When you visit McDonald’s, Jiffy Lube, or the Hilton Garden Inn, you might think you’re visiting a business. The operator of that particular location, known as the franchisee, and the large corporation or franchisor that owns the intellectual property behind it.
The relationship is fraught with conflict, as franchisees say new fees, required vendors, and constraints on sales capacity are squeezing out the profits their businesses generate, but franchisees have continued to grow in recent months. is boiling at
On Monday, the Government Accountability Office said: report Quoting interviews with dozens of small business owners who said they lacked control over the fundamental operations that determine their ability to profit, franchisees “could not reap the full benefit of the risks they take.” I discovered that it was not.
They’ve found sympathetic ears in the Biden administration and several state legislatures, with a growing wave of proposals to limit the power of franchisors.
Franchisors have largely succeeded in thwarting new laws and regulations that McDonald’s CEO Chris Kempczynski described as an existential threat.
“The reality is that our business model is under attack,” he said. said in february At a convention of the International Franchise Association, a trade association of franchisors, franchisees and franchise suppliers. “If you’re not heeding these laws because you think they don’t affect you, think again.”
Franchising has been a hallmark of American capitalism for decades, allowing brands to grow rapidly using investment from entrepreneurs who put their capital in exchange for a business plan and a logo that consumers can recognize. made it possible to The Federal Trade Commission requires franchisors to disclose factors such as initial costs and the company’s financial performance to those considering purchasing a franchise, and some state laws require transfer rights, etc. manage considerations.
However, the majority of relationships are largely unregulated. For example, changes the franchisor can make to the contract and what vendors might be required.
Keith Miller, California Subway franchisee put forward As for franchisee rights, he said the lack of oversight is causing more and more disputes. Franchisee royalty payments used to cover things like marketing, new menus and sales tools, but “now it seems like we have to pay for services,” he added.
The franchise industry says its business model remains profitable for individual owners and additional regulation will protect substandard franchisees at all other costs. Matthew Haller, chief executive of the International Franchise Association The CEO, citing a 2021 survey by market research firm Franchise Business Review, said 82% of franchisees supported the company’s leadership.
But legislative battles at the state level reflect rising tensions.
Hotel franchisees have been squeezed by lost revenue during the pandemic lockdown and have also been hit by hotel brand loyalty programs that require hoteliers to rent rooms at discounted rates. Specification In New Jersey, restricting these loyalty programs, as well as rebates that brands can collect from vendors that franchisees must use, is facing fierce opposition from the American Hotel and Lodging Association. The association’s CEO, Chip Rogers, said in a statement that the bill “completely undermines the foundation of hotel franchises by limiting the ability of brands to enforce brand standards.”
Laura Lee Blake, chief executive of the Asian American Hotel Owners Association, which has 20,000 members, said hoteliers had reached despair. “There comes a point when you try to meet with the franchisor and ask them to change it, but they don’t listen,” she said.
Laws introduced in Arizona to strengthen franchisees’ ability to sell businesses and to prevent retaliation from franchisors if they band together in associations are also facing resistance. Specification It was approved by two committees in February and March, but the International Franchise Association hired two lobbying firms to oppose it.
in the Republican Party caucuses, opponents attacked the bill as a “sledgehammer” to bring the government into private business relations. The bill’s sponsor, Rep. Anastasia Travers, a Democratic freshman, said she was embarrassed by the speed with which the opposition was snowballing and ultimately gave up on bringing it to the 2023 session.
“Time was never on my side,” said Travers.
a Similar Bill In Arkansas, the International Franchise Association initially said it would be “the most extreme franchise regulation in any state.” fix Eliminate entire sections, including sections that prevented franchisors from imposing requirements to “unfairly alter” the financial terms of the relationship as a condition of renewal or sale.
After the bill was enacted got slim — Leaves clauses such as those reinstating existing laws voided by subsequent laws and requiring franchisors to prove serious cause before terminating a franchise — Industry groups disagree withdrawn and allowed for speedy passage.
In an email to supporters before the vote, Jeff Hanscom, vice president of state and local government relations at the Franchise Association, said Arkansas agribusiness giant Tyson Foods “helped negotiate this outcome.” Tyson Foods did not respond to a request for comment.
At the federal level, franchisors may face greater challenges.
The Biden administration works on two fronts. One is the Federal Trade Commission, Request information in March On how the franchisor controls the franchisee. The initiative could bring additional guidance and regulations, putting the industry on high alert.
The second front is the National Labor Relations Board. Proposed If the franchisor has significant control over working conditions, it is more likely to be designated as a “co-employer” who is responsible for the franchisee’s labor law violations. Franchisors argue that this would “break” their business model as it exposes them to unacceptable risks.
Franchisors attribute the surge in activity to union influence. In particular, the International Union of Service Workers has long fought to designate McDonald’s as a co-employer. This makes it easier to initiate organizing efforts across the chain instead of store by store.
But franchisees have also recently voice support As for the co-employer rule, we believe that franchisors choose to take less control over their franchisees’ operations to avoid extra liability. Robert Zarco, a Miami attorney employed by the Association of 1,000 McDonald’s Owners, said it could be “great” for his clients.
“If a company doesn’t want to be considered a co-employer, it’s very easy to fix,” says Zarco. “We will unleash all the excessive controls they have put in place other than protecting the quality of our brands, products and services.”
Federal Lobbying Expenditures of Franchise Associations 2022 high of $1.24 million,Alongside millions It is the money spent on federal elections in recent years and does not include the money spent by individual franchise brands.
The high stakes are also evident in other ways.
The Franchise Times is a 30-year-old independent trade publication with six editors that covers daily happenings in the industry, including acquisitions, executive changes, and technology trends. If there is a dispute, such as a lawsuit or bankruptcy, I also write about it.
The publication’s legal columnist, Beth Ewen, wrote several articles this year about Unleashed Brands, a portfolio of franchises that have filed lawsuits against franchisees. markup of One of Ewen’s stories Red pen font with “DEBUNKED” stamped on top. (The organization gave same treatment In an article about the company in The New York Times. Both publications endorse that report, and Unleashed does not seek correction. )
In March, the new website opened with the address “NoFranchiseTimes.comOne side of it was devoted to attacking what it called “editorial bias” and “defaming the business that favors publishing.”
It asked law firms, vendors and advertisers in the publication, including brands, to cancel their purchases.
Michael Browning Jr., CEO of Unleashed Brands and a member of the board of directors of the International Franchise Association, emailed members of the trade association and, although he didn’t create the website, he endorsed the message. said the group believes membership in The Franchise Times should be revoked. Browning did not respond to a request for further comment.
The association has refused to revoke membership, and advertising revenue has increased from last year, the magazine said. But for Ewen, a 35-year business veteran of her reporting, the episode is about the industry’s attempt to divert attention away from its real problems, and how some members are resorting to hardline measures. is shown.
“They are trying to attack our business model and our ability to continue,” she said. “There are a lot of people who spend a lot of time trying to get us and others to stop talking about these things.”
