Jaw-dropper of the day (so far)

From the Wall Street Journal's website:

Trouble with the tax man: Dunkin’ Brands disclosed that the IRS is currently auditing its federal income tax returns for 2006, 2007 and 2008. The company’s IPO filing said the IRS “has proposed adjustments for fiscal years 2006 and 2007 to increase our taxable income as it relates to our gift card program, specifically to record taxable income upon the activation of gift cards.” Dunkin’ Brands said it is fighting the IRS on this point.

Call me cynical, but if the tax men are going after Dunkin', they're likely drawing a bead right now on other chains. if not every single one that offers gift cards.

A tradition creamed

Another wonderful tradition, tossed out like a used Wetnap: Tonight, for the first time in my life, I had to draw my own coffee at Dunkin’ Donuts.

One of the chain’s service signatures was drawing and fixing every coffee to the customer’s specifications. The counter personnel didn’t hand you a cup and point to a press-pot pump dispenser; if you wanted a medium with milk and two sugars, that’s precisely what you were handed, even during the morning rush.

It was a subtle distinction that hadn’t really registered after a lifetime of frequenting Dunkin’ (when you grow up on the East Coast, you spend a lot of time during your teens with a Boston Crème in one hand and three or four Munchkins in the other). Lee Sanders, the current president of T.G.I. Friday’s operations, opened my eyes to the ironclad policy while he was working at Dunkin’ Brands, back in the years when it was owned by Allied Domecq. “You’ll never see a press pot at Dunkin, ever,” he said, explaining why the chain had hit some resistance as it moved into grab-and-go situations where speed of service was critical.

That policy has apparently been scuttled. For all I know, it was dropped years ago at some locations, and I just hadn’t encountered it. Then again, I’ve hit Dunkin’ units in all sorts of locations, from streetside New York City stores to train stations, airports, shopping malls and highway travel stops.

I learned of the tradition’s demise when I stopped at a gas station on Long Island that had just put a Dunkin’ station into its c-store area. I went to the counter and ordered a medium coffee with milk. The attendant didn’t even hand me a cup; he just pointed to a dispenser station. It was not an experience that defined hospitality.

Granted, I didn’t exactly risk Carpal Tunnel Syndrome from holding down a lever to fill a 12-ounce disposable cup. But it’s the principle, damn it.

Starbucks went through a wrenching retrenchment because the brand’s godfather and CEO, Howard Schultz, believed it’d drifted away from its culture and distinctions. Since that time, and not just for that reason, the brand’s fortunes have been revived.

I know of one Dunkin’ customer who hopes that venerable brand doesn’t drift away from what made it special.

Lite on calories, not credibility

Forget the celery and cottage cheese. Any serious dieter knows the way to a healthier bod these days is chowing down on tacos, ice cream and any number of chain-restaurant specialties.

Unless you’ve put a foot through the TV this NFL playoff season, chances are you’ve heard about these breakthroughs in healthful dining—boons like Taco Bell’s new Drive-Thru Diet, or the just-added frozen treats that Baskin-Robbins is touting as “better for you.”

One day, chains are touting bellybombers that should’ve come with their own stents and defibrillators. A few days into the New Year, they’re touting low-calorie sandwiches, egg-white-only breakfast wraps, and waist slimmers like peppercorn-coated steak.

Snarkiness aside, the new options provide a long-sought alternative to dishes that often had cardiologists hyperventilating. Starbucks, for instance, is inviting fans of its calorie-packed Frappucinos to offset their guilt with a new line of panini sandwiches containing fewer than 400 calories each. The coffee chain has also snagged bragging rights to being the first mega-sized chain to add an organic option, a line of Peter Rabbit-brand organic snacks.

Starbucks, as one of the industry’s New Age concepts, may be able to pull off the we’re-actually-healthy assertion. But are consumers going to redefine a chain like Dunkin’ Donuts as the place to promote your health (the chain just added the option of having its morning sandwiches and wraps prepared with egg whites)?

Hey, egg-white-only sandwiches deliver a benefit, even if your other breakfast options include a crème-filled, deep-fried ball of dough. But you have to wonder if the chains are underestimating the impressions they’ve stamped on the public consciousness through decades of touting high-indulgence items. One day a system is touting a selection that would’ve made a decadent Roman shudder, the next they’re pushing something as being heart-healthy. Is the public memory so short?

Credibility will no doubt be further strained by research indicating the calorie counts posted on some chains’ menus are low-balling the tallies by as much 50%. If the big brands are underreporting their love handle contributions when disclosure is required by law, how much trust can the public put in unverified health claims?

The industry will need to win public faith by telling the truth about its health initiatives, which should be as simple and sensible as they can be. Claiming a better-for-you bacon just won’t cut it. But swapping carrot sticks for fries would be a believable way of cutting calorie and fat intake.

Most important, the business can’t afford at this stage to make unfounded claims. If it squanders the public trust by trying to make a lard burger sound like the healthiest thing since acai, it deserves the backlash that will no doubt come.

The uncelebrated change-makers of 2009

2009 was clearly a year of defense for the restaurant business. Aim One was to survive. Most operations were ecstatic if they just held steady or didn’t have to cede too much. When else have single-digit sales declines been disclosed with high fives and boasts of out-performing the pack? Few indeed were those brands that actually managed to increase the top line.

But while that retrenchment was squarely in foreground view, a few acts of audacious innovation could be spotted farther back, in the off-stage areas where a few of us poke around the sandbags and pulleys of the business, reporter’s notebook in hand. For us, the play’s the thing—the processes for supporting a restaurant business, not the art on the plate. And for we business journalists who scribble about food costs and new grills, menu strategies and better hiring, LTOs and menu items with stupid names, 2009 was a year of notable breakthroughs.

Below are my picks of the standouts. The list is admittedly biased toward the communications aspect of the business, since that’s the machinery most plainly in my view. And it’s no coincidence that virtually every honoree proved a master of social media, undoubtedly the industry’s Rookie of the Year for 2009.

The whoot-worthy of the year:

Dunkin' Dave: Dunkin’ Donuts’ parent company went through some significant personnel changes in the last year or so, including key departures from its communications staff. Fortunately, they didn’t deter Dunkin’ Dave from demonstrating how a consumer brand could use Twitter to carry on a new sort of conversation with customers, current or would-be. Tweeting from what he calls the “DD mothership,” Dunkin’ Dave, a.k.a. Dave Puner, kept up a steady patter with the public, highlighting new products, promoting special deals, relaying compliments from brand loyalists, even publicly defusing the occasional complaint. Random suggestions that a Dunkin’ coffee would hit the spot sent me scurrying to my local outlet more than once. And Dave does it with a humor and a dose of personality that perfectly fit the medium.

If you want to know why there’s so much hubbub in the business about Twitter’s potential, join the 40,000 DunkinDonuts followers who hear from Dunkin’ Dave throughout the day.

Honorable mention: The designated tweeters for Carl’s Jr. and Kimpton Hotels; schnitzeltruck; RickshawTruck.

Ellen Malloy: If you don’t know the name, you probably never write about restaurants. If you’re a food or restaurant writer and still don’t know it, shame on you.

Malloy, a chef-turned-publicist, has hit on a way to provide the information we journalists appreciate and actually use, a sainthood-worthy departure from the usual approach of burying writers in hyperbole and flowery bullshit about clients. Church choirs would no doubt sing of her if they had to wade through clunky releases studded with words like “brilliant,” “trend-setting,” “world-renowned,” or—brace yourselves, writers—“exciting.” And that might be for a shrimp de-veiner.

Instead, through her virtual Restaurant Intelligence Agency, Malloy offers journalists the capability of receiving short, precise e-mailings containing actual news about her clients, on topics we’ve specified—menu changes, say, or business issues and trends, or green initiatives. They often provide surprising nuggets that are filed away for future round-ups or trend pieces.

I can’t say I look at each e-mail that hits my inbox, but the volume is reasonable enough to usually merit a scan. And seldom do I write a story that’s menu or trend-related without searching RestaurantIntelligenceAgency.com for examples embodied by the agency’s clients.

Best of all, I can do it all myself, without having to call a publicist, wait for a response, then wait to see if an interview can be scheduled, then go back and forth about the logistics. Everytime I’m on that hamster wheel, I visual the old movie scenes where pages fly off a wall calendar. With RIA, info is provided to contact the restaurateur or chef directly, and I’ve done it a bunch of times now. They’ve figured into a number of my stories, and I’ve even used the site to line up a speaker for a panel.

Honorable mention: Lauren Barash for Moe’s Newsroom, the Wordpress site she set up to provide a quick, easy-to-digest overview of developments within the Moe’s Southwest Grill chain. It works.

People Report Best Practices Conference: Those of us who’ve had the waterboarding joy of trying to find replacement dollars for lost ad revenues know meetings are usually high on the list of possible sources. And for awhile, the opportunities were indeed sweet. If you could come up with a compelling reason for people to get together, chances were high that you could draw paying participants, then line up sponsors. Ka-ching!

Then came the gold rush, when any meeting idea that worked was copied two or three times by media, associations or seemingly anyone who could print a name badge. There were too many meetings chasing attendees who all but staggered from conference fatigue. And the brain food served up at many of those purported intellectual buffets was of the overcooked-pasta variety: Decidedly unsatisfying mush. Half the restaurant industry’s meetings could disappear without anyone but the producers caring.

All of a sudden, from a part of Dallas you’d hardly call a destination, came a blizzard of tweets and other bloggings from attendees of Best Practices, a human resources conference presented by Joni Doolin’s People Report restaurant research consortium. From the very first event, a field trip to prepare free meals for the disadvantaged, participants proclaimed the conference a life-changing event, and I’m not exaggerating when I say that. Clearly the content spoke to them, professionally and personally. The postings made the conference sound like a cross between a religious retreat and Allen & Co.’s famous Sun Valley Conference.

Following the tweets from afar, I felt as if I was sitting home while the rest of the industry was at Woodstock.

I won’t make that mistake again.

Honorable mention: The Culinary Institute of America, for have the chili peppers to hold a foodie fest on street fare (Frontiers of Flavor, held at its Greystone campus in Napa). Remember, this is the CIA, the industry’s version of Harvard, an institution with a mission of preserving culinary classicism. Convening the nation’s food intelligentsia for an immersion in peasant food is like scheduling Green Day instead of a Mozart tribute.

U.S. Foodservice, for having the cabbages to try a radically different form of marketing to restaurant operators.

There isn’t a supplier or service provider in the business that isn’t fretfully watching the boom in new media and wondering how to wield it. “Oh, yeah, we know we have to use Twitter, Facebook or YouTube—but we’re not sure how.”

U.S. Foodservice took the plunge of backing the Clockless series, a videotaped and hyper-tweeted 24-hour blitz of a city’s restaurant scene (first Las Vegas, then Los Angeles). The look at little-known gems and cult favorites, including places even the most daring sports diner might’ve missed, was aimed at consumers rather than restaurateurs. But by trying to inject pizzazz into customer restaurants’ home markets, the distributor was presumably fostering relations with its own clientele.

For those of us who are frustrated by the reluctance of suppliers to shift more of their marketing to new media, USF’s efforts provided a ray of encouragement.

Dunkin' to give table service a try?

Press coverage of a zoning board meeting is usually a viable alternative to Ambien. If you're not in REM sleep by paragraph four, it's time to cut back on the Red Bull.

But a recent report from Middlebury, Conn., would make a fast-food executive snap upright with the alertness typically reserved for a letter from the IRS. The news article recounted the efforts of a local Dunkin' Donuts franchisee to secure the go-ahead for a new store inside an existing building there.

That per se has all the excitement of a supermarket special on canned okra. But the story by Voices, a local newspaper, revealed that the proposed donut outlet would sport 58 seats, or far more than is typical for a 1,100-square-foot donut shop. As a lawyer for the franchisee was quoted as telling the Planning and Zoning Commission, "Fifty-eight seats are not normally expected in a take-out restaurant."

That's because the unit plans to add table service, Voices quoted attorney Michael McVerry as saying.

Baskin-Robbins, Dunkin' Donuts' sister chain, has experimented with the sort of modified service that's become routine in the fast-casual restaurant market. At the Baskin-Robbins Cafe that opened in the summer of 2008, guests place their ice cream or coffee orders and take a seat. A staff member bring them their orders.

McVerry didn't reveal whether that's what Dunkin' has in mind for the new Middlebury store. But he did note that the concept has been drifting upmarket through changes like the addition of sandwiches and bagels.

Might the chain be thinking about adding table service?

We'll see, because the Dunkin' development was approved.

Raiding retailers for restaurants' new stars

If recent executive changes are a telltale sign, the restaurant industry is losing faith in its ability to revive sales. Companies determined to crack the formula have looked past the trade’s own talent bench in recent weeks to fill vacancies with code breakers from the world of retailing.

The new CEO of Outback and Carrabba’s parent company was previously focused on selling perfumes, cosmetics and holiday ornaments. Liz Smith, formerly president of Avon Products, seems an unlikely candidate to head OSI Restaurant Partners, a company long led by men who’d worked their way up from restaurant-level jobs. But OSI noted that Smith had experience in running a highly efficient company. They didn’t have to explain that Avon, almost purely a sales company, is light on payroll and structure, heavy on incentive-based performance.

Officials also mentioned that Smith had to keep Avon in touch with customer preferences if its product line was to stay relevant, a skill some say has languished inside OSI’s headquarters in recent years.

A talent for embellishing a brand was similarly one of the characteristics cited by Dunkin’ Brands in explaining why it’d reached outside the industry for its new “chief global customer and marketing officer.” John Costello, a veteran of Home Depot and Sears, “is one of the most talented marketers and brand builders in the retail industry in America," crowed Nigel Travis, CEO of the Dunkin’ Donuts and Baskin-Robbins parent. Indeed, Costello is a member of the Retail Advertising Hall of Fame.

The selection underscores that Dunkin’ is less a restaurant than a to-go bakery with extensive food and beverage options. It’s more of a retail storefront than a place where you’d go for dinner, or at least at present.

Even less of a disconnect is the promotion of supermarket vet Susan Shields to chief marketing officer of Jamba Juice, the smoothie chain. A key component of Jamba’s comeback plan is putting its name on more retail products through licensing deals. Those Jamba-branded items already range from a toy blender to a new line of trail mix that’s about to hit stores. Who better to blaze that new revenue channel than someone who worked at the Safeway grocer chain?

At the same time, dollars are dollars and finance is finance. So why not go outside the industry for your next chief financial officer, as McCormick & Schmick’s did in hiring Michelle Lantow? But it’s no coincidence, the upscale seafood chain said, that she came from a retail apparel manufacturer, Lucy Activewear.

Lantow was instrumental in revamping Lucy’s e-commerce operations and plotting its move into brick-and-mortar retail locations, the company noted in announcing her appointment. CEO Bill Freeman observed that those qualifications should serve M&S well as “we continue to focus on greater connectivity with our guests.”

One of those efforts, apparently, was the chain’s development of a group-sales program aimed at companies that are embarking on a road show to hawk their goods and services. M&S is pitching its banquet service as a one-stop shop that spares those road warriors the hassle of having to scout out a function room and banquet facilities at each stop of their dog-and-pony tours.

There’s no word yet if a retailing veteran was tapped to head it up. But if you hear someone greeting the guests with a “Welcome to McCormick & Schmick’s,” shoot me an e-mail, okay?

Selling coffee by a different sort of cup

If you think a K cup is something for a Playboy model, you’re out of sync with the hottest trend in coffee selling.

The “K” stands for the Keurig, a single-cup coffee brewer that’s now a standard feature of corporate canteen areas. A user fits a sealed single portion of coffee grounds—a little package that looks like a larger-than-normal coffee creamer—into a receptacle inside the machine. The machine is closed, a button is pushed, and the coffee is brewed and dispensed.

Because the user’s discretion is removed, the cup of coffee tends to be of barista quality. You get the best of what’s in the little pre-portioned container, a.k.a. the K cup.

Quality aside, the machines are proving popular because there’s little maintenance. Someone has to empty a bin that catches the used K cups. But there’s very little additional work to be done by the host site.

No wonder the Keurig unit has made such inroads into the coffee-service market. But it’s also winning home-brewers, too. Green Mountain Coffee Roasters sold 771,000 of the units during the 2008 year-end holidays. Walmart has struck a deal with the company to sell Keurigs in 3,000 of its outlets. Clearly it’s the gadget of the moment.

And that’s orgasmic news for coffee processors who put their grinds in K cups. Once you have a machine, you have to buy the cups. It won’t work otherwise. It’s selling razor blades, so to speak.

Yet the phenomenon has landed roasters with retail outlets in a Catch 22. Players like Starbucks could sell a lot of K cups because of the brand appeal. But might they be undercutting themselves in the long run?

Rick Aristotle Munarriz, a frequent contributor to the The Motley Fool financial website, estimates that a K cup could be sold by Starbucks for 40 cents. It would deliver a cup of coffee close to what a café customer would have to pay $2 to get. How long would that disparity be tolerated, even with the delivery of the mystical Starbucks Experience that Howard Schultz is always crowing about?

So Starbucks isn’t selling K cups. Nor, apparently, is Peet’s, a brand with limited retail operations. Nor Dunkin’ Donuts. Or McDonald’s/McCafe. You won’t find Tim Hortons grinds or BK Joe in a K cup, either.

But Caribou sells its coffee that way. Coffee People, too. Diedrich sold its Gloria Jeans concept last week. But it held on to the K cup part of the business. The secondary brands seem to have shrugged and decided, What do we have to lose?

Which makes you stop and wonder: Are the big coffee brands missing an opportunity? Would there be a way to exploit the booming K cup market without cannibalizing walk-up café sales?

You know it’s a question that’s consuming the marketers in Seattle, Oakbrook and Canton, Mass.

The coffee (plot) thickens

You have to get up pretty early in the morning to get the jump on Dunkin’ Donuts, a concept that once advertised how ridiculously early it arises to make the doughnuts.   

McDonald’s is rolling its McCafe line-up of beverages into the Greater New York area. Starbucks announces that it’ll be selectively reducing prices in some markets, which means some stores in the Tri-State Area could be among the discounters. So what’s Dunkin’ doing? Rolling back its latte prices in a pre-emptive strike.   

The chain announced today that it’ll be permanently discounting the prices of “all sizes, flavors and varieties” of latte drinks by about 15%. No reason was given in English for the haircut, though there was some corpo-blather about the changes being consistent with the current “You ‘kin do it” ad slogan.  

Check out what's happening in hotels

Staying in a hotel may feel a little different in the not-too-distant future.

For one thing, Marriott said Monday that it would stop delivering newspapers to guests’ doors unless the daily dose of news is requested.

Then Dunkin’ Donuts announced today that it’s mounting a campaign to put its coffee and donuts within reach of more inn sleepers. The chain explained that it’s developed an array of new sales stations that could be slipped into hotels, motels or resorts, from the sort of shop you might expect to see streetside, to self-serve coffee stations that could be nestled in a gift shop.

The statement noted that the donuts and other baked treats would be made within the kitchen of the host property, using “some simple equipment” from the franchisor. Curiously, the announcement stresses the business advantage of being able to match baked-good supply with demand and thus “manage product inventory.” Wouldn’t that arrangement also allow the site to offer fresh product throughout the day?

In disclosing the new expansion push, Dunkin’ said it’d already put one of its hotel prototypes into the Great Wolf Lodge in Concord, N.C. The outlet features Dunkin’s low-cholesterol flatbread breakfast sandwiches as well as donuts, coffee, muffins and cold drinks.

A changing of the guard at Dunkin'

Now we know where Nigel Travis is going. Dunkin' Brands, the franchisor of Dunkin' Donuts and Baskin-Robbins, has just named the former Papa John's chief as CEO, replacing Jon Luther. The latter will continue with the company as executive chairman.

Papa John's said Thursday that Travis was leaving at the end of the month, but didn't say where he was heading.

During Travis' tenure, Papa John's distinguished itself in many ways. The chain's most remarkable achievement during the Travis Era was pushing its internet sales beyond the $1 billion market, a benchmark of sorts for the industry. More recently, the franchisor set a model for how the home office should help its franchisees during the downturn. Papa John's rolled back the price of cheese it sold to the licensees, and helped them out with loans.

Luther, the announcement noted, is at the traditional retirement age of 65. It's great that a man that capable and classy still be part of the industry.

My favorite Luther story (and, for the sake of full disclosure, I regard him as a friend): When Jon's son got married a few years back, he asked Jon Sr. to be his best man.

What hath Al Gore wrought?

The complexities of the restaurant business continue to deepen, courtesy of the medium you're using to read this. Consider a few of the advantages and complications the fast-changing internet presented to the industry in the last few weeks alone, starting with the scandal of the naked-woman photos.

In case you missed the news reports, McDonald's recently found itself in the center of a controversy that would've been a slice of bad science fiction ("Flesh Gordon," maybe?) to Ray Kroc. A customer reportedly left his cell phone in an Arkansas unit and was contacted to come pick it up. The staff had apparently poked through the info stored on the phone to track down its owner. The patron apparently thought nothing more about it until his wife started getting e-mail messages about nude photos of her that had been posted without her knowledge on the internet.

It seems the woman had e-mailed the shots in a fit of naughtiness to her husband, who'd kept them stored on his, um, hand-held. According to the slew of coverage, employees of the restaurant found the pics, uploaded them, and never said a word about it to the phone's owner. Now he's said to be suing the franchise, the unit's manager and McDonald's Corp. for more than $3 million. McDonald's is certainly one of the more progressive chains in the business, but it's doubtful the operation has a section in its manuals about how to handle that situation.

About the same time that mess was starting to stink, news arose from Australia of another unprecedented development involving restaurants and the web. A fish house in Melbourne had reportedly been skunked on a $520 (Australian) bill by a party of five indulgent youngsters. According to the news coverage, proprietor Peter Leary remembered that one of the deadbeats knew a waitress at the place. Leary spoke with the woman, who provided the name of her acquaintance. It dawned on Leary that he might be able to find the young man by looking on Facebook, the social network that's all the rage with young people. Sure enough, after a few searches, Leary found a photo of the offender and the information he needed to track down the chew-and-screw group. He got his money--plus the tip.

Those might've been extraordinary, newsworthy events. Less noticeable but more profound is the change that's slowly taking place in restaurant marketing. Clearly a new internet medium is arising, and restaurants will have to master it if they want to stay competitive with places up and down the street. If you doubt it, consider a few of the "tweets" I fielded today from Twitter:

--From Dunkin' Donuts, at about 9 a.m.: Good time for a cup of coffee. It was followed up at 3 p.m. with, "Dare I say, it's another good time for a cup of coffee?" Talk about keeping a possible purchase top-of-mind.

--From Rickshaw Truck, the mobile version of Rickshaw Dumpling Bar, a popular concept in New York City, right before lunch: "RickshawTruck Is in the financial district on Wall and Williams Street. We've got those dreamy dumplings and a brand new addition to our sides, miso soup"

--From Riley's Cafe, an independent in Cedar Rapids, Iowa, at about 3: "Twitter Tuesday Special: free coffee, pop, ice tea or lemonade with meal purchase"

Anyone familiar with Twitter and its competitors would probably agree that they're the new frontier in restaurant marketing. The key phrase there is, "anyone familiar." If you're not, I'd strongly suggest that you take the plunge and visit Twitter.com ASAP.