September 2012 Archives

Document, document, document! It's the mantra of the human resources profession.

Create timely and thorough documentation for all employment decisions. On the other hand, supervisors and managers often view documenting as a chore they simply don't have time for.

But do they have time for the following all-too-common scenarios?

  • Rebecca, has performed her job poorly for several months. She is consistently late and her work is often inaccurate. The manager has spoken with her and given deadlines for improvement but the deadlines have come and gone. The company decides to fire her but wants to wait until the manager returns from a quick business trip. Before he returns, Rebecca suddenly goes out on leave under the Family and Medical Leave Act (FMLA) for a problem with her back. Upon return from leave, the company fires her for poor performance. She claims the company retaliated against her for taking FMLA leave. Without documentation of her performance problems, their coaching efforts or the timing of the termination decision, the company has no defense against her claim of retaliation.
  • Joe performs some aspects of his job well but is often slow to get back to customers. Co-workers pick up his slack. Resentful, two of the best employees quit so the supervisor knows she needs to fix the situation quickly. She approaches Human Resources about firing and replacing Joe. The HR administrator check's Joe's personnel file and finds only positive performance evaluations. So she says, "You can't. At least not yet." The supervisor and HR work together on a coaching and performance improvement plan that will take a couple of weeks to implement. There are two vacancies to fill and remaining staff members grumble more loudly than ever.
  • Marcus, a supervisor in a retail chain asks his new, young employee, Kaitlyn, out on dates every day. She tells him, "No, thank you" but he keeps asking and makes comments about her body that make her uncomfortable. It is Kaitlyn's first job and she doesn't know how to handle the situation so she quits. She thinks she may have been given a copy of the company's sexual harassment policy on the first day along with other paperwork. No one told her what was in the policy and she didn't sign any acknowledgment that she received it. Her mother helps her contact the EEOC. They decide to pursue two claims: one for sexual harassment and one for constructive discharge. (Constructive discharge is when an employment situation is made so intolerable that a reasonable person would quit.)

All of these scenarios are preventable! Supervisors and managers and those responsible for handling human resources should know that creating timely documentation is a critical part of their role. Here are some reasons why:

1. Documentation is vital in an employer's defense against discrimination, retaliation and other employment claims;

2. Memory alone will likely serve poorly in court. A lack of documentation is a glaring omission that could paint the employer in a potentially suspect light, particularly in a jury trial;

3. Documentation can explain how a situation was handled when an individual involved is no longer available to testify;

4. Documentation can verify that employees have read (or heard) and understand information they were given;

5. Documentation helps supervisors provide accurate and constructive performance feedback to employees.

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Interest in Health Spending Accounts (HSAs) is growing for some fundamental and basic reasons. Today's reality is that governments in Canada and the United States are working to balance their budgets by reducing expenses.

Another reality is that health care expenditures take up a significant portion of government budgets and must be reduced if governments are to be successful in their efforts.

While this funding for services is declining, demand for health care is not likely to subside.

In this second of two parts, we take a look at who is covered by HSAs and what services are covered.

Who is Covered by a HSA

When a HSA is set up for an employee or self-employed individual, it can cover allowable medical expenses for the individual and, at the individual’s discretion, their dependants.  This includes a spouse or any member of a household related to the employee by blood relationship, marriage or adoption and who is financially dependent upon them within a given year.  Dependants must also be a Canadian citizen residing within the country for a minimum of six months out of the year.

There are instances when a more comprehensive definition of dependant is required.  For Health Spending Accounts, the complete definition of Dependant is provided in the Income Tax Act.  This definition can be found at

Dependants may include parents residing with children or in facilities such as a retirement home or nursing facility.  The cost of these services can be reimbursed through a Health Spending Account.


Medical Expenses Covered by a Health Spending Account

There are three broad categories of medical expenses.

1.  Medical Practitioners

Services provided by a licensed medical practitioner can be reimbursed through a HSA.  Medical practitioner encompasses a wide range of individuals that work in the medical profession including but not limited to:

Doctor; Dentist; Optometrist; Osteopath; Chiropractor; Naturopath; Therapeutist (or therapist); Physiotherapist; Chiropodist (or podiatrist); Christian Science practitioner; Psychoanalyst; Psychologist; Speech-language pathologist or audiologist; Occupational therapist; Acupuncturist; Dietician; Dental hygienist

2.  Medical Expenses

Medical expenses, as defined by Canada Revenue Agency, include a broader range of products and services than is typically covered through private insurers.  In addition, there are no limits on how much can be spent on specific services.  Following are just some of the products and services classified as medical expenses by Canada Revenue Agency:

Medications prescribed by a licensed medical practitioner; Payments to hospitals; Payments to associations such as The Arthritis Society, The Canadian Red Cross, and Victorian Order of Nurses which employ individuals that provide a variety of health services; Out of country medical services; Attendant Care; Institution/education/training for individuals with physical or medical impairment; Transportation and travel expenses for patient and accompanying individual; Artificial limbs, aids and other devices; Products required because of incontinence; Eyeglasses; Guide and hearing-ear dogs and other animals; Bone marrow or organ transplants; Renovations and alterations to a dwelling

3.  Other

This complete list of services includes items such as training or education for the disabled, making a home accessible to those with physical disabilities and special equipment for individuals with breathing disorders such as asthma.  A Health Spending Account can also be used to pay for many assistive aids such as a scooter or assistive devices for walking, standing, using a shower or toilet and more.  For more information on allowable medical expenses, refer to CRA Publication IT519-r2 (

Learn more about Health Spending Accounts


PreAxia provides access to published articles and interviews about Health Spending Accounts.  These can be accessed in the HSA Education Centre that can be found at   A Frequently Asked Questions (FAQs) document on Health Spending accounts is available at the bottom of the HSA Education Centre.



Wikipedia provides an excellent explanation of Health Spending Accounts and CRA Guidelines.


Canada Revenue Agency (CRA)

Following are bulletins and other publications by CRA pertaining to Health Spending Accounts.

IT-85R2 - Health and Welfare Trusts for Employees

IT339R2 - Meaning of Private Health Services Plan

IT529 Flexible Employee Benefit Programs


The following CRA publications identify what are allowable medical expenses.

IT-519R2 (Consolidated) - Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction


Which medical expenses are eligible?

There are many medical expenses which qualify for a Health Spending Account not identified in this document.



HSAs (Canada) as a Medical Benefit









Looking into 2013, there is no doubt that rising food commodity costs will have an effect on restaurants. The effect of the US drought, global economic, currency, weather and supply/demand conditions will have negative margin effects. All of the proteins will be difficult, especially beef and chicken. Coffee and vegetable oil are among the few food groups lower.

The cost effect will be felt in 2013, and beyond.  This comes on top of an up/down/up cycle since 2007. Depending on concept, restaurant cost of goods sold is typically 25-35% of revenue, the largest expense. Restaurants might cover moderate levels of food inflation, but if labor or other operating costs rise, and if revenues fall and produces deleverage of fixed costs, a real problem exists.

We think the ‘low hanging fruit’, the easier to implement, plate centered cost savings actions have already been done.  Many restaurants have already reacted, in the recessionary 2008-2009 period by trimming portions and prices and by featuring lower cost per pound items and “small plates” in their menu and promotional mix.

CKE Restaurants, for example, rolled out turkey burgers, and pork, lobster, chicken and other items have been periodically featured elsewhere. PF Chang’s implemented expansive happy hour food and alcohol offerings.

In 2011, we baselined the private equity owned Real Mex Mexican chains (Chevy’s, El Torito) and were embarrassed by how plate portions had eroded smaller over time. No wonder they did Chapter -11 twice and are still closing units.  

Many restaurants have already attacked staffing costs mercilessly, such as Darden, which eliminated bussers nationwide, expanded tip credit and is recertifying servers in massive workforce reorganization (and has the class actions lawsuits now pending). Sonic (SONC) expanded the tip credit, lowered wages for some and rolled out car hops on roller skates to enhance service (and hopefully tips).

What to do? The show must go on of course.  Other than price increases, which always has to be considered in relation to competitors and customers, more work on menu mix and the rest of the P&L has to be considered.

These notes are particularly relevant for franchisees who have their brand composing the marketing.   Hard questions have to be asked.

1. More work towards developing store, zone, and regional pricing tiers needed: most US restaurant chains grew out of a 1960s/1970 culture of mass conformity. It is what the newly traveling public demanded in reaction to inconsistent restaurants in the 1940s-1960s.  The US today is has a far more diverse population, competition, operating cost and real estate characteristics.  Pricing really need not be the same everywhere in every location, either in a DMA or in a region. Ask ABC stores, the famous convenience retailer in Hawaii how they invented store level pricing. Does a Subway customer expect exactly the same price to the penny for a sub everywhere in a DMA?

Restaurant management systems and today’s analytics really are sophisticated enough to handle tiers of pricing. For example, one of Burger King’s (BKW) international high volume markets do not use the same lowball price tactics and is not the worse for wear.

Wendy’s (WEN) is still testing sub-DMA and store pricing tiers and we hope they continue and set the example for more industry innovation in this area.

2. Mass television campaigns can be much more carefully conceptualized. This is where the rub really comes. Conventional marketing theory holds that price specific advertising works better than “culinary” or other message focused advertising. Example; see Darden’s recent Q4 2012 earnings explanations of the Olive Garden sales softness.

 Do restaurants advertise price so much because of the media mix? We bet that the vast body of 15 second TV spots that are aired can only work with price point appeals. And research has shown 15 second spots aren’t half the cost nor have the effect of 30 second spots. Has there been a holistic cost/benefit analysis done between media mix cost and media driven price and mix at the restaurant level? Is some more optimal 15 second or the 30 second spot mix more effective?

And what about using $1/$2/$5/etc. off marketing features? Our experience is that those are highly regarded by the public. That way no specific price baseline must be noted.

3. What is done with mass television campaigns and massive concept repositioning has to be tested. Just must. There is much less time, money and customers for massive redos. Ask Ron Johnson and JC Penny’s (JCP) about the cost of customer confusion in the wake of their massive repositioning (and the negative 20% same store sales resulting), that we understand was not pre-tested.

4. Suggestive selling at the store level always needs a lot of work.  While few of us really likes to sell, renewed emphasis to not downsell once the customer is in the store (“oh…would you like the coupon offer?” or ban the comment “is that all” have to be helpful. There can be at least one universal tradeup question that even a shy person could ask over the drive thru.

This problem is the greatest in the QSR and fast casual subsegments but not zero among casual dining operators.

5. Get the remodel funding in place. Some franchisee centric chains which haven’t remodeled because of sub-par unit economics will be under severe strain. Now is the time now to strengthen system fundamentals and get franchisee financial assistance support processes in place.  Papa John’s (PZZA) gets it, and has done so, but Domino’s (DPZ) hasn’t broken that code yet. 

6. Finally, there are other cost savings possible. My favorite is utility costs, particularly that of electricity (air conditioning) and water. Have you ever been in a restaurant where it was freezing cold after dark, or on a chilly day? There is a reason, and it has to do with a single roof top unit and a single sensory control box that can’t be right for either a hot kitchen or a chilly dining room.

Panera and 5 Others to Watch

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In watching the Q2 2012 restaurant space earnings, six brands interested us by exhibiting what we define as standout operating tempo-what we term OPTEMPO.

These six posted not only significant EPS beats of $.02 or more (meets or a penny over doesn't excite us much), but also positive traffic and positive early peek Q3 trends-that early Q3 trend prerelease info that some companies give. This quarter's entire group has performed well recently: Brinker (EAT),Texas Roadhouse (TXRH), Ruth Chris (RUTH), Popeye's (AFCE), Panera (PNRA), Papa John's (PZZA)

Common Denominators: Two casual dining operators, one fine dine operator, one bakery/café, one QSR pizza, one Chicken QSR operator were the group. Two of the six are steak centric (RUTH, TXRH), with one other making inroads into higher steak menu mix . Brand focus matters: four of the six were single concept restaurant operators, and two with two brands under the holding company structure (EAT, RUTH). There, one brand greatly predominates over the other (EAT: Chill's versus Maggiano's) and RUTH (Ruth Chris versus Mitchell's).

Steak centric: we noted in 2011 that steak centric operators did well, no doubt by the improving travel/expense account traffic. RUTH's peer, Del Frisco (DFRG) via its first call since its IPO noted positive same store sales (SSS)of plus 5.1% and traffic of +2.2% at the flagship Double Eagle units.

Positive traffic and early peek looks: All had positive traffic-RUTH greatest at +3.9%; AFCE and PZZA don't reveal traffic/check but one can deduce from the magnitude of the numbers it was positive).

All had consensus earnings move up $.02 or more over the last 90 days-PNRA highest at +$.11, PZZA +$.09, EAT +$.07. Three of the six had 5 analysts or less providing estimates, with PNRA, TXRH and EAT well in double digit analyst coverage territory.

None of these chains had eyeball high debt. Interestingly, none of the chains was actively refranchising, all were growing company units, with even franchisee heavy AFCE planning a significant slug of new company units.

Four of the six chains (RUTH, AFCE, PNRA, PZZA) had positive free cash flow increases from quarter to quarter. EAT and TXRH free cash flow was off from prior year but EAT is doing heavy duty remodels (and is still a huge cash generator) and TXRH is building new units.

Price/earnings ratios: only RUTH cheap but…

This group of restaurants, other than RUTH are not cheap. PNRA is the most expensive, but EAT and TXRH aren't nosebleed high valuation yet.

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This page is an archive of entries from September 2012 listed from newest to oldest.

August 2012 is the previous archive.

October 2012 is the next archive.

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