Support weaker Food Chains: Help yourself by Helping Others (buy franchise-free food)

What can one person do to help?

All franchisees should support autonomy in supply when they shop for their family’s needs.

And they should encourage all their staff, relatives and customers to do the same.

Ontario has 40,000 franchisees in over 500 different tradename systems spanning fast food, petroleum, coffee, pizza: almost every vertical market. They all seem so different but they’re almost 100% the same in one aspect: the head office (franchisor) forces the local businessperson (franchisee) to buy products only through them. Sometimes the margins charged to the franchisees are extremely high, and act as a hidden franchise fee or brand tax.

Canada’s grocery industry is heavily franchised and these “tied buying” types of  provisions are usually ruthlessly enforced.

• Grocery franchises have been some of the most active franchisees in pushing for protective legislation. And they’ve been trying to do this (protect themselves AND all Ontario franchisees) for decades and decades.
• They are unquestionably leaders in franchisee advocacy.

This post follows up on a July 20th posting called Rumblings in Canada’s grocery elite: Sobeys franchisees go independent. Nine banner food stores have decided to go independent  and purchase their goods via a buying group called the Hometown Grocers Co-op.

Thanks to Sarah B. Hood at Toronto Tasting Notes for providing the specific locations of these leading former forced-supply retailers (Local Ontario Grocers Break Away From Sobey’s to Sell More Local Food).

Why not take a beautiful drive into southwestern Ontario, say hello to some true leaders and stock up on food with the following community retailers:

1. Arthur (L & M Markets),
2. Chesley (Chesley Grocery Store),
3. Drayton (Drayton Food Market),
4. Durham, (L & M Markets),
5. Elora (L & M Markets),
6. Grand Valley (Hind’s Foods),
7. Harriston (L & M Markets),
8. Lucknow (Knechtel Food Market), and
9. Palmerston (L & M Markets).

If fellow franchisees fail to support each other, we deserve to continue to pay these high hidden franchise fees that come from the monopoly franchisors force via franchise contract provisions.

Nine freer grocery franchisees should be very good news to all Canadian franchisees BUT should be supported very aggressively.

Don’t name your franchisee group after your Daddy

It’s just boring.

And a franchisee’s life is a lot of things but very frequently, boring is not one of those things

Franchisees often show zero insight into their group’s primary function (creating trust, building fraternity, co-operating) when they name their groups.

Not only do they frequently use the tradename that their franchisor owns (a bloody minefield, mate) they try to cozy up to Big Daddy Franchisor (the wise, June-loving and benevolent Ward Cleaver in this example) by a using a pseudo-corporate handle that means as little as The Suits would choose.

• Why not name it “Bob” or “Waldo” or “13”?

At least these reflect some originality and certain independent thought processes. Think what the white guys would do and don’t do the opposite: do something that is neither this or that.

• Try to stand out, ok?
• You’re kind of in the freedom business: Why not use your freedom to not tweak anyone’s nose but to support each other?
• The name is just for the franchisees’ use anyway and they’ll abbreviate it almost immediately to suit their needs anyway.

JK: A franchisee leader’s job is to throw out the toys in the franchisee group’s junior kindergarten classroom and see what everyone wants to play with.

1. Do they like blogs? Blogs it is.
2. Regional/national meetings? Those can be good.
3. Equity within co-op buying?
4. How about YouTube videos? Got those too.
5. Entries on WikidFranchise.org? Okay.
6. A facebook page? Promotional items?
7. Twitter?

The name is just the frame on the picture. It’s the activities (and the goodwill that is created) that will make or break any not for-profit social club. Not the Brand in capital letters.

Don’t get me wrong: A brand and communication expert is critical to a LFN success. They just have to be so good that they know which rules to break when they’re dealing with the Davids (and not setting up bait for the Goliaths).

For an example watch this branding problem video dressed up in 1st century Rome. Notice how ridiculous a guerrilla cell (which is the organizational equivalent of a leaderless franchisee network, btw) looks if they name themselves in a phoney baloney way.

Don’t try to out-Roman the Roman empire.

Now a logo with the PFJ might have some legs. And splitter groups are more than welcomed.

3 Things to Do [and Not] to resist Opportunism

I have been asked dozens of times what franchisees should do.

They frequently have come to me with a specific complaint that is triggered by a heavy-handed franchisor action.

Here are 3 things you should do:

1. Meet in small groups to address a single topic at a time. Maximum 5 or 6 people until the preliminary work is done. Focus on non-controversial cost reduction strategies.
2. Involve partners from the beginning right on through to the end. They have exactly 50% of the legal rights to know and can be an excellent support, sounding board and resource.
3. Pool some upfront money and get a business consultant that specialized in franchising. Have an introductory meeting and move forward based on some preliminary research focusing on justifying action on your increased future cash flow via supply efficiencies. [This type of business consulting is what I do.]

These are the 3 things you should NOT do.

1. Do not define your franchise problem as, primarily a legal problem. This anchors the discussions in a competitive, win:lose, confrontational model and distracts from creative, much less expensive alternate dispute resolution methods. The law has its place but is, by definition, your least favoured alternative (and your franchisor’s major strength).
2. Do not go and talk to a franchise law expert lawyer. By all means, talk to whatever local or regional lawyer you want to and check out your business consultant’s advice against an experienced commercial regional lawyer. Trust the consultant but verify his advice.
3. Do not be disheartened by past failures. As in any organization, there are 101 reasons for past failures but only 1 reason for success. All not-for-profit organizations go through teething stages; that’s normal. Often the longest serving franchisees will be the LAST to step up initially but they will usually come around when little victories are won.

Starting an independent franchisee Association, IndFA seems like a radical thing to do.

• But when you think of it the franchisors, bankers, lawyers, trustees (everyone else) has their associations to protect them. Why don’t you have one?

Yes. There are always franchisees willing to rat you out to curry favour with the boss. It takes time (you first have to rebuild trust), money, and the work is not equally shared by members. Lots of times people fail. But these are characteristics of every group I’ve ever been involved with in 37 years of volunteerism.

Every right is fought and paid for by somebody. You just joined an industry that buys their food at the company store, just like the miners did 150 years ago. The dignity of labour was won on the broken heads of those who chose to resist tyranny.

• Or if that’s too heavy, listen to Tom sing about the consequences of choosing a refugee’s path in life.

Refugee, Tom Petty & The Heartbreakers

We got somethin’ we both know it
We don’t talk too much about it
Yeah it ain’t no real big secret all the same
Somehow we get around it
Listen it don’t really matter to me baby
You believe what you want to believe
You see you don’t have to live like a refugee

Somewhere, somehow somebody
Must have kicked you around some
Tell me why you wanna lay there
And revel in your abandon
Honey it don’t make no difference to me baby
Everybody’s had to fight to be free
You see you don’t have to live like a refugee
Now baby you don’t have to live like a refugee

Baby we ain’t the first
I’m sure a lot of other lover’s been burned
Right now this seems real to you
But it’s one of those things
You gotta feel to be true

Somewhere, somehow somebody
Must have kicked you around some
Who knows, maybe you were kidnapped
Tied up, taken away and held for ransom
It don’t really matter to me
Everybody’s had to fight to be free
You see you don’t have to live like a refugee
I said you don’t have to live like a refugee

The Role of Equity in Franchisee buying groups

If there is one business truism, it’s Pareto’s Principle

• 80% of something comes from 20% of another thing.

Therefore, you get observations like:

• sales gurus talking about “80% of your sales coming from 20% of the number of your customers”,
• labour relations [80% of grievances — 20% staff]
• hospital errors [80% — 20% Drs.] and
• so on.

Testing Theories: This passes for management wisdom and is largely only good if you actually do some work to see how a specific situation is the same [integrates or supports a theory] or is different [differentiates itself from the conventional wisdom].

Observation: I have noticed, though, that every franchise system that I have studied has recurring patterns. One can be split apart [segmented] by annual sales volume.

There are a few very high volume operators, most are middle and a few very low sales volume franchisees.

Not surprisingly, one subset I’ve noticed is:

• the higher the volume — the more professionally run it is (ie. able to decide based on sound business analysis).

High Volume: The operators understand business better and are willing to fund and act on innovative ideas quicker and hold the course over a longer time horizon. They’re often early innovators in all areas of business: marketing, human resources, technology and cost containment.

They are also keenly aware of their dominant status among their trademark franchisees. They are deferred to by their peers and their franchisor. Their success and authority is often used by the franchisor to seal the deal on new franchisees.

For all these reasons, they have a sweeter deal financially and a greater latitude with thier franchisor when compared to their trademark peers(ie. the unwashed masses: uniformed, lower volume operators).

Current Buying Groups: Most groups that I am aware of can be split into 2 categories:

1. by industry association (ie. the Chamber of Commerce’s general insurance program) or
2. by trademark system. (ie. bunch of Tim Hortons operators use the same health and safety training contractor).

Sure they help but it’s mostly amateur hour. There is a third way that I think is much more interesting.

3. Transtrademark Buying Group, TBG: The few, high volume operators in several systems commit to buying common goods and services. In a sense, an independent franchise-only buying group administrator cherry-picks based on volume and ability to decide (rather than on what brand you belong to).

The fundamental problem with the two traditional buying group types is that they institutionalize differential free riding: The whingy low volume freak is a drag on the decision making and administrative processes for the higher volume, more competent operators.

When you bundle buying groups with advocacy (as the AAFD does), you bitch up both.

A membership or democratic model (one member, one vote)

• is fundamentally irreconcilable with

buying good and services (the higher volume = higher benefits, big fish eats little fish).

The higher volume guys (after the initial cost drop) rapidly lose interest because they are penalized for their strength [not rewarded] AND have to be associate with a bunch of weaklings who have very little to teach them.

These “two master” associations rapidly accumulate an ossified, out-of-touch  leadership, a predatory associated member class who capture the organization or/and association groupies [a species that gets their jollies from hanging out with other butt-sniffers].

It is only franchisees’ inexperience as a member of ANY group [before in their life] that they are such sheep when it comes to the strengths and weaknesses of a group of businesspeople.

• They figure it takes a couple of hours, and poof, you have a competently, well-functioning not-for profit. Sorry sport: Never was like that. Never will be like that. NFPs are different.

Irreconcilable Differences: Either you serve social justice or capitalism. Trying to do both is just silly and leads to incompetence and irrelevance. Sure the associate membership:active membership cross-subsidization allows the association to live but it lives as a castrated entity.

Equity: I think a smarter way is to reward existing competent business owners and investors with higher returns [the more the whole group buys, the more ROI via annual dividends].

A TGB should be structured as a direct investment in an independent company by several core franchisees. More can become partners but they pay a higher rate for committing earlier.

Prices would be negotiated with, say, office supply companies for a specific annual volume of business at a certain % off retail. Each equity member commits to annual volume. Results are monitored over the year and buying group members that do not live up to their volume commitments, are penalized. (This selective “opting-out” is what kills 90% of  buying cooperatives).

1. The administration of the group is covered by retaining a portion of the negotiated savings (ie. the vendor remits x% of sales of each contract to group, members of group receive, say, 8% instead of 10% as they order independently from the vendor during the life of the contract.)
2. Progressive discipline (promise v. actual buying behavior) is maintained by transparency, reports of free riding to Board, retaining portion of savings and then remitting at end of year (along with dividends).
3. Termination by Board clearly known. Adding equity partners possible.

I would much rather work with

• a few, high volume, competent operators from Brand X plus
• a few, high volume operators from Brand Y plus
• a few, high volume operators from Brand Z.

than a dog’s breakfast of operators from any one system.

If the industry had any ability to act or an instinct for self-preservation, they’d get busy developing this capacity. There’s only about 100 years of work to do before any need to address any win:lose items for franchisees and franchisors.

• NOTE: If this sounds harsh, it is meant to.

Most business  innovation dies because of a mushy, “shot gun” approach to positioning. I am much more interested in a rifle approach to innovation and then, once it’s successful, broadening it out or hiving off a related entity.

1. Custom first.
2. Mass-produced services as warranted.