Experts serve up hot trends for ‘99

Two years ago, British Columbia’s labour relations board ruled that the White Spot restaurant chain’s franchise agreement exercised so much control over franchises that it made the company a “common employer” with its franchisees…it’s a sign of the times that franchisees are more vocal, better prepared and less intimidated than they once were.

The Globe and Mail
December 29, 1998

Experts serve up hot trends for ‘99
Concepts in the food industry are getting stale, fresh ideas are growing in the service sector and much of the action on the franchise scene may happen in the courtroom, observers say.
John Southerst


Waiter Manny Delaveris delivers the goods at Montreal chain Eggspectations, one of two breakfast-only food franchises looking to translate Quebec phenomenon into success in other markets.

The food industry is strangely silent on the topic of new products. Most fresh ideas are coming from the service sector, especially among franchises that serve other businesses – and other franchises.

The scene continues to attract lots of people – young entrepreneurs, experienced but downsized corporate veterans and increasing number of women.

With more education and business acumen, these investors are less likely to yield ground to aggressive franchisors. Faced with a proposed law in Ontario that may change the environment across the country, franchising is poised to enter a new era of confrontation.

Here are some best guesses from industry watchers regarding the outlook for franchising in 1999:

Here’s a trend that’s new to the fast food sector: No trend. The popularity of bagels, wraps, coffee and yogurt has leveled off. Pizza and submarines are not the money makers they were in their salad days.

Instead, the masses are gathering these days at burger stands, chicken grills and steak houses, according to Toronto food industry consultant Douglas Fisher. “Consumers feel they’ve experimented enough,” he says. “They just want familiar food in big quantities.”

What’s not being welcomed back are the suspicious textures and traditional condiments of the past, he adds. “Upscale hamburgers and hot sandwiches will be the next wave,” Mr. Fisher says. “There will be interesting variations of the old favourites – vegetarian burgers, lamb, veal and pork paddies. I think you’ll see high quality gourmet hamburger places make a strong appearance.”

One reason why burger and chicken chains are growing despite their near-saturation of street-front locations is their successful foray into unconventional venues.

Franchisors have infiltrated buildings and institutions where crowds gather: hospitals, airports, factories, warehouse stores and universities, for instance. Customers in these places want familiarity in their food, not experimentation.

This is great news for the old guard, such as McDonald’s. The good news for consumers who balk at paying premium prices in some of these specialty locations is that relief is on the way. Word is that all of the bidders or Toronto’s new airport terminal, for instance, are offering brand-name restaurants at street-front prices.

The most important meal of the day gets special attention in Quebec, and two breakfast –only franchisors are hoping the habit catches on in Toronto and spreads throughout the country.

With average sales of $2.5 million for five Montreal restaurants, a Montreal chain called Eggspectations serves eggs every way you can imagine. It won a food services and hospitality industry award this year.

Chez Cora Dejeuner is also investigating the idea of bringing its broad menu of crepes, French toast, omelets and juices to Toronto. There are 28 Chez Cora franchises in Quebec. Both Eggspectations and Chez Cora open early and close midafternoon.

Take the continued drive within business and government to cut labour costs. Combine it with the low overhead of home-based businesses. You get a boom in business-to-business franchises that either perform outsourced non-core services or provide background assistance to those that do.

Document shredding, cleaning services, sign and graphics shops, for instance, are flourishing in the first category. Copying services, print shops and accounting firms fall into the second.

Business-to-business franchising in coming into its heyday. “There are more customers out there for anyone who services business,” Toronto franchise lawyer Ned Levitt says. “Any business that could serve business and government needs that were previously served in-house can do well.”

Now that just about everyone has had some Internet experience, it has become fairly obvious what’s lacking among certain Internet service providers (ISPs): uniform levels of service, a national network and standardized training for support staff. Sound like an opportunity for a strong franchised system? The idea makes sense to at least a few successful ISPs in both Canada and the United States. They are pushing the franchise concept into this new market.

Don’t underestimate the effect of Ontario’s proposed franchise legislation. It’s not a blockbuster bill that would shift the balance – or imbalance – of the average franchise relationship. Instead, it’s a sign of the times that franchisees are more vocal, better prepared and less intimidated than they once were.

The proposed law marks a turning point for franchising, because small franchisors with any aspirations beyond a narrow regional focus will have to comply regardless of where they begin. At minimum, they will have to provide honest information up front.

The inside betting is that franchise lawyers will be testing the law’s limits in the courts almost as soon as it hits the books. “We’re going to see more litigation based on misrepresentation in the disclosure documents,” Mr. Levitt says. And don’t be surprised if another focus is the controversial “fair dealing” clause that could apply to the franchise relationship beyond disclosure.

There will be other action on the courtroom front, in part related to the new legal avenues and franchisee bellicosity. As electronic commerce, or E-commerce, enters the popular vocabulary, the Internet will resurrect and E-word that’s familiar to franchising: encroachment.

Franchising is essentially a means of expanding a business and distributing product. The Internet is an increasingly viable alternative means of distribution, and some lawyers are predicting that franchisees will soon be raising the alarm that their own franchisors who sell products over the Internet are competing unfairly with them – which is the definition of encroachment. Especially vulnerable are educational, video, photo-finishing, printing and travel franchises.

“The law is clear that franchisors can compete against their franchisees as long as it’s in good faith,” Toronto franchise lawyer Paul Jones says. How can they compete “in good faith” with their own business partners? Expect the answer from a legal fracas coming soon to a courtroom near you.

While infamously restrictive franchise agreements are still the norm, some franchisors are presenting a more permissive image, allowing their franchisees flexibility in their choice of suppliers, scheduling and other operational matters.

They may be hidden reason for this, according to Vancouver franchise lawyer Tony Wilson. Two years ago, British Columbia’s labour relations board ruled that the White Spot restaurant chain’s franchise agreement exercised so much control over franchises that it made the company a “common employer” with its franchisees.

Unionized workers in a single franchise could therefore negotiate with White Spot for better wages and conditions that would have to be extended more broadly. (A subsequent decision involving a KFC franchise took an opposite course, but it is being appealed.)

“There’s a line between too much control in the franchise agreement and too little,” Mr. Wilson says. “Sometimes, less is more.”

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Risks: Fear, Internet, Franchisees viewed as employees, Franchisees more willing to speak up, Encroachment (too many outlets in area), Misrepresentations, Canada, 19981229 Experts serve

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