McDonald’s: Lovin’ the Profits while Targetin’ the Poor

February 26, 2009

mcdlogoInflation is, what, at near 0 %, if not projected to go negative in 2009?

A world-wide economic recession lasting one to two years is the most optimistic outlook.

And how do the masters of franchising, globalization, and supply efficiencies respond?

They not only identify those they’ve identified to be least able to resist (ie. the poor) but increase prices to those communities.

Some could be consider this a blatant opportunistic  predatory pricing scheme by a brand bully.

Kudos to http://www.news.com.au and  Frances Stewart in Australia for an article called McDonald’s to charge more in poorer suburbs.

McDONALD’S is lifting prices in poorer suburbs where it believes consumers are more likely to accept higher charges without complaint.

Costs were previously based on restaurant overheads and ingredient prices.

But the multi-national fast-food chain is using socio-economic factors to determine charges under a new “demand-based pricing” scheme.

I love Australian franchisees because you know where you stand:

A McDonald’s franchisee, who asked to remain anonymous, said the biggest price rises were concentrated in low-income areas.

“In general, the poorer suburbs will pay more,” the franchisee said.

An accompanying television clip (see McDonald’s rip-off) says that McHappy meals will increase by 16.5%.

And how is this affecting McDonald’s USA where the profits eventually go? Here’s a sample of headlines about Oakbrook’s 2008 results:

I wonder what role “socio-economic factors” and “demand-based pricing schemes” have played in differential within North American communities?

In Canada, 1 in 5 children live in poverty.


Class System: Aware it’s a rigged Game (yes or no)?

December 29, 2008

rouletteThere are two types of people within the business format franchise industry:

  1. those that know [have awareness] that franchising is a con game that pays out like a crooked roulette wheel [pre-determined payoffs to maintain the illusion of a level game] or
  2. those that think it has primarily to do with franchisee hard work, pre-sale due diligence, etc.

The complication is that Class #1 include:

  • control next to 100% of billions of investments,
  • allies of the greatest authorities in every country and internationally (ie. the state, banks, franchise bar, etc.),
  • legions of graduates from the world’s best universities (education must mean adherence to the truth, right?),
  • the most handsome (and therefore presumed good),
  • and have all the trappings of financial success (which #2 assumes that they will be successful by association).

The few former #2 who have become traitors to Class #1 (ie. aware but not profiting from the status quo) and are stilll talking are cranky, paranoid, broke, rude and cynical.

An accurate observer, however, concludes the following: Financial failure or success in business format franchising is mostly luck.

  • But you get a chance to pull the slot machine’s arm, right? Make you feel luckier, doesn’t it?
  • It re-distributes wealth; it has long since stopped creating wealth [90% of the time this statement is 100% true; the 10% where it is false has nothing to do with skill, it has to do with luck).

There are winners but, despite the spin, they have the skill involved in picking the winning lottery ticket. Don’t tell me about the 30 year McDonald’s franchisee: they don’t make those agreements anymore.

BS Differentiating Characteristics

1. Intelligence: Notwithstanding the name-calling, those that lose at franchising are often the smartest ones in the orientation class. The ones forced to the wall often are the ones that realize the game, after they sign and try to rally the troops. Communication skills, persistence, credibility and curiosity are the a sure ticket to franchise bankruptcy.

2. Lack of Adequate Pre-sale Due Diligence: simply an excuse for industry apologists using hindsight bias to force silence via shame. Believe me I’ve met lots of “successful” franchisees who did zero due diligence. Everyone admits that DD is impotent against franchisor opportunism which is played out in 1,001 seemingly random ways.

3. Laziness: Franchisees work like hell and only usually collapse when they hit their own personal wall of mental, physical and financial limits. It takes a long time to learn this foreign language (franchise jargon).

4. Most success is within Franchisee’s means to Control: Almost all of the decision making is taken via the franchise agreement. Tough to argue both sides of an argument at the same time (ie. Franchisee is 100% responsible while franchisor has 100% control of assets). So one-sided that some franchise agreements have been declared an employee:employer relationship by U.S. state Courts and labour departments.

5. Deceit, Gag Orders, Shame, PR, Failure to Acknowledge: Why does the industry spend so much time controlling information (gag orders, use of shame, SLAPPs, 3 Wisemen on Blue MauMau, counterspin, undue legislative influence, lobbying, etc.) when they could simply commission credible academic research to prove that franchising is a legitimate business?

Their failure to fund (which they can clearly do) and hand over information to independent researchers indicates that they want to suppress [not advertise] independent, verifiable, accurate success rates. They are, in a sense, judged guilty by the actions that they choose to avoid.

  • #1 know that their dominant position is fueled by a crap shooting machine, at best.

That you have yet to join that class, speaks of your level of awareness. That’s all.

  1. Persist and continue to ask very simple questions and you will have your eyes opened. And you can teach everyone in your family, too. [Each person knows 250 people so they say and that there are only 6 degrees of separation between all of us on this planet.) OR
  2. Refuse to challenge the conventional wisdom, and continue to be cannon fodder (and descendants) for V2.0.1 of the next scam.

Your choice.


Silencing dissent via Humiliation

December 1, 2008

hismastersvoice1

When you are a franchisee, you quickly learn what is and is not allowed to be said in public.

It goes like this, you can talk publicly:

  • 1,000 hours about increasing your sales but
  • 0 hours about how to increase your profits.

Those are the basic rules (norms, standards) of every trademark system that I have known.

These cultrual values are expressed during the regional and national meetings. This is what the meetings are principally for: the reinforcement cultural values within a group via a type of public demonstration or play.

Franchisors are very attuned to attitudes of dissent. They separate franchisor-friendly behavior which is rewarded and detect of franchisor-unfriendly attitudes and behavior which is punished.

  • They teach the new franchisees what is and is not to be said and done.
  • They encourage mentorship of new franchisees from someone who is “on the team”

One of the ways of showing the master’s pleasure is through the always-present Awards Ceremony. Such juvenile awards such as “Top Franchisee” or “Best Team Player, 2008” are handed out with the obligatory publication of the “grip and grin” photos. No speeches are allowed, however, unless the franchisee is one of the “anointed few: the royal priesthood, a franchisee set apart” (ie. a franchisee who is so deeply co-operative as to be a virtual extension of the current franchisor). These are baubles bestowed upon franchisees who are “on the team” (ie. acting as a franchisor collaborator).

It was no mistake that McDonald’s Canada rewarded the southwestern Ontario franchisee who was the token franchisee on the government-lead Franchise Sector Working Team. Within a month of the law being passed (the law was pushed by franchisors, not franchisees), this four-store operator won a major award: an important symbol to the hundreds of Canadian McD operators of how to properly lick the hand.

  • This franchisee’s policy competence was such that he went out into the hall to call his master whenever a thorny issue like “good faith” was brought up: he needed to hear his masters voice so he could parrot it in the meeting. This behavior was well-known.

It is very frequent that a hopelessly-compromised, compliant franchisee is forwarded as a spokesperson when a law is being proposed. this is where the term “House Slave” comes from: a, by comparison, a well-treated slave that protects his master’s interest, especially against the lower status slaves: the field slaves.

Humiliation is the usual punishment breaching the culture of franchising. The franchisee is felt to be alone (“Funny: You’re the only one who has mentioned this problem.”), the cause of the problem, lazy, overly critical and stupid.

  • To mortify someone is to make them feel deep shame for their beliefs or actions. New franchisees go through a type of “boot camp” (initial training) where their hours of work, dress, key personal relationships, etc. are all changed to fit the new, subservient identity called: a franchisee.

Shame corrodes everyone’s self-view as an autonomous adult. It decreases the person’s ability to resist authority.

The Courts: Guilt by Association This is the role of the Courts play in franchising since the Courts hold a monopoly on the coercive enforcement of the law in our society. Franchisees, lacking the conceptual and educational prerequisites to defend themselves, recoil reflexively at the thought of a lawsuit because they believe that only the guilty are ever sued.

  • The Court’s important and rightful cultural equity (respect for the law) is effectively high-jacked for the purely for the franchisor’s commercial self-interest. Since 95% of legal fees are paid by franchisors, their viewpoint is grossly overly represented (reinforcing the belief that “the Courts” are unfriendly to franchisees).
  • Based on a simple % of lawyers, a franchisee will always NEVER have a case to pursue.
  • The cost of litigation means even the most severe abuses are routinely never litigated.

No wonder I keep getting encouragement to keep writing via minor Ontario court officials: Justices do not like the law being used as a commercial intimidation tool.

  • Modern franchising mocks the law (only the rich can even hope to win) and in that way, is fundamentally anti-democratic.

Franchising as a low-quality religious experience

November 20, 2008

mcdreligionI worked as a manager for a three-store McDonald’s Canada franchisee from 1977 to 1980. We were growing by 30% per year, starting the breakfast program and were awarded a Triple A rating, to boot.

This takes tremendous time, energy and effort to accomplish.

If you push yourself hard enough, you start to get a little off-balance mentally. Distorted thinking creeps in.

As a matter of fact, you end up doing thing as a member of a group that you would never have done, if by yourself.

You start identifying much more closely with corporate identities and your career.

When the crash comes (as it did when McDonald’s terminated Ted and Liz and took the 3 stores away), you see how hollow your blind faith was in a legal fiction called a corporation.

Starting a business takes tremendous energy and focus.

  • So does being a member of a religion or cult.

Franchising is often bough to solve a recurring personal problem such as unemployment, underemployment, career burnout, etc. I bought the deadbeat lawn care franchise two weeks after my lay-off package expired in 1992.

As out society becomes more and more secular, it becomes hareder and harder for people to see franchising for what it is: a false religion.

  • It doesn’t help much that small business is being hailed (inaccurately) as the latest golden calf.

Can litigation be used to gag New Zealand franchisees?

September 24, 2008

I dislike when anyone tries to decrease freedom of speech, especially on the internet.

Maybe it’s because I was sued [1, 2, 3 & 4] about this very issue, that I am fairly touchy about the subject.

Right and wrong has nothing to do with it. It’s the Golden Rule: Whoever has the gold, makes the rules.

Since Australia and New Zealand are in the franchise regulation news lately, here are three August 2001 articles from Jon Stephenson of The Independent that illustrate how little distinction some franchisors make between fundamental human rights freedoms and their ability to control their message.

You may note that it was only after the original court decision was reversed that the 13 Wordsites International franchisees regained their ability to defend themselves.

I have seen the names Worldsites International Network and WSI applied to the same Canadian-based system. Based on their membership information at the Canadian Franchise Association, WSI has been a CFA member since 2007, has over 1,500 franchises and has been franchising since 1996. I recall that Dan Monaghan and Nigel Mayne co-founded WSI.

WSI and Mr. Monaghan are involved with Make Child Poverty History.

Nigel Mayne is listed by the CFA as president of MatchPoint which claims to be “Canada’s largest Franchise broker.” (In business since 2006, CFA member since 2007).

  • Constitutional rights can be taken away and you have to fight to have them restored. Better have US$20,000 buried in the back yard if you want to live to fight another day.

BTW, whenever you see the following it should be a very red flag for you:

  • this franchise is the next “McDonald’s of dog poop business” for example, and
  • franchisor registered in Bahamas with disputes heard in Delaware, U.S.A.

I wonder what happened to the unlucky 13?

These articles brought to you by the fine people at the Informaton Sharing Project.


Big Franchising

July 18, 2008

Most small business investors define franchising in an inaccurate and childlike way.Everyone knows McDonald’s and that it has made many franchisees millionaires.

McDonald’s is a franchise and so all businesses that are franchised must be a success. Maybe the relationship is not 100% causal but it’s a close relationship. Right?

Wrong!!

We Deceive Ourselves: We notice the flashy new sub sandwich shop or the prestigious dog poop scooping service trucks. We always wanted to go out on our own but didn’t want to risk too much. Franchising is pre-sold as a less risky alternative.

We think we might like to look into buying a franchise and this one seems pretty good, so far. Unconsciously we have started down the road in remembering information that would support a yes decision but also ignoring any negative data [confirmation bias].

Humans tend to over-rely on the physical, on what you can see, hear and touch. That evolutionary predisposition has worked well for thousands of years but in a complex, commercial setting spanning international corporations, our “lizard brain” is not too well equipped to deliver a good decision.

 

WHAT IS BIG FRANCHISING?

Little franchising is what you can see [the branches, leaves of the tree]. Big Franchising is what you can see plus the invisible organizations that feed and nourish the organism [the roots].

  • As the son of a farmer’s daughter, lawn care operator and retired agronomist, I know that 90% of the weight of a plant is underground. The power and danger of franchising is hidden.

Relationship: the first factual error that the power dynamics are simple; that they are limited between the franchisor and the franchisee. The unwary pre-sale or unaware ex-franchisee believe that it is fairly simple David and Goliath story and that this individual franchisor is either a “good guy” or a “bad guy“.

Nothing could be further from the truth.

Public Policy: the true face of Big Franchising is revealed when you watch closely what happens when a law is proposed. Most of the aligned interests prefer the shadows and only come into the light when their favoured positions are threatened.

Big Franchising: Expert specialists

Definition: an informal understanding between legally independent corporations and organizations that serves their mutual commercial, power and political interests.

Members & Role

1. Product franchisors: The Big 3 [Auto, Grocery & Oil] but also very large corporate concerns such as Coca-Cola. Massive, aggressive and willing to get on the phone and bully any politician into the middle of next week.

2. Business-format franchisors: The Blue Chippers [McDonald’s, getting fewer and fewer]. Largely co-ordinated through the national peak trade association [ie. AU National Franchise Association, Kiwi Franchise Association of New Zealand, Canadian Franchise Association or the U.S. International Franchise Association. or their subservient members and the other [usually] 80 to 85% of franchisors who do not belong to the national franchisor association. These are public apologists and training centres for franchisor opportunism.

3. Franchise Bar: The very few large international law firms that have a very lucrative franchise specialty and other boutique practices. A useless law to investors [McLaw} is a great law for The Bar because of the irrelevant, but seriously misleading disclosure documents that need to be written. This is a very protective group of extremely sensitive businesspeople who happen to discuss law in their spare time.

Any lawyer hoping to join the club better play by the rules. Rule Number 1 is serve Big Franchising who arranges to pay 95% of all legal fees. You can usually find the majority of the Franchise bar in the national franchisor association’s membership lists. [Australia, New Zealand, Canada]

Franchisee clients are thought of as a means to pay the rent until you can do some serious billing to the franchisors. When I was in high school, certain girls were considered practice girl friends. I believe I don’t have to go into too much detail here. The high school male and the struggling franchisee lawyer have the same thing in mind.

Each country has a King Rat franchisor lawyer. His job is to discipline the Big Franchising members and instill fear in dissenting opinions. I could name the U.S., Canadian and Oz/Kiwi guys but I promised my wife, no more lawsuits.

4. International peak association: the World Franchise Council is an information sharing project for Big Franchising. It provides training in keeping each nation’s public asleep to the true nature of franchising [higher risk, rent not own business, churning, on and on]. It keeps all their members aware of the defenses available to thie members: The “How-to” of defeating all franchise investors’ claims.

Responds to Oz’s public understanding is a babe in the woods when compared to the U.S. and Canada. The U.K. are still in Big Franchising’s womb, largely because of a very docile business media.

5. Financial Institutions: franchising is extremely lucrative for lenders and financial service providers. National programs are set up that kick back millions of franchisees’ dollars every year to franchisors. Lenders often will disregard the law when they fake their lender’s due diligence duties. They often engage in a cluster of behaviors I have defined as Predatory franchise lending. [Australia, New Zealand, Canada]

6. Product suppliers: franchised businesses are higher margin customers. The franchisor negotiates their kickbacks and the franchisee is forced to pay the inflated price. This is really an undisclosed add-on franchisee fee [often, at least, doubling what you thought you would be paying]. Here is an example: A franchisee paying more for shipping [franchisor] than he did for rent [no head lease].

7. Salespeople: these charming individuals call themeelves consultants, business brokers or researchers. Some even hide behind their PhDs. They steer you to those systems who pay them for for their ability to invoke your trust. Don’t be fooled: Almost 100% of the time, they don’t get paid until you say yes and only from the franchise system that they get paid a commission from. They may charge you a few thousand bucks to find the “right fit” but the real dough will flow when the trap snaps shut [sign the franchise agreement or loan papers]. [Australia, New Zealand, Canada]

8. Media: this is the more subtle one. Experienced journalists know all the sordid details of franchising and have known them for many years. Editors do not publish stories that interfere with the commercial interests of their bosses which are in the same Big Franchising club. Occasionally, stories are published but they are simple open-and-shut cases that would never give the public an idea that the problems are systemic [affecting all parts] rather than individualistic [blame the victim]. The lies the media tell are told in silence.

9. Politicians/Regulators: politics is the brokering of competing interests. Big Franchising represents some of the world’s biggest corporations.

Politicians and regulators know their career is short and corporations’ memories are long. The practice of law has almost entirely been taken over with corporate interests. The widespread use of compulsory private law contract provisions [arbitration and mediation] hides the industry’s abuse.

Franchisees are unorganized mom-and-pop shops, mostly. People that think that even national inquiries will discover the truth and then the truth will will result in a good law [reflects reality] are hopelessly naive about how power works.

10. Miscellaneous: this category includes academics, especially [with some notable Oz exceptions] those pesky consulting fee-dependent business administration professors, Trustees in Bankruptcy, equipment and business appraisers, mediators, arbitrators, non-franchise bar law firms, financial services ombudsmen [apologists for predatory lending practices], national privacy commissioners, law societies [very attentive listeners to large law firms’ economic concerns].

Summary: There exists a complex web of invisible but very real relationships that created, supports and aggressively defends the franchise industry’s dominant power structure [status quo].

  • All things being equal: You may be profitable or achieve your financial goals.
  • But, all things are not equal in franchising, are they?

Ignorance of your potential adversary’s power and influence is no excuse. At least for those with ears to hear.


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