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The freedoms of franchising

Tense times
This is also not to suggest that franchisors always get it right. Most brands need to continually improve and adapt to changes in the market in order to remain relevant and competitive. One would hope that changes initiated by the franchisor would be well thought out, well researched and adequately tested prior to roll-out to the field; this is not always the case. In some cases, franchisees may view the franchisor as being more concerned with driving sales (from which it earns its royalties) than with the franchisees’ bottom line.

Often, the cost of change will fall largely on the franchisees’ shoulders. Conflicts can arise when franchisees are required to invest in new equipment or processes to support the introduction of a new product or other change. While the franchisor will benefit from increased sales, franchisees only benefit if the change increases profitability. Depending on the timing of such changes, as a franchisee you may have a limited opportunity to earn back the full cost of its investment before its franchise term expires. Tension in a franchise system be exacerbated if the franchisor is constantly changing plans and directions to meet perceived competitive pressures or consistently rolling out untested plans to the field. Unplanned additional expenditures during the term of your franchise agreement, without the assurance of a return on investment, can cause stress to you and your relationship with your franchisor.

Over the past couple of years, many franchise systems have experienced flat or declining same-store sales. When growth and profitability decrease, issues and conflicts that might have been less important previously (when everyone was making money) become the focus of concern. Issues relating to encroachment, product costs and use of advertising funds can move to the forefront for franchisees.

Addressing concerns
While you may have difficulty getting your franchisor’s attention as an individual, franchisees are increasingly discovering the power of collective action, including the formation of franchisee associations.

Franchise legislation, in all provinces that have enacted franchise legislation, guarantees you the right to associate, or form or join an association. Franchisors are prohibited from interfering with or restricting your right to associate; they cannot directly or indirectly penalize you, or threaten to penalize you, for exercising this right. Any provision in a franchise agreement that seeks to interfere with, prohibit or restrict these rights is void. If you franchisor does interfere, it can be liable for damages.

Franchisee association
A franchisee association may be formally or informally organized; it can take many forms and serve many different purposes. It could be an ad hoc committee to deal with a single issue, or may become an incorporated entity with by-laws and policies to govern its procedures.

The association may aim to work collaboratively with its franchisor on matters such as the roll-out of a new process or product, development of encroachment-related policies or allocation of new outlets to existing franchisees. Alternatively, the approach may be more aggressive, with objectives such as re-negotiating contract terms. However, while the law prevents franchisors from inhibiting the formation of a franchisee association, it does not require a franchisor to recognize or deal with the association.

To be able to demonstrate its mandate, a franchisee association must be able to show it represents a significant portion of the franchisee base, and that its members include the franchisee opinion leaders. Franchisors may see the formation of an association as a threat, perhaps akin to the unionization, and might be concerned that meeting with the group will give it greater legitimacy. On the other hand, a franchisor’s refusal to meet may actually harden the group’s resolve, galvanizing and even expanding membership. The issues that gave rise to the association in the first place will likely guide the franchisor’s approach.

Despite the upset the formation of an association may create, an association may actually facilitate positive communication between you and your franchisor. In come cases, associations can also provide a moderating effect on contentious issues, allowing more outspoken franchisees to express their views and frustrations in a forum that is tempered by input from more restrained franchisees.

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