Franchise Industry, Up, Up and Away

All sides would like to see some rules of self-government, but the contentious issue is who would make the rulings, Levitt says. “Is it a franchisor body, or does it include franchisees? ” he asks. “And how much power should it have?”

National Post
February 16, 1996

Franchise Industry, Up, Up and Away
Canadian market booming, with membership doubling in the past three years
David Thomas

Strong sales and closer co-operation between businesses combine to paint a rosy picture for the Canadian franchise industry in 1996, says Don Schafer, chairman of the Canadian Franchise Association.

“Franchising in Canada is booming,” Schafer says. “The industry is worth about $90 billion, and our membership is up to about 300, which means it has just about doubled in just three years.”

At the same time as it booms, the industry is also coming together, he adds. In the past year, the Pacific Franchise Association in British Columbia and the Alberta Franchisors Institute were both folded into the Canadian Franchise Association. “The CFA is becoming truly national now,” Schafer says. Only Quebec is yet to come on board.

The consolidation of franchising organizations frees the CFA to direct its energy to advancing issued on a national front. One such issue is the notion of self-regulation.

Alberta is the only province with franchise legislation, and when it passed a new act last November, the legislation endorsed self-regulation in the franchise business. But while many franchisors have been lobbying for the power to enforce binding rulings between themselves or with franchisees, the concept is one on which few expect to reach consensus in the near future.

“It’s not surprising that there has been no movement or date toward drafting the self-government regulations under the act,” writes Ned Levitt, a franchising expert and lawyer with Levitt, Beber in Toronto. All sides would like to see some rules of self-government, but the contentious issue is who would make the rulings, Levitt says. “Is it a franchisor body, or does it include franchisees? ” he asks. “And how much power should it have?”

When it comes to the hot areas in franchising, the food business leads the pack, Schafer says. The food sector continues to be a giant and accounts for between 30% and 35% of CFA membership. “The hottest areas in food franchising are specialty coffees, delis and bagel stores,” he says. Schafer’s own company, Comac Food Group Inc., which is already into coffee with Grabbajabba coffee shops, has secured the Canadian rights to Manhattan Bagels in order to capitalize on the anticipated bagel craze.

“The hottest trends in franchising are definitely bagels and coffee,” agrees Doug Fisher of franchise consultants FHG International on Toronto. “From an industry standpoint, they have great appeal because they have a reasonably low start-up cost and they offer high margins,” he says. Fisher estimates the average costs of entry for these franchise operations at about $230,000, which can be covered by loans under the federal Small Business Act’s maximum of $250,000.

“Bagels have been huge in the U.S. for about five years now, and we’re starting to see more interest in Canada,” he says.

Bagels are selling both as a lunch alternative to submarine sandwiches and also as a dessert. With novelty-flavored cream cheeses (banana is one example) and specialty ingredients such as sun-dried tomatoes, bagels appeal to sophisticated consumers, he explains.

In addition to Manhattan Bagels, other franchises to watch for include Great Canadian Bagels (a licensee of the great American Bagel Company), Hot! Bagelworks Bakery and Big Apple Bagels.

Surveys will tell you people are drinking less coffee these days, but you wouldn’t know it by the lineups at specialty coffee shops. What’s happening is the public is after a better cup of java, Fisher says.

“They are drinking less from the pot at work and probably less at home. They are willing to pay more for quality – this is a new market.” High-profile coffee wars between market-leaders Second Cup and Starbuck’s will be a contest to see who puts out a better cup of coffee, he adds.

With its excellent margins, the coffee craze is expected to continue, suggest Colin Bradbury, publisher and editor of Canadian Business Franchise magazine.

There’s a different coffee franchise opening everyday.” Businesses selling comfort food that appeals to impulse buyers will continue to do well, he adds. “You can’t even buy a Tim Hortons doughnut franchise these days - you have to get in line first.”

But franchising holds lots of opportunities outside the food and drink sector, Bradbury says. “Overall, probably the fastest-growing area is in home-based businesses – especially in computer training, both for business applications and for children.” He cites Winnipeg-based Futurekids as one Canadian business making great headway in this new market. Futurekids offers computer centers to supply training and support specifically for the younger generation.

The Alberta market should be active in 1996 after the province softened some of the disclosure requirements in its franchise legislation, Bradbury says.

CFA president Schafer says he hears that many lawyers specializing in franchising are being inundated with requests for help to move to Alberta and set up businesses there.

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