How efficient and effective are the best franchisors in using their franchisees’ store investments?

February 25, 2015

Of the investment resources they attract, do they use them effectively or are they squandered?

Efficiency drucker

I chose some of the more “blue chip” of the U.S.-based systems and chased down their 2013 FDD (thank you the state of Wisconsin).

Preserving Franchisee Investments

Opportunism is when someone in a position of advantage, uses that position against another. In franchising, the situation that the franchisor controls the store’s sunk cost investment, can be exploited. A very good test of opportunism is: If the ownership of the assets were reversed, would the alleged “opportunist” likely change their decision?

Total Added Lost

While the 5 systems grew by 4,342 new stores (adding +$6-billion to franchisors’ coffers), there was also a loss of 1,738 stores or $2.5-billion of franchisee store investment that left the industry.

How goodHow “sticky” are franchisee investments in these systems? On average for every $1.00 of new franchisee that enters the market 42.2% was lost from 2010 to 2013.

Distance

 

Measured from the best practice level of Dunkin’ Donuts, there is some very large variation in these systems as they purport to take care of “other people’s money”.

leaky_bucket

Losing over 40% of the invested capital in 4 years? It seems the franchise industry is a bit of a leaky bucket.

  • Fairly apparent when the information is publicly available.

Kudos to the states of California, Wisconsin, Minnesota, Washington, and soon-to-be New York for their online repository of franchise disclosure documents.

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How frequently does Tim Hortons terminate their franchised stores in the United States?

February 24, 2015

Termination of a franchise agreement is the most financially devastating action a franchisor can take.

Terminations 2013

It is the “weapon of mass destruction” for mom-and-pop franchisee life savings and employment

Terminations 2012

 

Responsible franchisors avoid this too because it is such a red flag to the investment community.

Terminations 2011

It is only fair to compare it to their peer group and to best practices.

Terminations 2010ie. Tim Hortons terminated their U.S. franchisees 22.9, 1.1, 2.1, and 9.4 times more frequently than McDonald’s had done in the same year (2010 to 2013).

The frequency that the franchisor chooses to terminate a franchisee is a material fact to any buying or renewing franchisee.

Source: Information from Franchise Disclosure Documents (see for example Wisconsin Department of Financial Institutions). Free download for U.S. filed documents. One of 4 online sources.

Canadian information is unavailable because no provincial law requires these CDN documents to be (1) publicly filed or (2) put online.

Alberta, Ontario, New Brunswick, Prince Edward Island, Manitoba and soon-to-be British Columbia

Posted also on ConcernedTimHortonsFranchisees.ca.


“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.

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