Franchising must act to fix its own problems
FranchiseMarketUpdate
BY DARRELL JOHNSON
Call to Action
Franchising must act to fix its own problems
As a farm boy I learned common sense through experience . For instance , overloading a wheelbarrow could reduce back-and-forth trips , but at some point the wheelbarrow became too hard to balance and tipped over , defeating my intended purpose of less work .
Today businesses are confronted with a litany of political stances on top of regulatory and legislative actions that are making it hard to keep the business wheelbarrow balanced . While we debate the merits of individual issues , the sheer number is concerning , creating a lot of business uncertainty , and likely setting the stage for an economic downturn .
On a basic “ American values ” level , raising the minimum wage makes excellent sense . We all want people to succeed , and paying them more helps them do so . Raising the exemption minimum regarding overtime regulations has a basic fairness argument in it . Even the joint employer issue has some common-sense elements to it .
Unfortunately , lost in all these initiatives of what I ’ ll generously call “ good intentions ” is that each change has consequences , because each change has a context . For instance , minimum wage mostly affects workers with no relevant skills or experience . They get training and gain experience on the job , two things not usually recognized in the minimumwage debate . The government is willing to support education loans that put unskilled and inexperienced people in debt , but it does not recognize the value that technical training in a franchise , for instance , provides workers — while they are getting paid . Basic American values also include allowing the engine of economic growth , capitalism , to succeed . The business community can adjust to any one of these changes , but the combination is much more daunting .
Then there are the Dept . of Labor decisions that are clearly intended to serve a union constituency , such as ambush elections and persuader advisor activity reporting . It is very difficult to call these good intentions with such obvious blatant political overtones . France is trying hard to extract itself from the union grip that has depressed decades of business investment . With a weak recovery by any historical measure , we ’ re confronted with piling all these initiatives into what is now becoming a very heavy economic growth wheelbarrow .
Maybe it ’ s time for the multi-unit community to offer a collective voice on basic franchise agreement control provisions for the sake of strengthening the business model .
The unintended consequence of so many objectives at the same time is business uncertainty . Uncertainty forces all of us business owners into hesitation to take the investment risks that will grow our business and the economy . That becomes very obvious when you look at the capital investment and productivity numbers over the past 10 years .
Two questions With the political landscape defined for the next few years , we are still left with two questions : 1 ) What caused franchising to be in the target zone for so many actions ?; and 2 ) What can we do about it ?
To the first question , I believe franchising was less a target than it was a combination of PR mistakes by all of us and a gradual shift in the franchisor / franchisee balance toward franchisors over several decades . If we want to get away from a continuing barrage of government-induced challenges , we need to solve these two issues , which will take time .
The consequence of the PR mistakes are becoming very clear : few people — including legislators and the media , unfortunately — understand how the franchise business model works and therefore promote actions that undermine it . Aziz Hashim , former Multi-Unit Franchising Conference and current IFA chair , drives that point home by noting that the vast majority of the millions of franchisee employees think they work for the brand , not the franchisee entity that pays their salaries . Overcoming that PR challenge will take time , but acknowledging its existence and developing a longer-term PR plan are our shared responsibility , and efforts are beginning .
The gradual shift in the franchisor / franchisee balance has been going on for more than 15 years . As I noted in a previous article , franchise agreements have slowly and consistently been strengthened in favor of franchisors . During this time , FRANdata has reviewed more than 1,000 franchise agreements a year for SBA affiliation eligibility purposes , so we have a pretty good vantage point to observe how contractual agreements have evolved . I am not taking a position about whether this is good or bad , but I will say that it can be argued that one of the unintended consequences of this shift in control has been the dramatic rise in franchise-related state legislative initiatives and federal regulatory actions .
Multi-unit operators have an ability to address this shift in balance . Whenever I ask an experienced multi-unit franchisee if they accept the standard franchise agreement terms a franchisor offers them , they invariably say , “ Of course not .” Maybe it ’ s time for the multi-unit community to offer a collective voice on basic franchise agreement control provisions for the sake of strengthening the franchise business model we all benefit from .
Darrell Johnson is CEO of FRANdata , an independent research company supplying information and analysis for the franchising sector since 1989 . He can be reached at 703-740- 4700 or djohnson @ fran data . com .
72 MULTI-UNIT FRANCHISEE ISSUE IV , 2016