrowth of this phenomenon.
“There has been such an over-expansion in recent years,” Charley Shin, founder of Bibibop and Charleys Philly Steaks, told me. “It might have been a little too aggressive. There might be weaker players falling off, especially in the fast-casual industry.”
To be sure, these closures are not quite the level that appears to be happening in casual dining, which is faring worse and has for far longer.
And, as the Bibibop case indicates, there are frequently restaurant chains eager to move into the closed locations. Bibibop wasn’t the only company that was bidding on the ShopHouse leases — which included some high-profile areas. “Chipotle really picked the prime sites,” Shin said. There is always demand for strong sites.
Also, not all closures are created equal. In the case of Burger Works and ShopHouse, the chains were experimental concepts started by larger companies that ran into problems and opted to shut down the brands. Shutting such brands down can be more advantageous to the companies than it would be if they simply sold the brands outright.
Still, the weakness recently in the fast-casual segment could portend to broader problems.
Consider one example we didn’t include, My Fit Foods. My Fit Foods sold prepared foods in locations that didn’t have dine-in seating, making it different from your typical fast-casual concept. But it had received significant investment over the years, expanded heavily and competed in the fast-healthy space with many fast-casual restaurants.
In February, My Fit Foods closed all 50 of its locations.
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at email@example.com
Follow him on Twitter: @jonathanmaze
The best way to generate profits in the restaurant industry is to sell more food.
For Checkers Drive-In Restaurants Inc., sales growth over the past eight years has led to a 700-basis-point improvement in profits and enviable unit volumes that have operators building new units, or, about $70,000 per location, said CEO Rick Silva.
That helped set the stage for the chain’s recent unit growth and, on Thursday, the announcement that the company has been sold, to the private-equity group Oak Hill Capital Partners, for $525 million.
To company executives, the deal sets the stage for further growth, with Oak Hill set to invest in the chain and help further its expansion.
“We’ve been on a journey for 10 years,” Silva told Nation’s Restaurant News. “We’re driving topline sales, improving restaurant profitability and adding new restaurants to the system. This is really one more step on a long, successful journey. The exciting part is still to come.”
Oak Hill “is going to invest heavily in the next phase of growth,” he added.
Checkers operates the Checkers and Rally’s brands, which have more than 840 locations.
Silva said same-store sales last year grew 3 percent, and same-store sales are up 3.5 percent so far this year. The company has added 100 new operators over the past two years, and has 130 locations in the pipeline, plus commitments for another 120 units.
“We have a tremendous amount of momentum,” Silva said. “Oak Hill is smart for joining at this time.
Sales have helped generate the increase in profits, and much of those sales have come at night. Late-night business at the chain has more than doubled over the past 10 years, Silva said, from 10 percent of revenue to more than 22 percent today.
The company is known for value, and has worked to innovate on many of those offers, including a $2 Box, which includes fries and a protein, such as the Cheddar Biscuit Shrimp. It also introduced a 4-for-$3 value, giving customers an option of four different sandwiches, fries, a drink and an apple pie.
“We start with two wonderful brands that have core competitive advantages in our space,” Silva said. “We are leaders in value and craveability. We’ve done a nice job leveraging that. Those are inherent benefits, and it drives a huge amount of differentiation in the category and in sales.”
At the same time, the company has worked to improve profitability by adding technology and back-office systems to eliminate waste and operate more productively.
Restaurant design also helps profitability. The chain is drive-thru only, so it can go into smaller spaces and operate with fewer employees because restaurants don’t have dining areas. Workers can focus on getting cars through.
Checkers has long used modular buildings, but introduced a freestanding building that can be opened for a total cost of $530,000.
That’s less than half the chain’s average unit volumes, meaning an operator can pay off a new unit relatively quickly.
“For a very low investment, in return you get average unit volumes of $1.2 million,” Silva said. “That’s very exciting for franchisees.”
And the company can go into tight spaces of as little as a third of an acre.
“They’re incredibly efficient,” Silva said. “It allows us to squeeze into very high visibility parcels that others can’t get into.”
Silva said the chain has plenty of runway to grow, even if it doesn’t expand beyond the 29 states in which Checkers or Rally’s restaurants are located. Consultants have estimated that the company could add another 3,000 locations in those states.
Such estimates can be notoriously optimistic, but to the company it reveals that the brand has plenty of growth in the coming years.
“We’ve got a huge, huge runway of growth without entering new states,” Silva said. “The brand is already proven in those states to be successful. It’s exciting for franchisees.”
Contact Jonathan Maze at firstname.lastname@example.org
Follow him on Twitter: @jonathanmaze
In this ongoing in-depth investigation, NRN looks at how the current political environment could affect immigration and what it means for restaurant operators.
U.S. immigration law is notoriously complex, and its application is growing murkier. To put it simply, individuals who do not legally reside in the U.S. may not be employed in the country.
Of course, we know that this is not the case in practice.
The sheer number of undocumented immigrants who work in U.S. restaurants is so high — 1.1 million people, according to a 2014 Pew Research study — that their presence is ubiquitous. This is despite the fact that restaurant operators are in violation of the law if they employ undocumented workers.
We take a look at eight pieces of legislation, existing and proposed, that cover immigration and the workforce, and how they affect restaurant operators.
Photo: Spencer Platt/Getty Image
1. Immigration and Nationality Act (INA)
What it is: The main body of law that regulates immigration policy was enacted in 1952. The INA is divided into many sections and covers the full breadth of immigration topics. This includes, but is not limited to: immigration quotas, visas, asylum, refugees, documentary requirements, ports of entry and removal.
How it is enforced: The INA is enforced at all levels of government, from the president to the courts and through individual agencies, such as Immigration and Customs Enforcement (ICE). Recent executive orders signed by President Trump signal that his administration will take a tougher stance in enforcing INA laws.
How it affects restaurants: The restaurant industry has a high proportion of workers who are immigrants. INA regulations impact their legal residency status in the U.S. and eligibility to work. Employers may not hire or employ persons who are in the U.S. illegally.
2. Employment-based immigration
What it is: Some immigrants may use visas specifically for employment to enter the U.S. These range from “persons of extraordinary ability” (artists, researchers, business people, etc.) to skilled and unskilled workers. As of 2014, “other unskilled labor,” which can include restaurant workers, was capped at 5,000 visas annually. By comparison, 40,000 visas were available annually for skilled workers holding college degrees.
How it is enforced: The U.S. Citizenship and Immigration Services (USCIS) oversees employment-based immigration. Recent reports indicate that H1-B visa applications by skilled workers may now be scrutinized more closely. | How it affects restaurants: Regulations covering unskilled labor apply to the restaurant industry’s workforce.
Photo: David McNew/Getty Images
What it is: Ensuring that regulations of the Immigration and Nationality Act are carried out.
How it is enforced: Immigration laws are enforced across the three branches of government. Agencies that deal with immigration laws include the Department of Homeland Security, Immigration and Customs Enforcement, USCIS, Customs and Border Protection, the Department of Labor and the Department of Justice. Examples of enforcement include questioning at ports of entry, the hearing of legal cases and detention.
How it affects restaurants: President Trump has recently called on his administration to take even stricter enforcement measures, such as publicizing crimes allegedly committed by undocumented immigrants and tapping police officers to enforce immigration laws. These measures could impact restaurant workers who are undocumented.
Photo: John Moore/Getty Images
What it is: The holding by a government official of any migrant, including refugees and asylum-seekers, for the purpose of establishing their identity, carrying out an immigration claim, or removing them from the country.
How it is enforced: The agencies responsible for the enforcement of immigration laws, mentioned in No. 3, are also charged with carrying out detentions. Recent Department of Homeland Security documents show that President Trump is encouraging his administration to build new detention facilities.
How it affects restaurants: Immigrant employees of restaurants may face detention if their immigration status changes and they are no longer able to legally reside and work in the U.S.
Photo: Spencer Platt/Getty Images
5. Sanctuary policies, DACA and the DREAM Act
What they are: Laws protecting certain groups of immigrants who may have entered the U.S. illegally. Sanctuary policies intend to limit the ability of law enforcement to arrest undocumented persons, but they do not prohibit arrest. DACA, or Deferred Action for Childhood Arrivals, allows some undocumented immigrants brought to the U.S. as children to defer deportation. The DREAM Act creates a pathway for young, undocumented immigrants to obtain permanent residency.
How they are enforced: Enforcement for each law varies. Despite Trump’s hard line on immigration during his presidential campaign, a recent expansion of immigration enforcement will not affect so-called “dreamers.”
How they affect restaurants: Immigrant employees of restaurants, particularly younger workers, may be affected by this legislation. Individuals covered by the DREAM Act will not be impacted by recent changes. However, Trump has indicated that he does not support sanctuary policies.
Photo: John Moore/Getty Images
6. Executive order on secure borders
What it is: In late January, President Trump signed an executive order that intends to heighten border security by constructing a wall along the U.S.-Mexico border, hastening deportations and creating partnerships between federal agents and local law enforcement.
How it is enforced: While construction of a border wall has not yet begun, and while partnerships between local and federal entities is not yet official, news of deportations has escalated.
How it affects restaurants: It’s not yet clear how a border wall will impact current immigration trends. But restaurant workers who are undocumented may face a greater chance of deportation.
Photo: Mark Runnacles/Getty Images
7. Executive order on foreign terrorist entry
What it is: President Trump signed an executive order in March that revised an earlier executive order from January that barred visa- and green-card-holders from seven Muslim-majority countries: Iran, Iraq, Syria, Libya, Somalia, Sudan and Yemen. The updated executive order removes Iraq from that list, but still requires “additional scrutiny” for nationals of the remaining countries who wish to enter the United States. The stated purpose of the executive order is to protect the U.S. from foreign terrorists.
How it is enforced: The first iteration of the executive order saw enforcement at border crossings by ICE agents. Some individuals were detained and eventually deported, but some eventually gained entry into the U.S. The order was also enforced at the judicial level after several lawsuits were filed on behalf of detained persons. The lawsuits resulted in the reversal of the original version of the executive order.
How it affects restaurants: Restaurant workers may have ties to the six countries included in the latest version of the executive order. For those in the U.S., it could prevent them from leaving the country. Those outside the U.S. could be prevented from re-entering the country.
Photo: Justin Sullivan/Getty Images
8. Tariffs on food
What it is: President Trump has proposed a tariff on all imports, across the board. Some reports estimate the tariff at 10 percent for all goods, but others report a 20-percent tariff on goods imported from Mexico.
How it is enforced: This proposal has not yet been enacted.
How it affects restaurants: Countless restaurants in the U.S. rely on imported food and beverage items. For instance, in 2015, the U.S. imported $4.8 billion of fresh vegetables from Mexico, the office of the Trade Representative says. Wine and beer account for $2.7 billion of imports.
Optimistic operators continue to be in expansion mode, remodeling restaurants and building new ones, despite weak same-store sales and concerns about rising labor costs.
That’s the conclusion from Nation’s Restaurant News’ latest Operators Survey, which suggests operators believe their traffic has hit bottom and will improve.
They are confident enough that they plan to expand this year: 51 percent of operators told our survey they expect to add more locations in 2017, while 20 percent plan to close locations.
This year’s survey includes the views of 319 respondents, who have a range of titles and come from a broad cross-section of industry sectors and company sizes. Nearly half, 48 percent, represented small-scale concepts with fewer than 9 locations.
Respondents gave mixed views of their current traffic results, but a strong plurality felt things were likely to get better.
According to the survey, 42 percent of operators said traffic was improved so far this year, while 39 percent it was worse and 19 percent said there was no change.
Yet 47 percent of operators expect improved same-store sales in the first half of 2017 while just 16 percent expect worse same-store sales. The remainder felt it would be the same (26 percent) or it’s too early to tell (11 percent).
Much of the optimism stems from the election, said Steve Crichlow, a former franchisee turned consultant who works with numerous operators. Franchisees expect the Trump Administration to reduce regulations, which could improve their profits, end the Affordable Care Act and its associated health care costs, and reform the tax code.
“From what we’ve heard, it’s based a lot on expectations and hopes the new administration is going to carry through with their promises,” Crichlow said.
Tax code reform, he said, would give consumers more money, which they could in turn use at more restaurants, Crichlow said.
Indeed, 40 percent of operators felt that improved disposable income would do most to help their sales this year.
Operators’ biggest concern, by far, was over labor-related issues.
More than half, 51 percent, said that recruiting and retaining workers was their biggest challenge heading into 2017.
The second biggest concern? Rising minimum wages, listed as the top concern by 24 percent of respondents. By comparison, food costs were listed as a concern by 11 percent of operators, while real estate (4 percent) health care (3 percent) and “other” (7 percent) rounded out the listed worries.
The survey results reflect other surveys showing labor to be the predominant issue of 2017. Restaurants have been hiring at a faster-than-average clip in recent years, and have added 250,000 jobs over the past 12 months, according to federal data.
This is driving up wages. Average hourly earnings in the leisure and hospitality industries over the past 12 months have increased by 4.2 percent, according to federal data. That’s higher than the 3.4 percent, overall rate.
The higher wages are leading restaurants to raise prices despite falling commodity costs — which, coming as grocery stores have lowered prices, has been suggested as an excuse for weak sales in recent months.
Prices for food away from home have increased 2.4 percent over the past year, according to federal data, while prices for food at home have fallen by 1.7 percent — an unusually high, 410-point gap between the two largest purveyors of food to consumers.
Labor costs could be hampering operators’ abilities to be more aggressive, Crichlow said. And he believes that the labor issue is broad-based, encompassing not only the tight labor market but several labor regulations under the Obama administration, like the joint employer ruling and overtime regulations.
“It’s keeping them cautious on what to do or not to do for growth,” Crichlow said. “There are big things out there impacting labor for restaurants and probably retail, too.”
Perhaps not surprisingly, one of the biggest areas of investment for operators heading into 2017 is on recruiting and training. Eighteen percent of operators said they plan to invest in this area.
Many operators believe that investing in recruiting is vital at a time when consumers are fickle, sales are hard to find, and good workers are scarce.
Another 18 percent of operators said they plan to invest in a redesign this year, continuing a major trend of restaurants upgrading their facilities to attract customers. Meanwhile, 12 percent said they plan to upgrade their equipment, and 11 percent are planning to invest in marketing.
Digital remains a big source of investment, as 11 percent plan to invest in digital or mobile technology. Interestingly, just 3 percent of operators said they are investing in delivery this year, suggesting a wait-and-see approach for the broader industry as big players like Panera Bread Co., McDonald’s Corp., Darden Restaurants Inc. and others invest in the service.
That said, 12 percent of operators said their brand is planning to make delivery part of their mobile capabilities this year.
Overall, just 20 percent of operators said they don’t plan to tackle mobile technology this year. And 26 percent said they plan to add ordering on their mobile apps, while 20 percent view the service as a marketing tool. Six percent plan to add payment technology, and 9 percent plan to use apps for staffing and scheduling.
Contact Jonathan Maze at email@example.com
Follow him on Twitter: @jonathanmaze
Graphics by Leigh Anne Zinsmeister