“Revolutionary Decisions” happen only when franchisees persist

July 3, 2012

Canadian courts are willing to expand protections to the most vulnerable in franchising.

Very well-respected franchise journalist Janet Sparks reports at Bluemaumau.org: Revolutionary Decision against Dunkin’ Donuts Awards Owners $16 Million.

MONTREAL – In a harshly-worded ruling in favor of franchisees, a judge chided Dunkin’ Brands Canada Ltd for its incompetence, negligence, and lack of support to store owners. He then ordered the international sub-franchisor to pay the 21 former franchise owners, operating 32 Dunkin’ stores, C$16.4 million (US$16M) plus legal fees.

The lawyer for the franchisees is absolutely correct in emphasizing the need for persistence by franchisees:

Frédéric Gilbert of Fasken Martineau, who represented the franchisees, said the Tingley decision will have major repercussions on how franchisees are protected and how franchisors’ responsibilities are defined. “Justice Tingley has issued a rigorous judgment that has all the makings of a landmark franchising case in Canada. This decision will become a reference tool for setting the basic guidelines governing contractual relations between parties,” stated Gilbert.

Gilbert believes that the determination and solidarity of the group of franchisees suing Dunkin’ played a key role in this legal action. “These people courageously overcame the many negative repercussions of what has been a very long saga. They valiantly confronted the countless financial and human pressures that are often seen in battles pitting David against Goliath. Even at their weakest moment they never gave up the fight, which is all to their credit.”

While being appealed, this decision may become a landmark in franchising.

Resources


Food truck encroachment: Why sunk cost investments and change kills mom/pop franchise life savings

September 10, 2010

A legal civil war will mask franchising’s unavoidable investment flaw: opportunism arising from inevitable change.

The #1 business risk is franchisor opportunism: the self-interested exercise of contractual discretion via deceit. This one risk comes cloaked in hundreds of types.

Systemic Factors: At one time, franchisees were granted a geographic monopoly but that ‘s history, mostly. Franchisees own the majority of the assets but franchisors control the use/exit of this capital. Franchisors take $ from the top; franchisees only from the bottom. Pre-sale due diligence is irrelevant because the franchisor reserves the right to unilaterally change the model. Sunk cost chains draw off-balance sheet capital in from all s0urces of “love money”.

High-end, branded roach coaches will be franchisors’ new crack cocaine:

  1. lower capital barrier to sales (easier financing),
  2. boost total market retail sales (royalties/ad fund %),
  3. product sales margin increases (tied buying provisions),
  4. same control via central commissary innovation and tied buying to outfitters,
  5. 100% flexibility (scaled territories),
  6. streamlines process when an intentional insolvency is chosen,
  7. centralized social media promotion, and
  8. margins by contracting with a secondary space rental company (more than make up for franchisors giving up hefty lease margins).

Benefits for traditional mom-and-pop investors?

At best, a generous offer from your franchisor for you to buy 3 new trucks to replace your outdated bricks-and-mortar store.

I would suggest that billions of $  existing franchisee-owned assets just shrunk. Permanently. Never to return.

Think: Dunkin’ Donuts, Tim Hortons,  Quiznos on wheels.

Thanks for the tip, Michael.


Follow

Get every new post delivered to your Inbox.

%d bloggers like this: