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Posted on Mon, 01/9/2012 - 04:25 PM by
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What’s wrong with franchising in 2012? Perhaps I would invoke the words of Charles Dickens and assert that franchising is experiencing “the best of times and the worst of times." The whole of the franchising community is neither entirely flawed nor without blemish. The franchising community continues to spawn successful new concepts and to help build powerful industries. When franchising works as advertised it continues to create exciting wealth opportunities for franchisors and franchisees. At the same time, the incidence of franchise failures continues at an alarming rate, and profitability issues often plague perceived ‘blue chip’ opportunities (as well as start-ups and fly-by-nights) such as Quiznos, Cold Stone, and UPS Stores. Perhaps the greatest challenge for the franchising community is a serious lack of franchise systems that are able to attract truly quality franchisee prospects. I attribute this situation directly to a lack of franchise offerings that have been engineered to attract sophisticated quality prospects. Happily, we are beginning to see a growing number of effective franchisee associations and a nascent community of franchisors who embrace collaborative franchise cultures—franchise systems that have embraced independent owners associations, negotiated agreements and shared vestment for the common good of the franchisor and the franchisees. Unfortunately, there are many more autocratic franchise systems that enforce one sided franchise agreements that disrespect franchisee rights and interests, or that otherwise disdain meaningful collaboration and sharing of the fruits of the franchise system’s fortunes. Not surprisingly, such systems are finding it increasingly difficult to attract ‘A’ list prospects. The question should not be whether there is something wrong or right with franchising, but how to identify and promote that which is excellent, and eschew that which fails to deliver a quality investment. The goal of the AAFD has been to define our vision of Total Quality Franchising practices, and to offer accreditation to companies that meet the AAFD Fair Franchising Standards. For the first time, franchise investors can identify a score of franchise systems that have passed rigorous review and received approval from their franchisee populations. Unfortunately there are hundreds of franchise systems that continue to pose a significant risk to investors—in part because the business model may either be flawed or subject to a fickle marketplace, and in part because the franchise agreement affords the franchisee few rights to protect the franchisee’s interests with things go wrong. Or said another way, we now have a process, a tool, to evaluate what is right and wrong in franchising, and how to reward what works and avoid what does not. Over the course of this year, I (and other agents of the AAFD) will be profiling some of the most significant issues facing franchise owners and the franchise community as a whole. Our purpose is to show existing and prospective franchise owners a better way. MORE NEWS FROM BLUEMAUMAUTaxes and the DeficitNormally, this column is supposed to cover the tax changes over the prior year and how they impact the hospitality industry. Last year, we commented about how 2010 was an interesting year but little in the tax field had passed. 2010 was all about health care reform, the change in control of the House and the rise of the tea party. It was a very political and partisan year. If anything, 2011 was worse. Never has so little been accomplished by so many. Brinkmanship was the key word for 2011. It will be known more for what did not occur rather than what did. It is not unusual for partisan politics to take center stage in an election year. While 2011 was not, the race for the Presidency and control of the House and Senate began before all the winners from 2010 were known. National Press Writes about Restaurant FranchisingOn May 18th, the national press, both The New York Times and The Wall Street Journal, wrote about restaurant franchising. Some additional notes are warranted. Mediation: Good, Bad or It Depends?Mediation is often touted as the greatest thing since sliced bread for faster, fairer, and cheaper dispute resolution. Is it? Going International? Don’t Forget One Important ThingFranchisors that are considering exporting their franchise concept to other countries are advised to prepare by following a checklist of key items. However, there is one area that is often overlooked or shortchanged in the process. Going Green Costs Franchisees Much GreenBeing forced to buy imaginary products is just one of the nonsensical results of government policy affecting franchisors and franchisees. RELATED SMALL BUSINESS NEWSMobile Franchises: Do You Like Cars? Hot Franchise Topic: Getting a LoanIt seems like the entire franchise industry is focused on funding, and with good reason; franchise loans are still a bit challenging to secure. Good News, U.S. Hotel Profit RecoveryAccording to the new PKF Trends survey, the U.S. lodging industry produced a 12.7% profit growth in 2011. 80.5% of participating hotels enjoyed an increase in total revenue while 72.3% achieved growth in profits. The recently released 2012 edition of Trends presents data from a sample of nearly 7000 financial statements of United States hotels. For the Trends report, hotel profits are defined as net operating income (NOI) before deductions for capital reserves, rent, interest, income taxes, depreciation and amortization. Federal Court Invalidates "Quickie" Union Election Rule, For NowOn May 14, 2012, the U.S. District Court for the District of Columbia set aside a controversial final rule of the National Labor Relations Board ("NLRB") that was designed to make it easier and faster for unions to hold organizing elections. Chamber of Commerce of the United States of America, et al. v. NLRB, Case No. 11-02262 (D.D.C. May 14, 2012). Business groups are hailing the decision, but the celebration may be short lived. Because the ruling was essentially decided on a procedural point, the NLRB may seek to resurrect the rule, which creates a very short window for union elections, and leaves employers with little time to react to an organized union campaign. Field Representatives Coach Franchisees to Victory
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