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McDONALD'S CEO FACES FRANCHISEE REBELLION, BRAND IS IN A 'DEEP DEPRESSION' AND FACING 'ITS FINAL DAYS'

Can McDonald's new CEO Steve Easterbrook lead the company through a franchisee rebellion? (Click Image To Enlarge)

According to a new survey, McDonald's franchisees believe the brand is in a "deep depression" and could be facing its "final days." 

One franchisee wrote in response to the survey by Nomura analyst Mark Kalinowski.

"We are in the throes of a deep depression, and nothing is changing.  Probably 30% of operators are insolvent."

Another wrote,

"The CEO is sowing the seeds of our demise. We are a quick-serve fast-food restaurant, not a fast casual like Five Guys or Chipotle. The system may be facing its final days."

More than a dozen franchisees expressed frustration with McDonald's management, saying that CEO Steve Easterbrook's turnaround plan — which includes initiatives like all-day breakfast and a shift to digital ordering kiosks — is a distraction from the core issues of McDonald's, like food quality and customer service.

One franchisee wrote.

"The lack of consistent leadership from Oak Brook is frightening, we continue to jump from one failed initiative to another." 

A second wrote.

"I have been in this business since the early 1970s but have not seen us this leaderless in all my time."

The company's reaction to their frustration, one franchisee claimed, is for operators to "get out of the system" and quit the business.

Several franchisees complained about all-day breakfast, saying that it has complicated kitchen operations and goes against Easterbrook's repeated promises to simplify the menu.

One franchisee wrote.

"The system is very lost at the moment.  Our menu boards are still bloated, and we are still trying to be too many things to too many people. ... Things are broken from the franchisee perspective."

Franchisees also criticized the "Create Your Taste" program, which allows people to customize their burgers with premium ingredients.

One franchisee wrote.  

"They are throwing everything they can against the wall to see what will stick." 

Kalinowski interviewed 29 US franchisees covering about 226 restaurants for the survey. McDonald's has more than 14,000 restaurants in the US. 

In response to the survey, McDonald's said it's hearing a different story from franchisees — specifically pertaining to all-day breakfast. 

A company spokeswoman told Business Insider.

"We’re hearing from customers and the overwhelming majority of our 3,100 franchisees that all-day breakfast is a hit!  In fact, since the launch, McDonald’s has reached its highest brand score in two years according to YouGov BrandIndex."

McDonald's is trying to revive business following seven straight quarters of same-store sales declines in the US.

In addition to adding all-day breakfast and "Create Your Taste," McDonald's has also made some changes to its core menu items.

The company started toasting its hamburger buns longer, making its beef patties slightly larger, and changing how the patties are seared.

McDonald's has also announced plans to remove antibiotics from its chicken.

There are at least a few franchisees who are on board with the changes.

Among the myriad negative responses to Kalinowski's survey, several franchisees expressed hopeful attitudes.

One wrote.

"I think our leadership is headed in the right direction.  It will take time."

Another said.

"The CEO seems to be doing OK so far!"

COMMENTARY:    Although McDonald's new CEO Steve Easterbrook does not have the confidence of a lot of franchisees, there seems to be a disconnect between how McDonald's shareholders perceive Easterbrook's leadership and how the franchisees feel about him.  Proof this lies in the performance of McDonald's share price.    

McDonald's Stock Up 10% For Year

McDonald’s has been the target of relentless analyst fire for all of 2015; yet here we are in mid-October and McDonald’s shares are up 10% for the year. This week they hit a new all-time high of $103.84.

McDonald's Corporation Share Prices Last Five Years - Jan 2011 Through Oct 2015 - Google Finance (Click Image To Enlarge)

McDonald's Brand Stronger Than Ever

The naysayers mistakenly aim at the small target, but they miss the big picture: McDonald’s formidable brand recognition and performance-oriented culture virtually guarantee long-term success.

On the former, McDonald’s is a top 10 global brand, according to Interbrand, a brand management consultant. McDonald’s ranks ninth on Interbrand’s list, with a $42.3 billion market value. Strong brands have the same effect on consumers that magnets have on metal shavings – they draw them in.

McDonald’s magnetism is especially strong on kids, and not just kids in the United States. Here, I speak from experience. On a weekday road trip from Antibes, France to Geneva, Switzerland, my wife and I stopped at a McDonald’s near Digne, France. We stopped not because of hunger, but because of curiosity. The parking lot was packed.  When we walked in, we found a restaurant overflowing with middle-school-aged kids. So much for indomitable French cuisine.

McDonald's Culture Remains The Same 

But it’s really McDonald’s culture that magnetizes the brand. As Steve Wynn, chairman and CEO of Wynn Resorts (NASDAQ: WYNN), said in a 2014 Wall Street Journal interview,

“You got the culture, you got the problem solved.”

McDonald’s has the culture, and has had the culture for decades, so the problem always gets solved.

Franchisee Rebellion Is A Distinct Possibility

After much anticipation, the newly installed chief executive officer of McDonald's, Steve Easterbrook, has announced a sweeping turnaround plan aimed at cutting annual costs by around $300 million at the struggling fast-food behemoth. Wall Street was unimpressed: the stock fell after Easterbrook made his announcement.

But a far important constituency is also grumbling: the franchisees who own most of the outlets. Many have already expressed skepticism about Easterbrook's leadership, complaining that McDonald's was imposing new burdens, products and obligations without any understanding of the strain the changes will place on franchise owners.

There's little evidence that Easterbrook's plans to turn McDonald's into a "modern, progressive burger company" -- which include selling 3,500 of the restaurants it owns -- allayed the concerns of the franchise owners, who have experienced falling sales in many parts of the world.

Easterbrook's plan seemed largely aimed at creating value for shareholders, not helping franchisees. The vexed history of franchising suggests it may be a mistake to disregard this constituency.

After World War II, McDonald's and other fast-food restaurants introduced "business format" franchises. Unlike conventional franchises, this wasn't a way to delegate distribution; it was a means to sell an entire way of life to aspiring small-business owners. McDonald's founder Ray Kroc described this as an "updated version of the American Dream," and his company, along with Howard Johnson's and other restaurants, made it a mainstream phenomenon.

In business-format franchising, the parent company maintains a rigorous level of control over franchisees, holding them to standards of appearance, cooking times, the dress of employees, accounting methods, and just about anything else that can be standardized and controlled. McDonald's went so far as to create its famed "Hamburger University" in 1961.

In principle, this insured success for both the corporation and the franchise owners. But in practice it relegated franchisees to a genuinely subordinate position. Harold Brown, a lawyer and critic of business format franchising claimed in 1970 that "numerous franchisors have stated that their franchisees are like children, demanding constant discipline and control."

This attitude didn't always sit so well with franchisees. The control imposed from above was fine so long as the decisions made at corporate headquarters worked well on the ground, but that wasn't always the case. In the late 1960s, a number of high-profile franchising ventures ended in revolts. 

• Domino's Pizza, for example, expanded its franchise operations throughout the 1960s, but failed to deliver sufficient support, financing and training. Profits plummeted and the company almost went bankrupt in 1969.  Two years later, enraged franchise holders sued Domino's, alleging that the corporation had imposed obligations on outlets without providing the necessary support. There was much anger as well at Domino's insistence that outlets only purchase supplies from the parent company or an approved supplier. Eventually, Domino's bought out the embittered franchisees, increasing the number of outlets under direct ownership.
• Chicken Delight, founded in 1952, expanded over the course of the succeeding decade, but then failed to deliver the necessary support to franchise owners, despite forcing them to pay the corporation higher prices for everything from paper plates to batter for the chicken. A number of franchisees eventually sued the company, setting in motion a chain of events that led to what the Wall Street Journal described in 1972 as "the virtual dismantling of the Chicken Delight organization."
• Shakey's Pizza, Mister Donut and other companies faced similar revolts around the same time. Some, notably Mr. Donut, mended fences with their franchisees, granting them increased control over local decision-making, financing, accounting, and even the expenditure of ad dollars. Others moved away from top-down decision-making, setting up venues where franchisees could express their concerns. Still others sought to curtail the number of franchises, bringing stores back under corporate control. All of this worked: many companies turned around, and the reputation of business-format franchising eventually improved.

McDonald's, which sailed through this period without problems, might want to take a page from the past as it tries to right the ship. It's suffering from many of the same problems. In a recent survey, franchisees struck much the same tone as their disgruntled predecessors of the 1960s, citing an out-touch management that seems more interested in off-loading costs onto franchisees than fixing the problems that beset the chain.

Unfortunately, Easterbrook's turnaround plan made almost no mention of the franchisees that are the public face of the company. Worse still, is his vow to increase the number of stores in the hands of franchisees from 81 percent to 90 percent — which some franchisees believe will make the company even more remote from the concerns of the owners on the front lines.

Easterbrooks Turnaround Plan

In May 6, 2015, McDonald's CEO Steve Easterbrook announced a restructuring plan to help it compete with fast-casual restaurants like Chipotle Mexican Grill. To foster a quicker reaction to changing trends, McDonald’s is restructuring its units into four groups based on the maturity of its presence in the particular market, where previously the business was segmented by geography.

• The flagship U.S. market.
• Established international markets such as Australia and the United Kingdom.
• High-growth markets such as China and Russia.
• The rest of the world.

McDonalds also said that 90 percent of its more than 36,200 restaurants around the world will be franchised over the next four years. This is up from 81 percent currently, and will mean the company will rely more heavily on franchising fees and move away from the daily running of restaurants. The organizational changes will contribute to 300 million dollars in cost-cutting targeted by McDonald's, most of which will be realized by 2017.

The company is working on streamlining its menu recently cutting seven items including the Deluxe Quarter Pounder burger and six chicken sandwiches, while at the same time working on improving perceptions about the quality of its food with a trio of new sirloin burgers being added.

Standard and Poors were left underwhelmed by the plan and subsequently downgraded their rating on McDonalds to A-, while Moody’s put their rating on review for downgrade. Both rating agencies showed concern over McDonald's plans to return between 8 and 9 billion to shareholders in 2015 and to hit the high end of its 18 to 20 billion 3-year goal by the end of 2016, worrying that any stock repurchases will be at the expense of higher debt levels than initially anticipated.

The fast food chain in April reported first-quarter comparable sales down 2.3% and revenue of 5.96 billion, falling short of the 6.02 billion analysts had expected. Unfortunately for McDonalds shareholders, the quarterly results were a familiar tale, which for nearly two years has seen its share price fall and same-store sales crumble in the U.S. market and abroad.

Conclusion

Having served as the CFO for a tanning salon franchise, I was at the forefront of a franchisee rebellion. This taught me some valuable lessons:  1) Do not deviate from your core franchise principles and vision, 2) Always deliver on your franchise promises, 3) Select the most qualified and experienced franchisee owner/manages, 4) Location, location, location, select the best franchisee locations, 5) Invest in adequately training and providing marketing support to your your franchisee network 6) Don't let unresolved problems and differences vent themselves into an allout franchisee rebellion.

It would not surprise me if McDonads top management has ignored or strayed away from some of the above franchise must-do's.  In many businesses the customer comes first, but in a franchising business environment, the franchisees come first, because they are the face of McDonalds.  It is doubtful that the vast majority of McDonalds customers know who McDonald's CEO is.  They don't care either. They want their Big Mac sandwich made exactly the same each time they visit and served as quickly as possible.  

By paying more attention to the bottom line and improving shareholder value, McDonalds top management may have violated one of the most important covenants of franchising.  Take care of the franchisees, and they will take care of you.

Courtesy of an artricle dated August 9, 2015 appearing in Bloomberg, an article dated October 19, 2015 appearing in ETF Daily News, and an article dated October 16, 2015 appearing in Business Insider

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NIKE WINS NFL TEAM UNIFORM CONTRACT, PLUS THE 49ERS WIN OVER N.O. SAINTS, AND THE NFL PUNISHES SAINTS FOR BOUNTY ON NINERS

Nike will now supply the National Football league with all of its team uniforms and accessories

NIKE’S LATEST MARKETING WIN: A CONTRACT TO DESIGN THE NFL’S OFFICIAL UNIFORMS. HERE’S A TASTE OF WHAT’S TO COME.

Nike’s ascendancy to mega-brand status began with basketball, on the feet of Michael Jordan. But, on April 5, 2012, the company finally unveiled a dramatic new branding strategy:  Nike has now replaced Reebok as the official uniform sponsor of the National Football League, and will be charged with designing uniforms for all 32 NFL teams.

Click Images To Enlarge

It’s the crown jewel of a push that Nike has been making into football for years, through college football, and their Bowl-season designs for the University of Oregon have become a mini event. None of the designs rolled out yesterday have that same crazy visual flair. But they did reserve a bit of extra sauce for the NFL team closest to home: The Seattle Seahawks. The flourishes there display nods to Native American art. Otherwise, the other teams got only minimal refreshes, though you can bet that we’ll soon see redesigns rolling out in force--especially given all the positive buzz that’s surfaced from players such as Jermichael Finley saying that the Seahawks unis are the "best in the league."

Click Image To Enlarge

Tech-wise, the uniforms are something Nike calls the Elite 51, a “body-led” design that utilized heat mapping, sweat mapping, and motion capture “to understand exactly what the athlete needs and where they exactly need it,” according to Todd Van Horne, Nike’s creative director of football and baseball.

Click Images To Enlarge

The uniforms are made out of super lightweight fabric that’s woven to stretch equally well in any direction, while stretching as tight as possible over padding, to reduce grab-points for opponents. Nike Pro Combat, the uniform’s base layer system, is outfitted with a raised honeycomb construction, which likewise is meant to conform to a opposing player’s hit. In addition, the pads themselves are placed a bit more intelligently, so that the base layer doesn’t constrain airflow to places that give off the most heat, "so you get airflow from underneath and around the torso and exiting out the lumbar area,” Van Horne tells Co.Design.

Last come the hands and feet. Players will get new cleats; gloves display the team logos (a move that first appeared in the Oregon Ducks uniforms), and the socks have padding for arch support and texturing at the heel, to lock them in place once a player’s cleats are on.

Its all clever stuff. But clearly, the real news is yet to come--Reebok was never able to make a uniform redesign into a major event, but Nike probably can. We’re hoping to see a design war as teams begin trying to outdo each other, backed by Nike’s design might.

COMMENTARY:    The Seattle Seahawks uniforms are really, really ugly, and their fans have a very, very bad team.  The San Francisco 49ers beat them twice in 2011, and the Niner uniforms are the best in the NFC West.  

While we are on the subject.  Here's a great video of the exciting S.F. 49er 36-32 win over the New Orleans Saints in the NFC playoffs.  Who Dat?  Enjoy.

 

It really pisses me off that the New Orleans Saints coaching staff paid out bounty rewards to its players if they hurt or knocked certain 49er players out of the game during the 2011 season NFC playoffs.  

The NFL came down hard on the New Orleans Saints on Wednesday, March 20, for their pay-for-pain bounty system. Football Insider’s Mark Maske has a comprehensive breakdown of the Saints punishment according a knowledgeable NFL insider:

• New Orleans Saints Coach Sean Payton was suspended for one year.
• General Manager Mickey Loomis was suspended for eight months.  
• Defensive coordinator Gregg Williams was suspended indefinitely for a bounty system that provided the team’s players payments for hits that injured opponents.
• The Saints were fined $500,000.
• The Saints  lose two second-round draft choices, one in this year’s draft and one in 2013.

Who Dat, punkasses?    

Courtesy of an article dated April 6, 2012 appearing in Fast Company Design and an article dated March 21, 2012 appearing in The Washington Post 

 

 

 

 

DUNKIN DONUTS ANNOUNCES PLANS TO EXPAND FRANCHISE NETWORK INTO WEST VA, OH, ILL, ALA, GA, MICH, NC AND TENN

World's Leading Baked Goods and Coffee Chain Planning to Expand in Communities throughout Eight States

CANTON, Mass., April 3, 2012 /PRNewswire via COMTEX/ -- Dunkin' Donuts, America's all-day, everyday stop for coffee and baked goods, announced today it is seeking to expand in communities and towns throughout West Virginia, Ohio, Illinois, Alabama, Georgia, Michigan, North Carolina and Tennessee, and is looking for qualified franchisee candidates to grow the brand in specific counties within these eight states.

John Dawson, Chief Development Officer, Dunkin' Brands, Inc said.

"As part of our strategic growth plan, we are excited to offer this opportunity to qualified franchisee candidates who are interested in developing a restaurant outside of larger metropolitan areas in these regions.  With more than 60 years in franchising, we've found the development and successful operation of a Dunkin' Donuts can deliver a significant impact to the community it serves and we are actively seeking local entrepreneurs to become the face of the brand in their towns."

Dunkin' Donuts' development throughout these communities and towns is part of the Company's goal to double the number of Dunkin' restaurants in the U.S. over the next 20 years. In support of this goal, Dunkin' Donuts has tailored development approaches designed to suit the growth opportunities and consumer needs of individual markets.

Dawson says.

"We're looking for community leaders who may already operate local businesses, such as other restaurants, retail outlets or even convenience stores and gas stations, who have the passion, financial qualifications and experience to operate a Dunkin' Donuts.  Our restaurants are typically owned and operated by small business owners, and our development teams work closely with our franchisees to find the development solutions that meet the needs of individual markets."

By joining Dunkin' Donuts, franchisees become part of a nationally established brand with 98 percent brand recognition, benefit from a multi-million dollar advertising fund, in addition to having access to world-class training and ongoing operational support, among many other benefits.

In an effort to keep the brand fresh and competitive, Dunkin' Donuts offers flexible concepts for any real estate format including free-standing restaurants, end caps, in-line sites, gas and convenience, travel plazas, universities, as well as other retail environments.

Since the 1950s, Dunkin' Donuts has been a daily ritual for millions of people. For more than 60 years, Dunkin' Donuts has offered delicious food, beverages, and friendly service at a great value. To best serve its guests, Dunkin' Donuts offers an all-day menu including iced coffee, flavored coffees, lattes, Dunkin' Donuts K-Cup® Packs, Coolatta® frozen drinks, muffins, bagels, breakfast sandwiches, and a DDSMART® menu featuring better-for-you items.

Today, there are more than 10,000 Dunkin' Donuts restaurants worldwide - more than 7,000 Dunkin' Donuts restaurants in 36 United States, plus the District of Columbia, and more than 3,000 international restaurants in 31 countries.

Dunkin Donuts global presence. Gold = well established, Pink = Entering markets (Click Image To Enlarge)

For information on franchise opportunities or to attend an upcoming webinar, please visit www.dunkinfranchising.com.

COMMENTARY:   If interested in becoming a Dunkin Donuts franchisee this should help answer some of your questions:

Startup Costs, Financial Requirements, Ongoing Fees and Financing

• Total Investment: $368,900 - $1,735,700
• Individual Financial Requirements: $250,000 liquid assets and $500,000 net worth.
• Franchise Fee: $40,000 - $80,000
• Ongoing Royalty Fee: 5.9%
• Term of Franchise Agreement: Term of agreement not renewable

No of Franchise Locations

YEAR	U.S.	CANADIAN	INTERNATIONAL	COMPANY OWNED
2011	6,900	20	3,100	0
2010	6,566	49	2,620	0
2009	6,475	55	2,394	0
2008	5,863	63	2,156	0

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Where Seeking Franchisees 

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United States:  Dunkin Donuts announced on April 3, 2012, that it is seeking to expand in communities and towns throughout West Virginia, Ohio, Illinois, Alabama, Georgia, Michigan, North Carolina and Tennessee, and is looking for qualified franchisee candidates to grow the brand in specific counties within these eight states.   NOTE:  Dunkin Donuts franchise's are presently not available in the State of California.  

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Internationally:  Franchisor is seeking new units internationally.  If you are interested in international growth opportunities, please submit an email with your location of interest to [email protected].

Franchisee Support

• Training: Available at headquarters: Varies.
• Ongoing Support: Newsletter, Meetings, Toll-free phone line, Grand opening, Security/safety procedures, Field operations/evaluations,
• Marketing Support: Regional advertising,

Franchisee Financial Support

Dunkin Donuts does not provide direct financing to franchisees, but has established relationships with preferred lenders which can offer flexible financing options depending on your individual situation.

Portfolio of Concepts

Dunkin' Donuts offers a variety of restaurant designs specifically created to thrive in different venues. Our portfolio of concepts provides a great mix of Development and Real Estate models.

Traditional Location – Full expression of the brand including stand alone and strip center locations, with or without drive thrus.

Traditional Store Concepts

Non-Traditional Location – Expressions of the brand that service a captured audience, including colleges, hotel, stadiums, medical facilities, military installations, and transportation hubs.

Non-Traditional Store Concepts

Franchise Ranking History

• Franchise 500®: #10 (2012), #15 (2011), #7 (2010), #36 (2009), #3 (2008),
• Fastest-Growing: #6 (2012), #29 (2011), #4 (2010), #6 (2009), #5 (2008),
• America's Top Global: #9 (2012), #13 (2011), #6 (2010), #31 (2009), #4 (2008),

Restaurants for Sale

If Dunkin Donuts is not offering development opportunities in the market of your choice, see "Restaurants for Sale" for restaurant franchising opportunities in your area of interest.

The Pro's and Con's

According to About.com there are some Dunkin Donut franchise Pro's and Con's:

Pros

• Name Recognition - If you can afford it, Dunkin' Donuts offers unlimited profit potential for the most astute entrepreneur.
• Competitive - Dunkin' Donuts is in the top 5 of all categories of franchises according to Entrepreneur magazine.
• Online University - The Dunkin' Donuts Online University offers numerous learning programs, courses, and resources to franchisees and crew 24 hours a day, 7 days a week.

Cons

• Candidate Profile - Becoming a Dunkin' Donuts Franchisee requires skills and resources that make this opportunity prohibitive for many investors.  After you pass your criminal background check, credit check, and proof of assets check, its on to due diligence and the development of your business plan.  Dunkin Donuts is looking for candidates with a net worth for 5 restaurants at a minimum of $1.5 million and $750,000 in cash reserves.  If you are thinking about a partnership, go ahead, but there is one caveat; one single candidate must personally meet the financial qualifications. The start up fee is a tame $40,000 to $80,000 in contrast, and yes, if you want more units you have to expand at the rate of 5 at a time.
• Many Lawsuits - Dunkin' Donuts has been involved in many lawsuits with their franchisees. They have been involved in 10-15 times the amount of lawsuits then the average franchise.

NOTE:   Although I love Dunkin Donuts, this blog post should not to be construed as an outright recommendation to become a Dunkin Donuts franchisee.  As always, do your homework, conduct adequate research, talk to existing franchisees, make sure you meet the capital requirements, obtain and carefully read the Franchisor's Franchise Disclosure Agreement, and make sure franchising is what you want to do.  For additional infiormation about becoming a Dunkin Donuts franchisee, contact Dunkin Donuts Franchising directly. 

Courtesy of an article dated April 3, 2012 appearing in MarketWatch and an article in in Entrepreneur's Franchise Directory 

 

COMPUTERLAND FOUNDER WILLIAM H. MILLARD REAPPEARS AFTER HIDING FOR 20-YEARS, OWES $100 MILLION IN TAXES

For more than 20 years, tech tycoon William H. Millard was one of the world's most elusive tax exiles, leaving financial footprints in Singapore, Ireland and other locales while racking up an unpaid tax bill of more than $100 million.

The 79-year-old founder of the ComputerLand Corp. retail chain was last seen by tax authorities on the remote Pacific Island of Saipan, where he lived, in August 1990. A few years after selling his company, the man once listed as one of the richest people in America suddenly vanished.

[Click Image To Enlarge]

Until now. The U.S. Commonwealth of the Northern Mariana Islands, of which Saipan is a part, has tracked Mr. Millard and his wife to a yellow mansion on Grand Cayman Island in the western Caribbean, according to court filings and attorneys working on the case.

With help from a New York law firm and a small army of private investigators, the commonwealth now is digging into what its lawyers say is a network of more than 50 shell companies, trusts and bank accounts linked to Mr. Millard in hopes of collecting the $100 million.

Michael Kim, a partner of Kobre & Kim, the law firm leading the case says. 

"This is one of the most sophisticated and complicated cases of offshore asset structuring that we have ever seen. He's had more than 20 years to move money all over the world."

The discovery of Mr. Millard resurrects one of the most storied and controversial names in technology, even as it moves the cat-and-mouse game between Mr. Millard and the Marianas into a new phase of financial accounts and bank subpoenas.

The breakthrough came last Christmas, when a private investigator spotted Mr. Millard at a holiday dinner with one of his daughters in Florida, according to Northern Mariana Islands government officials.

Reached by phone in Grand Cayman, Mr. Millard declined to comment, saying.

"We are private people and have always been very private."

An attorney for Mr. Millard's two daughters declined to comment.

Terry Giles, a longtime former lawyer for Mr. Millard, said his ex-client wasn't made aware he owed a tax bill until just a few days ago, and dismissed as "ludicrous and insulting" the idea that Mr. Millard was hiding. Asked where Mr. Millard was from 1990 until now, Mr. Giles said.

"I'm not going to do a single thing that would be helpful to his pursuers." 

Mr. Millard made headlines in the 1970s and 1980s as one of California's visionary tech pioneers. The charismatic college dropout built ComputerLand into the largest computer retailing chain in the 1970s and 1980s, with some 800 stores, and Mr. Millard's stake was valued by investment bankers at one point at $1 billion or more.

He wasn't your typical entrepreneur. A devotee of est, a faddish self-empowerment regimen of that era, he had a fondness for aphorisms ("We're a family, not a company") and a contempt for convention. With his piercing green eyes, Mr. Millard saw himself more as a kind of philosopher king than a businessman, according to two people who worked for ComputerLand.

He and his wife, Patricia, built a Tudor mansion outside Oakland nicknamed "The St. James" and filled it with antiques, paintings and sculptures. He had a fleet of private jets at his disposal, including a Falcon 50 and a Learjet. He would work 14- and 18-hour days, fueled by peanut-butter sandwiches.

Mr. Millard's unorthodox management style and lavish spending, which included a million-dollar company-sponsored plan to fight world hunger, eventually led to his departure from ComputerLand. After losing a court battle over an early loan to the business, as well as a fight with franchisees and management, Mr. Millard relinquished control in 1986.

Shortly after, he and his family moved to Saipan. He told the news media he chose the island near Guam because it was in Asia, which he predicted would be the next growth region.

Millard told The Wall Street Journal in 1986.

"You know the saying 'Go west, young man'?  Well, this is about as far west as I could go and still be under the American flag."

Saipan's hospitable tax climate may also have played at role. The commonwealth had authority to reduce the tax rate imposed by U.S. law on income sourced in the Northern Marianas, and it did so. Residents in effect got a 95% rebate of the taxes they would normally have owed under U.S. law.

Mr. Millard appeared to be a tax-conscious man. At ComputerLand, he had helped create a complex tax structure using a trust in the Isle of Jersey and a holding company in Panama designed to reduce his income taxes. A former staff member of his company says Mr. Millard kept a copy of the Internal Revenue Service Code on his desk.

In Saipan, he started building a turreted castle on a cliff overlooking the ocean, with a pool and homes for his daughters. Protecting the homes was a 30-foot-high enclosure that locals called "the Great Wall of China."

He also launched a utility company aimed at taking over and improving the island's creaky power grid, and hatched plans for real-estate developments.

Mr. Millard made himself unpopular with some on the island. In a speech to business leaders, he complained that certain officials were always asking him for bribes.

Though the government over the years has often faced corruption allegations, his remarks angered some Saipan residents, and a government official says Mr. Millard received death threats.

 

Mr. Millard made plans in 1986 to sell his remaining stake in ComputerLand. The sale, for an undisclosed price that commonwealth authorities estimated at $200 million to $250 million, wasn't completed until the middle of 1987.

By that time, the commonwealth had changed the generous tax regime under which Mr. Millard sought to pay his taxes. Instead of reducing residents' taxes on locally earned income by 95%, the new law reduced it by only 50% for amounts over $7.5 million and 25% for income over $20 million. Moreover, the commonwealth said he didn't qualify even for those breaks, since ComputerLand was built in the U.S. and thus was subject to U.S. tax rates.

In August 1990, the Millards left Saipan.

The following year, the Northern Marianas' tax department issued a deficiency notice to the Millards and their attorneys in the U.S., according a commonwealth filing in federal courts in the U.S.

Mr. Giles, the former lawyer for Mr. Millard, said he never received such a notice.  Mr. Giles said.

"Bill paid his taxes in the Marianas on time and in full based on the tax code. They changed the law or made up some reason retroactively to try to chase Bill off the island."

In 1994, the commonwealth obtained a tax judgment against Mr. Millard and his wife for $36 million in U.S. District Court in the Northern Marianas.

Over the years, commonwealth officials picked up traces of Mr. Millard's movements in Singapore, Ireland, Brussels, Hong Kong and the Caymans, but "we did not have any verifiable information" on his whereabouts, said Benigno Fitial, governor of the Northern Mariana Islands. At some point, according to Mr. Giles, Mr. Millard became an Irish citizen, later giving up his U.S. passport.

A few years ago, Mr. Fitial says, he pushed to start a search for the family.  The governor said.

"The actions by the Millards in these proceedings seemed to reflect an attitude of arrogance that their wealth allows them to disregard the laws of small government." 

The commonwealth in 2010 hired Kobre & Kim, a New York law firm that specializes in international collections. With its team of tax attorneys, forensic accountants and private investigators, the firm spent months searching for Mr. Millard and his assets, as interest and penalties on his tax bill sent it past $100 million.

Late last December, a private investigator working for the law firm staked out the home of Mr. Millard's daughter Barbara, a former ComputerLand president, near Orlando, Fla. Late in the afternoon on Christmas Eve, the investigator spotted Mr. Millard taking a walk in the yard, according to lawyers working on the case.

They say they kept a close eye on the house and, a few days later, followed Mr. Millard to the airport, where he boarded a flight for Grand Cayman. Another private investigator was waiting in the Caymans when Mr. Millard landed, and secretly followed him to his house.

Finding his money has proved more difficult. The tax judgment was registered in federal courts in Florida and New York in March, and Kobre & Kim started issuing subpoenas to dozens of banks and other institutions with accounts the lawyers believed were linked to Mr. Millard.

The investigation has been covert, the law firm never confronting Mr. Millard.

Investigators worried that if he found out what they knew, he might quickly shift his funds around to get them out of reach. The subpoenas went out under a gag order to prevent financial institutions from disclosing the probe to Mr. Millard or his family.

On Aug. 3, however, J.P. Morgan Chase & Co. sent a copy of a subpoena and gag order to one of Mr. Millard's daughters, according to lawyers and to documents filed in federal court in New York and Florida.

It was a "clerical error," said a letter from J.P. Morgan to the law firm, now also filed in court. A spokesman for the bank declined to comment.

After the disclosure, phone numbers and websites for some institutions the lawyers had linked to Mr. Millard were removed or shut down, according to Kobre & Kim attorneys. 

[Click Image To Enlard]

Still, they say, they have started closing in on dozens of trusts and accounts they believe contain pieces of Mr. Millard's fortune. Situated in Ireland, the Cayman Islands, Hong Kong, Singapore and other countries, the entities have names like Bamba Ltd., Maximum Enterprises and The Diamond Trust.

The attorneys say Mr. Millard's strategy appears to have been to sprinkle his wealth among as many different far-flung accounts as possible and allow the money to trickle back in small amounts.  Mr. Kim, the law-firm partner says.  

"I hope he will do the right thing and pay his debts.  But most people do not let go of $100 million easily."

The Millard's half-built castle in Saipan sits abandoned. The Northern Mariana government says it plans to foreclose on the property.

Mr. Fitial, the governor said.  

"It is out of place on a Micronesian island.  Which is probably reflective of his entire stay here."

COMMENTARY:   What an incredible story.  I just had to blog about Mr. Millard because I worked for Computerland in their retail accounting group or RAG in the early 1980's right after grad school and right smack in the middle of the "franchise rebellion".  I only met Mr. Millard a couple of times, because he was in a separate building.  If there are any Computerland alums out there, post a comment.  

Working for Computerland's RAG was underwhelming to say the least. I would best describe it as a sort of retail accounting sweat shop.  I won't bore you with the details, but for a company that was a pioneer of technology retailing, their retail accounting systems were a mess--part manual, part computerized, several different systems that didn't talk to each other.  Tracking inventories was a nightmare.  I worked on the team that converted and standardized the accounting under one system.

Computerland was doing about $1 billion in retail sales while I was there, not including the franchise business, which I was not involved in.  I left just short of two years, before Millard sold the company, leaving my rotten memories of Computerland behind me.  Computerland later became Vanstar, and dumped the retail store business to concentrate strictly on corporate sales. Vanstar was sold again, and finally went out of business.   

I didn't know that Millard had "disappeared" in order to avoid paying income taxes from the U.S. Commonwealth of the Northern Marianas Island that now total $100 million.  One thing that does not go over very well with me is tax cheats. I have worked for a few, so I know all the tricks these punks play to hide income and keep from paying taxes.   I hope that the authorities finally uncover Millard's web of secret front companies and hidden assets, place liens on everything and throw Mr. Millard and his clan out on the street.    

In a blog post dated May 29, 2011, I finished writing about Raj Rajaratnam, the billionaire founder of Galleon Group, a New York hedge fund that was involved in insider trading.  One of his insider informants was the infamous Danielle Chiesi, a trader at New Castle Funds.  The Galleon case made excellent material for several blog posts.  In July 20, Chiesi was finally sentenced to a term of 30-months in prison. Raj Rajaratnam gets sentenced on September 27, and the legal eagles think he's going to prison for at least 20-30 years because of the nature of his crimes.

I am definitely looking forward to writing about the Millard case.  I am sure it will be a real dinger of a case.  Millard, come out wherever you are.     

Courtesy of an article dated September 10, 2011 appearing in The Wall Street Journal

PIZZA PATRON CHANGES ITS MARKETING STRATEGY TO ATTRACT YOUNGER HISPANICS, "QUE BUENO, BONITO Y BARATO"

Business That Long-Catered to Older Spanish-Speaking Immigrants Reaches Out to Younger Clientele

Pizza Patrón, a 100-unit restaurant chain that has long catered to a Spanish-speaking clientele, is turning its charms on English speakers.

The Dallas-based chain, which offers such pizza toppings as chorizo sausage and jalapeno peppers, decided to rethink its marketing after noticing that more young Hispanics—the fastest growing segment of the youth population in the U.S., according to a recent analysis by the U.S. Census Bureau—are bilingual and bicultural.

"These are Hispanics born in the U.S. who have one foot in each culture," says Andrew Gamm, Pizza Patrón's brand director. "They are very into adopting American culture without fully letting go of their Hispanic roots. In our previous 25 years of doing business, we focused on these peoples' parents."

The shift comes as many traditional marketers, such as Kraft Foods Inc. and Anheuser-Busch InBev NV, are courting Hispanic consumers with Spanish-language advertising and products such as lime-infused beer.

Pizza Patrón, a privately held chain that expects revenues of more than $40 million this year, is re-allocating its advertising budget, rejiggering commercials, opening restaurants in new areas and using more English on menus. It's tricky because Pizza Patrón wants to lure new, younger clientele without alienating its historic base of immigrant customers.

Mr. Gamm says that's something he's concerned about but "a lot of my worry is alleviated by the fact that many of these young people have the purchasing power in the household. Thmey do the translating for mom and dad. In that respect, I think we'll be OK."

Attracting a broader demographic makes sense because "statistics demonstrate that virtually every ethnic group has largely integrated into American culture by the second or third generation," says Todd Hooper, restaurant strategist at retail consulting firm Kurt Salmon Associates.

The first Pizza Patrón was opened in Dallas in 1986 by Antonio Swad, an Ohio-born man of Italian and Lebanese descent. Although Mr. Swad didn't set out to target Hispanics, most of his customers were and they placed orders in Spanish, Mr. Gamm says.

Mr. Swad, still the company's chief executive, viewed marketing to Spanish speakers as an opportunity to differentiate the brand. So the chain added items like churros, which are fried dough desserts; lime-and-pepper-flavored chicken wings; and cheese sticks dubbed "QuesoStix." Sometimes the restaurants also offer limited-time Mexican offerings like caramel candies made with goat milk and pecans.

As the Hispanic population grew, so did Pizza Patrón's popularity. In 2007, the chain drew international attention—and attracted more business—when it began accepting Mexican pesos as payment.

Typically, Pizza Patrón opened pizzerias in neighborhoods in which at least half the population was Hispanic. Most of the company's growth came in the Southwestern U.S. and large cities where Hispanics congregated, and nearly all of its ads were on Spanish-language media outlets.

The company began reconsidering its strategy after executives saw a video produced as part of a presentation to prospective franchisees. The video, shot during a random store visit one Friday afternoon about two years ago, showed groups of young Hispanic customers placing orders in English, as well as African-American and white customers.

"It was eye-opening," Mr. Gamm says. The company then conducted focus groups and surveys that confirmed its Hispanic customer base was indeed becoming younger and more bicultural.

Pizza Patrón next year plans to completely flip-flop its marketing mix by allocating 70% of its ad budget to English-language television and radio stations and 30% to Spanish-language media outlets.

Television ads will show groups of young people buying pizza, to appeal to 18- to 24-year-olds.

The company now is opening restaurants in areas with as little as 30% Hispanic residents, and expanding into other areas where Hispanics have moved, such as Michigan, Oregon and North Carolina, and in smaller cities within new and existing markets. The company plans to open about 20 restaurants in 2011 and another 40 in 2012.

Instead of menu boards and promotional materials being mostly in Spanish, English will now be the dominant language. For instance, in the past, pre-made pizza that didn't have to be ordered ahead of time was branded as "lista," meaning "ready now." Now, the chain will include both the Spanish word and the English translation.

To keep traditional customers from straying, Pizza Patrón plans to add more Latin-themed specialty pizzas and to post in-store graphics honoring holidays many Hispanics celebrate, such as Dia de los Reyes Magos, or Day of the Three Kings, coming up in January.

Pizza Patrón also is using phrases like "bueno, bonito y barato," which literally means "good, pretty and cheap" while conveying a deeper meaning about the value of a product.

"By themselves those words mean just what they say, but combined, it's a phrase that only our Hispanic customers would get," Mr. Gamm says. "It's a way we wink at them and say, 'We get you."'

COMMENTARY:    What a great idea.  Latino inspired pizza's.  I like the Jalepeno and Chorizo pizzas.  

Pizza Patron is taking its newfound popularity among younger Hispanics very seriously by also expanding into licensing its brand of frozen pizza's.

Pizza Patron has store locations in California, Nevada, Arizona, Colorado, Texas, Georgia and Florida and expects to expand nationally.  

Pizza Patron has adopted both quick service pizza and carry-out restaurant models designed to keep the costs associated with building and operating a Pizza Patrón to a minimum which in turn allows them to offer customers the best value proposition in the industry.

A typical Pizza Patron carry-out restaurant is positioned in community-based shopping center locations that ideally have strong anchor tenants to complement their national brand. Pizza Patrón searches for highly visible and easily accessible urban, suburban, and small town locations.

Storefronts should be no more than 75 feet from the primary traffic corridor with an unobstructed line of site to their storefront and signage.  Their preference is to have 20 feet of storefront with a minimum of 15 feet and a maximum of 25 feet. The ideal footprint is 1200 sq. ft. but can adapt the model to spaces as small as 850 sq. ft. and as high as 2000 sq. ft.

They require 10 to 15 dedicated parking spaces for our customers with adequate lighting. There must be a minimum of two ingress/egress points to primary traffic flow.

Pizza Patrón’s goal is to be located on primary traffic corridors that have high visibility and high daily traffic densities with easy and convenient accessibility for our guests.

 

Pizza Patron's goal is to find great restaurant franchisee's who share their passion to become an active part of the community they serve. Prior restaurant management experience is not required for single unit operators. Multi-unit developers must have the capability to establish a professional management team committed to the day-to-day operations of their restaurants. Equity participation by your management team is encouraged.

• Operating partner must live in the market where their store is located.
• Minimum net worth of $150,000 and available investment equity of $60,000 per location to be developed.
• Multi-unit developers must live in, or operate existing businesses in the desired market.
• Multi-unit developers must have multi-unit restaurant operational or development experience.
• Multi-unit developers agree to commitment of 3-20 units
• Personal experience and people skills are also carefully weighed.
• All developers must possess knowledge of real estate and trade areas in desired development territory
• All developers must have passion, drive and enthusiasm for the restaurant industry.

The investment is among the lowest in the industry, and it is matched with an opportunity that is truly amazing if you are willing to work hard.

CARRYOUT STORE

	Actual Or Estimated High	Actual Or Estimated Low
Initial Fees: Development Fee Franchise Fee	$7,500 $12,500	$7,500 $7,500
Security Deposits	$4,500	$1,500
Architectural/ Engineering Fees	$4,000	$2,500
Leasehold Improvements	$120,000	$89,000
Furniture, Fixtures, Equipment and Smallwares	$74,000	$63,000
Signs	$12,000	$6,000
Travel, Lodging and Meals for Initial Training	$3,500	$2,500
Operating Permits	$1,500	$500
Opening Inventory	$7,000	$4,000
Opening Publicity and Promotions	$7,000	$5,000
Additional Funds – 3 months	$20,000	$10,000
TOTALS (excluding real estate purchase and lease costs)	$273,000	$199,000

QSP™ FREESTANDING STORE

	Actual Or Estimated High	Actual Or Estimated Low
Initial Fees: Development Fee Franchise Fee	$7,500 $12,500	$7,500 $7,500
Security Deposits	$4,000	$1,500
Architectural/ Engineering Fees	$6,000	$4,000
Leasehold Improvements	$279,000	$200,000
Furniture, Fixtures, Equipment and Smallwares	$74,000	$63,000
Signs	$35,000	$15,000
Travel, Lodging and Meals for Initial Training	$3,500	$2,500
Operating Permits	$1,500	$500
Opening Inventory	$7,000	$4,000
Opening Publicity and Promotions	$7,000	$5,000
Additional Funds – 3 months	$20,000	$10,000
TOTALS (excluding real estate purchase and lease costs)	$457,000	$320,000

 

The U.S. Hispanic market is the fastest growing consumer segment, and Pizza Patron is ideally positioned to take advantage of that growth. 

Courtesy of an article dated December 29, 2010 appearing in The Wall Street Journal's Franchising