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Posted on Tue, 02/21/2012 - 04:56 PM by
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IFA President, Steve Caldeira, recently wrote a letter to the Wall Street Journal complaining that a recent article about the perils of franchising “ignores that more than 90% of franchisees renew their contracts with their franchisers at the end of their terms.” The obvious claim is that more than 90% of franchisees are successful and happy. Here we go again! 20 years ago, the IFA was claiming a 95% success rate for franchisees, a claim that was thoroughly ‘debunked’ in study after study. It was discovered that the IFA was not counting failed franchise systems, failed businesses where the franchise was transferred (and thus preserved), or franchisees who were simply losing money but hanging on. If a store didn’t close (even though it may have changed hands a dozen times) it was claimed as a success! Now we see a ‘rebirth’ of a false suggestion of franchising success by the seemingly happy statistic that ‘more than 90% of franchisees renew.’ The misrepresentation built into this statistic is every bit as draconian as the false ‘franchise success rates’ we exposed in the 1990’s. Even if the claim was ‘technically true’ – and it cannot be so – the reason behind many renewals is more of a fact of ‘bondage’ than ‘delight.’ Virtually every franchise agreement contains a ‘covenant against competition’ that prevents a franchisee from continuing in business EXCEPT by renewing the franchise. Too often, franchisees have no effective choice but to renew, even though they may be deeply dissatisfied with the terms of their franchise agreement and/or their relationship with their franchisor. But take a careful look at the technical claim. Does it not assume that a franchisee reaches the end of the contract term? Does it not assume that the franchisee is offered renewal? Does it not assume that agreement wasn’t terminated prior to ending the term? That the franchise still exists? Or that the franchise has not been transferred one or more times? What is the percentage of franchise owners who have happily decided to remain in business, without any form of coercion, following a term of financial success (as defined by suitable financial rewards and job satisfaction)? All of the same defects that existed in the old ‘franchise success rate’ claims are renewed in this new ‘renewal rate’ claim. My book, The Franchise Fraud: How to Protect Yourself Before and After You Invest, focused on the franchising industry’s false claims that most franchises succeed. The truth is that franchising per se is not a guarantee of success. All franchises are not created equal – the path to success in franchising remains investing in a strong brand that has a collaborative culture, a strong voice for franchisees and a franchise agreement that respects the legitimate business interests of both the franchisor and franchisee. MORE NEWS FROM BLUEMAUMAUFranchisors are from Mars and Franchisees are from VenusIn the wildly popular Men are from Mars, Women are from Venus book series, author John Gray explores the fundamental differences between genders’ perspectives and communication methods. While Gray hasn’t delved into the realm of franchising, there is little doubt that the vantage points of franchisor and franchisee are also distinctly different, which can lead to some, let’s say, interesting issues with communication between the two groups. Taxes 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. 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. 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. 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. |
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