Ron Greenwood Public Hearing Testimony

Mr Martin: Does the name Ed Barge mean anything? Mr Greenwood: Oh, it sure does. Yes. Mr Martin: We had him before us on Monday. Thank you very much.

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Legislative Assembly of Ontario
March 8, 2000

Public Hearing Testimony
Ottawa, Ontario, Canada
Mr. Ron Greenwood, franchisor

Standing Committee on Regulations and Private Bills
1st session, 37th Parliament

FRANCHISE DISCLOSURE ACT, 1999
Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors

ALGONQUIN TRAVEL CORP.

The Vice-Chair: Our next speaker will be Mr Greenwood from Algonquin Travel.

Mr Ron Greenwood: Good afternoon, ladies and gentlemen. Thank you for providing me with an opportunity to address these hearings. My name is Ron Greenwood. I'm president of Algonquin Travel Corp. I'm a graduate of Ryerson Polytechnic Institute's chemical engineering program and Wilfrid Laurier's business and economics program.

In 1967, I joined Imperial Oil Ltd and worked on the Esso service station franchise program. In 1971, I purchased an E.K. Williams bookkeeping and accounting franchise as a franchisee. I successfully operated that franchise, becoming the largest franchisee out of more than 30 franchisees in Canada, and sold that business in 1978. In the same year I joined Algonquin Travel Corp, and today I'm responsible for all aspects of the efficient, profitable and successful operation of Algonquin and its related businesses.

During my tenure in the travel industry, I've been fortunate to hold numerous positions serving the travel industry and the franchise communities, including sitting on the provincial and national boards of the Association of Canadian Travel Agents. I co-chaired the Ontario travel industry self-management steering committee, which led to the formation of the Travel Industry Council of Ontario, or TICO, and was a member of the first TICO board. Most recently, for the past two years, I chaired the board of the Canadian Franchise Association and now remain on that board as past chair. Having shared that knowledge of me, I will proceed to share with you my views about the proposed legislation.

My presentation to you today is as president of Algonquin Travel Corp, an interested and concerned franchisor doing business in Ontario and that other regulated province, Alberta. As such, I trust that you'll find my input on the draft legislation relevant to the committee's consideration.

Algonquin Travel has about 80 franchised travel agency locations across Canada, of which about 50%, or 40, are located within the province of Ontario. With more than 30 years of franchising experience behind me, I am strongly in favour of the proposed legislation. For the past eight years, we've provided full disclosure to all of our prospective franchisees. It was the law in Alberta and, latterly, a requirement of membership in the Canadian Franchise Association. Our experience at Algonquin is that full disclosure provides the prospective franchisee with all of the information that is required to make an informed decision, includingvery importanta list of all the franchisees; past litigation and franchisee terminations, if there are any; a detailed description in lay terms of the franchisee obligations and commitment to the franchise system; and the financial status of the franchisor.

Additionally, the proposed legislation proposes fair dealing and the right of all franchisees to associate and communicate with one another. To go beyond such disclosure at this time is unfounded and without justification. Alberta found that more rigorous legislation was unworkable and unjustified and was subsequently simplified to today's disclosure style of legislation, in form similar to that being proposed by the government of Ontario.

As a responsible franchisor, we absolutely need franchisees to be successful. We've had failures and the consequences have been very significant—almost bringing down my chain in the early days. Franchisees are both an asset and a liability. As an asset they commit their time, dedication, capital and enthusiasm to help build our system. On the liability side of the equation, we entered into significant contracts to support each franchisee. We have a very significant commitment to each of our franchisees, as follows.

We head-lease almost all of our premises. A failed franchisee is a significant liability. We've lost money on every failed franchisee, in most cases more than the business was ever worth in the first place.

We have a fiduciary obligation to our customers and our franchisees to guarantee, to the best of our ability, that each of the customers receives the quality and quantity of services contracted for. A failed franchisee is a significant liability costing us money that is usually not recoupable.

Most supplier contracts are in our name and suppliers demand payment if the franchisee cannot pay. Non-payment will result in a demeaned relationship with that supplier and degrading the entire Algonquin system.

Our franchise support centre has significant human and technical resources to meet the needs of operating franchisees to support the system.

Our bankers require a "soft" letter of comfort for all Canada Small Business Financing Act types of loans, stating that in the event of a failed franchise, all proceeds realized on the resale of the franchise will be first used to retire bank obligations before any funds are used to offset indebtedness to our company.

In summary, I reiterate that we need happy, successful, profitable franchisees. If we have unsuccessful franchisees, it's very expensive, cumbersome and time-consuming to get these people out of our system. The proposed legislation will help to create a fair, informed and balanced environment for both the franchisee and franchisor.

Legislation can never be a substitute for doing your homework before you make a decision to purchase a business. This legislation sets a solid foundation for any entrepreneur who is looking to make an educated decision about investing in a franchise. The government's draft legislation sets out fair and reasonable disclosure requirements. The legislation will have the greatest impact on new franchises being sold in Ontario, by requiring all franchisors from now on to provide the level of disclosure that the very best franchise systems already disclose. Disclosing all of the necessary information needed to make an informed decision before any agreements are signed, combined with a cooling-off period, will ensure that the franchisees are able to make sound business decisions in selecting a franchise system. I urge you to pass this long-overdue legislation.

Perhaps just a couple of comments because I haven't really heard very much from franchisors in these hearings, certainly not today.

Some of the examples of losses: My former partner and I feel that over the last 20 years we've lost about $2 million in failed franchisee-type operations. It's not insignificant for a small operation. To put that into perspective, my total gross revenue in my system today, not the sales of the system but the revenue coming into my company, is about $4 million a year. We actually budget right now more than $100,000 a year for failed franchisees; that's only one, maybe two, out of a system of 80-plus franchises.

I'll give you some examples and I'll be right upfront. Cadillac Fairview, Portage Place, Winnipeg, Manitoba: We lost $150,000 when Cadillac Fairview built kind of a Taj Mahal, a very deluxe operation akin to the Eaton Centre in Toronto, the Rideau Centre here in Ottawa. It didn't work very well. We were on the hook for a 10-year lease. The franchisee lasted a year and a half or so and ended up relocating outside of there, and we had to eat that lease because that place was not rentable. A deluxe facility.

I had another franchisee that was with me for 11 years, absolutely an impeccable franchisee. Something went wrong. Two years ago at Christmastime, he stopped paying some of his suppliers. I found out about it at the end of January, started taking action in February, and by the end of March he was into the system for almost $300,000. I ended up losing $75,000. Never could refranchise that facility; lost it all.

I had another franchisee, another one in Manitoba—I don't know; it must be the air out there—the fellow ran into some marital problems and drinking problems and they installed one-armed bandits. This fellow was in a cash-rich business, had been with me for seven or eight years, was a model franchisee during most of that period of time. He started taking the cash from this business and it just didn't make it to the till or the bank. He ended up going out of business, and we lost $65,000 and could not refranchise that facility. All the business had been driven away.

I guess the point here is that each franchisor has a significant investment in each one of the franchisees; it's not a case where the franchisee pays everything and the franchisor collects the money. That is absolutely not the case. In our own operation, we feel that we have invested at least 50% and perhaps 100% of the money that each of the franchisees has invested on a per-facility basis. We have a very significant investment in our operation and we need those franchisees to be successful.

I could go on. Over the course of 20 years, we have perhaps 25 or so failed franchises. We were at 100 at one time; we actually sold off some of ours to a competitor because they were too small, but maybe 25 failures out of 100 over the course of 20 years. Each one hurt a lot. I believe this legislation goes a long way to disclosing adequate information to all of the prospective franchisees, and I hope it will add a fair level of integrity to the franchise community here in the province of Ontario.

The Vice-Chair: Thank you, Mr Greenwood. The first questions are from the PC members. Mr Gill.

Questions

Mr Gill: Thank you, Mr Greenwood, for coming here. A couple of times it was mentioned today that nothing is forever. You did say that you have a disclosure agreement of some kind when you talk to your franchisees. In the new one that you supply these days, does it have any clause about this e-commerce coming in and the Web tickets and whatever else is going on in your industry?

Mr Greenwood: Actually, it doesn't, and that's a very good point. You try to have agreements that encompass everything; three years ago we really couldn't see much about e-commerce, and some of our agreements—the initial term is 10 years, renewable for another five and another five. We're right in the heart of e-commerce country, and before I came here today, the full three hours was spent on a new booking engine for our system. We couldn't have anticipated that three years ago. We have just rolled out state-of-the-art technology this year at a cost of about $2.5 million to our small system.

I can tell you, yes, I've got 20 or 25 franchisees that are very anxious about it. Maybe I have more that are anxious, but 20 or 25 that are reticent about committing to this new technology, so much so that they have kind of steered clear of it so far. It's just a scary environment.

Before we started rolling this out, we did a lot of homework. We were led by some very savvy people in the industry, and I think we've got a very cost-effective, state-of-the-art program that will take our franchisees into the new millennium. I'll tell you, they'll be head and shoulders ahead of 95% of the people in the industry. But still, I've got 25 guys who say, "Don't need it; don't want it; afraid of it," and my job is to convince them otherwise.

Mr Gill: Under your system, who holds the actual licence, the retail licence?

Mr Greenwood: The franchisee is licensed by the province of Ontario, and he also holds an IATA licence by the International Airline Transport Association to issue tickets.

We hold all of the leases. We hold all the technology contracts. In fact, to get the technology we were just talking about, I had to co-sign a blank guarantee with the leasing company such that if any of the franchisees failed, I had to pay. Similarly, our technology contract, which is about $7 million over a three-year term, I had to guarantee. It's one contract for the entire system.

Mr Gill: In your mind, from what you've just explained to me, you pretty well are already doing these things that are encompassed in Bill 33.

Mr Greenwood: Yes.

Mr Gill: The right to associate, the disclosure agreement—

Mr Greenwood: Yes.

Mr Gill: So you support that.

Mr Greenwood: Yes, I absolutely do. I think what a lot of people are missing here is that we're still in a commercial marketplace and if all prospective franchisees have access to or knowledge of your existing franchisees, it's incumbent upon those prospects to talk to the existing franchisees to find out what the relationship is, because no matter how thick that document is, whether it's one inch, five inches or whatever, you can't have everything in there and more knowledge is gleaned from talking to a handful of existing franchisees than we can ever put in our promotional literature.

Mr Martin: You talked about the experience of Alberta and how the legislation there to some degree didn't work, so they backed off. In the work that I had done to compare various jurisdictions and the legislation they have in place, under "fair dealings" and under "enforcement mechanisms" or bodies in Alberta, they committed in their bill that a self-governing body be appointed by the Lieutenant Governor in Council to promote fair dealing among franchisors and franchisees to cover both issues. To date, no such body has been appointed. Would that have anything to do with the fact that their legislation isn't working?

Mr Greenwood: No. In fact, fair dealing is quoted. If you have any potential litigation or a statement of claim, fair dealing is mentioned in every single one them, to the best of my knowledge. So "fair dealing" is an issue in Alberta and, to the best of my knowledge, it is expected to be abided by, although there is no definition of "fair dealing."

Mr Martin: I'm told that in Alberta the number of cases hitting the courts is still as high, if not higher, than it was back before the legislation was actually passed.

Mr Greenwood: I don't have any empirical data to that.

Mr Martin: OK. Just to make the point that so far that body in Alberta hasn't been appointed.

Mr Greenwood: Just in Alberta. Before this reduced legislation came into effect, we had to charge prospective franchisees about $10,000 more than we did in Ontario just to cover the costs. The costs in Alberta were prohibitive.

Mr Martin: You mentioned also in your deputation that you make available to prospective franchisees a fairly complete disclosure statement, including the name of former franchisees. Do you have former franchisees out there who have a confidentiality clause attached to any agreements you made with them?

Mr Greenwood: All of our franchise agreements, of course, have confidentiality clauses, but nothing that would restrict them to talk about business in general. They couldn't disclose trade secrets, the way we do business and that sort of thing, but general comments and questions about the franchise system are fair game.

Do you mean whether there was a settlement of some sort? Of course, if you had some sort of unique one-off type of thing and you made a settlement, both parties would sit down and negotiate that and you'd arrive at some sort of amicable conclusion and you'd sort it out.

Mr Martin: But that person would be out there, not able to speak to prospective franchisees about that particular circumstance or situation.

Mr Greenwood: Perhaps about the one isolated incident, but they could talk generally about the franchise system and their experience within that system, and they do.

Mr Martin: Does the name Ed Barge mean anything?

Mr Greenwood: Oh, it sure does. Yes.

Mr Martin: We had him before us on Monday. Thank you very much.

The Vice-Chair: Mr Greenwood, thank you very much for your time today. We appreciate that.

This document is a verbatim copy of this witness’ oral testimony. To review the original transcript: http://www.ontla.on.ca/web/committee-proceedings/committee_transcripts_details.do?locale=en&Date=2000-03-08&ParlCommID=1&BillID=&Business=Bill+33%2C+Franchise+Disclosure+Act%2C+1999&DocumentID=19724#P667_244953

Copyright (c) 2000
Office of the Legislative Assembly of Ontario
Toronto, Ontario, Canada


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Risks: Ontario Public Hearings, Canada, 2000, Canadian Franchise Association, CFA, Lease controlled by franchisor, Government guaranteed loans, Internet, Tony Martin, Gag order (confidentiality agreement), Canada, 20000308 Ron Greenwood

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