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.



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”.


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.

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

Advertising both reflects and cements racial expectations.

August 29, 2012

From 1976.


Thanks to BuzzFeed.

It’s a sin tethering your life savings to easily copied core products

August 22, 2010

Jamba Juice‘s response to McDonald’s getting into their core smoothie business is clever but ultimately futile.

Problem with succeeding at 1. and 2.:

  1. create a new consumer niche,
  2. work to broaden appeal and
  3. watch as THE corporate ideology gobbles it up.

The erosion of franchisee-pioneers’ sales are no laughing matter for Jamba Juice or all the other smoothie-dependent investors.

Equity in business: Who wants to buy you out of your death-struggle with a nearly-unassailable, cultural icon with an almost perfect record of supply management brilliance ?

Pure martyrdom.

Woman found guilty of planting rat in meal at Wisconsin restaurant

January 28, 2010

Barfblog is funny. I think, anyway.

Card scammers lift ++$50 million from AUS McDonald’s customers

January 21, 2010

Reports coming of large scale debit card scams from October 2009.

Banks are not required to report fraud occurrences publicly.

Watch the video

News item: January 20, 2010, Maccas EFTPOS scam

An international crime gang is targeting fast food stores in Queensland, stealing EFTPOS terminals and cleaning out accounts.

Quote from a cop:

Happy days for the crook and sad days for the victim.

Other Austrialian news reports:

1. Bank blocks 10,000 banking cards after EFTPOS scam revealed

A McDonald’s spokeswoman remained tight-lipped about how many of its EFTPOS machines had been compromised.

“We can’t discuss any details of the investigation,” she said yesterday.

A security upgrade of McDonald’s EFTPOS terminals across the country had been completed the week before Christmas, she said.

The upgrade followed attacks on McDonald’s outlets in Perth last year.

2. EFTPOS scam reports ‘disturbing’: Rudd, Prime Minister Kevin Rudd has described reports of a nationwide credit card skimming scam as “highly disturbing”.

NSW Police say every Australian capital city and some regional centres have been hit by the scam, which has netted more than $50 million in NSW alone.

Six people have been arrested in NSW in relation to the scam, which police say involves criminals committing armed robberies to get hold of EFTPOS machines.

3. Crims rip off $50m in Eftpos scam

Fraud squad investigators say the criminals have ripped off Australian cardholders for at least $50 million.

NSW Police Strike Force Wigg told the Daily Telegraph that 50 members of an Asian-based criminal gang had been identified as “persons of interest”.

Detectives say the skimmers were mostly operating in all capital cities and in major rural centres.

Franchising & Folly platform: Own vs. rent an Idea

September 24, 2009

SethGodinThe more I read about Seth Godin, the more I like his approach.

His post today (The platform vs. the eyeballs) is about owning platforms versus renting eyeballs.

Old media was not the same as old branding. Media companies built audiences and then brands rented those audiences.

Suddenly the new media comes along and the rules are different. You’re not renting an audience, you’re building one. You’re not exhibiting at a trade show, you’re starting your own trade show.

If you still ask, “how much traffic is there,” or “what’s the CPM?” you’re not getting it. Are you buying momentary attention or are you investing in a long term asset?

I only invest in what I own.

This is what I have been doing with this blog (FranchiseFool) and

That there is an element of foolishness in franchising is apparent to everyone in the world except the industry’s elite. Their lack of humour and intensity signals their unreasonableness much more than I could ever do. They’re phoney-baloneys: it’s true. But they prove it themselves to 3rd parties by their rigidity and inability to take a joke.

I would extend Godin’s McDonald’s analysis to all modern business format franchising when he says:

(Compare these examples with McDonald’s, a company that continues to rent eyeballs for a high price and has no real platform to speak of.)

McDonald’s and the industry just don’t get it: faking sincerity won’t work with internet savvy consumers.

Tribes are looking for authentic voices and leaders to solve real problems.

McCruelty: Protesting animal slaughter methods

September 22, 2009

McCrueltyMartin Short is a comic genius.

Andy Dick joins in in this PETA campaign.

I must say.

AUS Inspectors watching McDonald’s low-income pricing

February 26, 2009
CEO Catriona Noble,

CEO Catriona Noble,

FranchiseFool broke into North America this story, earlier today: McDonald’s: Lovin’ the Profits while Targetin’ the Poor.

Leaked confidential papers (confirmed by an anonymous franchisee) indicates that McDonald’s will increase their food prices, disproportionally in lower-income communities.

It seems their research shows that the poorer someone is, the less likely they’ll complain or switch to other quick service restaurants.

ABC News reports in Inspectors to watch McDonalds pricing that at least one state government does not appreciate the use of so-called demand-based pricing by the multinational:

The South Australian Government has fast food chain McDonald’s in its sights over news of a new pricing structure.

It says the food chain must reveal whether it plans to raise prices at selected restaurants, especially those in some lower-income areas.

In the accompanying audio clip, SA Consumers Minister Gail Gago is quoted as saying, if the reports are true, McDonald’s is behaving in an “incredibly appalling and disappointing” manner and she suggests consumers may want to communicate directly with McDonald’s on this matter.

In another article, McDonald’s CEO, Catriona Noble seems to be saying that income levels relate to restaurants and not to citizens and that somehow increasing prices, increases consumer choice:

…prices were not based on socio-economic factors but rather on a restaurant-by-restaurant basis, with customer price sensitivity measured at different outlets.

“We really let the customer speak,” she said. “And that’s exactly what customers have the right to do. (They can say) ‘hey, that price increase is too much for me to handle and I’m going to come to you less often.”

I know of no other metric other than mean household income for price sensitivity.

Ms. Noble could have cleared this confusion up by simply stating that household income is not used for marketing purposes by this corporation. But that may have created a certain legal vulnerability.

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