Associations: Evolving and here to stay

But the experts agree on one thing: Franchisee associations are here to stay. Franchisors should look at them with less of a jaundiced eye.

Franchise Times
September 1, 2001

Associations: Evolving and here to stay
Mary Jo Larson

Conflict. It’s as old as Adam and Eve, Cain and Abel. And now, thousands of years later, we still deal with it every day. Geeeez. You’d think we’d learn something, wouldn’t you?

Well…we’ve learned a few things – like, giving in to temptation always has strings attached, and that if you fight with your brother the best path to resolving it isn’t to kill him.

Conflict is part of franchising, too. (Tell you something you didn’t know, right?) Because of that, individuals have struggled to come up with ways to deal with it. Lo and behold, organizing has been one of those ways – thus, the franchisee association.

According to franchise attorney Joe Shumacher, partner with Fisher, Schumacher & Zucher in Philadelphia, in 1992 there weren’t even 30 franchisee associations. Today, there are 250. Conclusion: There must be something to this.

The cause
Although they are not carrying “Hell no, we won’t go!” signs, franchisee association members are not unlike the protesters from the ‘60s: They are people usually brought together to fight for a cause, or a perceived injustice.

“Often, some franchisor conduct has led to the formation of the association,” said Schumacher.

“New associations tend to form around a specific issue or crisis,” agreed Eric Karp, attorney with Witmer, Karp, Warner & Thuotte. “That galvanizes franchisees into creating a franchisee association.”

In a paper written for the International Franchise Association’s Legal Symposium this year, (“Effective Relationships with Franchisee Associations – Legal and Practical Aspects”), Schumacher cites the case of CD Warehouse. In January 2000, franchisees banded together to voice concerns that the franchisor was spending too many resources for Internet and company-store development – at a perceived detriment to the franchisees. In this case, the association put a moratorium on new store development by its members to exert pressure on the franchisor.

Also in 2000, a group of Mail Boxes Etc. franchisees formed the Independent Association of Mailbox Center Owners (IAMCO), alleging that the franchisor did not adequately address franchisee protests to changes in the franchise system. To make a long story short, IAMCO ended up taking its allegations to the IFA’s Standards Committee, which reviewed them and MBE’s response. The Committee concluded that the franchisor had not violated IFA’s Code of Conduct.

Franchise attorney Michael Hankes, who represented a group of Meineke franchisees, not the association, in their high-profile battle with the franchisor over their new contract, said that “collective action was very effective in that case.” The association and other franchisees who participated in negotiations now have a more positive dialogue going with the franchisor.

So after the conflict is resolved, what then? The franchisee association usually evolves to meet other needs of the members, said Schumacher.

Going beyond conflict
“I can only relate to our association,” reported Steve Lewis, Burger King franchisee and a leader in the National Franchise Association (NFA), the independent franchisee association for the system, “but ours was developed in an effort to unit the franchise community in having a voice, a single voice to the franchisor. There is tremendous power in size. But it had evolved into much more than we anticipated.

“We’ve created a political action committee, a government affairs committee, insurance member services committee – those committees have really been instrumental in delivering tangible results to the franchisees,” he said. Everything from manager training to insurance issues are covered by the NFA.

“These were developed because of what we weren’t getting from the franchisor,” said Lewis. Ironically, some of the training programs initiated by the association have been taken up by the franchisor.

Lawrence “Doc” Cohen, a Great American Cookie franchisee who once headed the franchisee association for that system, said that their group grew more positive over time. “We evolved from a group that complained all the time to a group that became very constructive. Complaining and criticizing are fine, but we decided we needed to be more positive an objective about what we were doing.”

Cohen’s association started as an advisory council, a group usually put together by the franchisor. The franchisor relies on the advisory council to bring voice to the “franchisee” opinion on various issues.

“We had outgrown our advisory council,” said Cohen. “We had a great relationship with Great American, but we wanted to have the ability to form a co-op so we could buy equipment cheaper; we could band together to buy marketing, etc. As an advisory council, we had no resources.” Once the franchisor saw that the association was not there to “threaten,” he said, they formally recognized the group.

“There is a process of maturity franchise systems undergo,” said Hankes. “So that if perhaps the motivating force behind the formation was that there was a serious problem, that doesn’t mean down the road that that is the same issue.”

What about advisory councils?
As Cohen stated, the franchisee advisory council usually doesn’t have any resources. They don’t have members paying dues – in fact it is a committee usually hand-picked by the franchisor to give them the franchisee viewpoint on various issues.

“Franchisee advisory committees are usually a franchisor-sponsored and controlled association,” said Karp. “Most do not have their own budget, and are not empowered to hold meetings outside of the franchisor. I feel that takes away any meaningful role. The franchisor is properly equipped with the best legal and other talent available.” That usually isn’t so with an advisory committee, making it an unbalanced proposition, he said.

Some view the franchisee advisory committee in a different way. “If your objective is to work together, grow the ad dollars, put in new sites, grow the system, if that is your objective, I can think of no more unified way than a franchisee-elected advisory council,” said Todd Recknagel, a Blimpie’s franchisee and sub-franchisor. Recknagel, a member of the Subfranchisor Advisory Council (SAC) and the National Franchisee Advisory Council (NFAC) added that “if you have a great system, the independent associations are a waste of time.”

“If your objective is to block the franchisor, stop encroachment, or some other issue, then an independent association might be the way to go,” he said. “But then the problem is that you’re not working with your franchisor anymore.”

Rechnagel’s advisory committees have worked with the franchisor on such issues as the advertising fund, and have met with success. Previously, the two percent of the four percent ad fee went to national advertising, while two percent went to local advertising.

“We had seen the effectiveness of our ad dollars spent on local TV,” he said. “We thought that rather than have Blimpie buying spots on ESPN, we would be better off having us buy the advertising where our stores are.” The advisory committees proposed this to the franchisor, who after some compromise bought into the idea.

After 14 months of an 18-month test run, “we’ve had the highest comp sales increase we’ve had in a long time,” he said.

Mike Leven, president of U.S. Franchise Systems, had no franchisee association. In fact, they go out and beat the drums of consensus themselves, so as to ensure the franchisees see change as good and necessary.

“In our franchise agreement, it states that the franchisor cannot change a standard in which the franchisee would incur substantial expense unless we have 66 percent approval by the franchisees,” said Leven. “As a consequence, we need to get the votes of the franchisees and we do go out into the field with ballots.”

Advisory council or franchisee association, it pays for the franchisor to communicate with franchisees. “If you bring franchisees into the process,” said Cohen, “you are probably going to get there quicker.”

But the experts agree on one thing: Franchisee associations are here to stay. Franchisors should look at them with less of a jaundiced eye.

“An association doesn’t have to be viewed as a death knell,” said Cohen. “It should be viewed as an asset.”

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