Franchise Failures in 2012

The U.S. franchise community is a mixed bag as it moves into 2012, and large upsets like that of Quizno’s, UPS Stores and Cold Stone Creamery act as …

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The U.S. franchise community is a mixed bag as it moves into 2012, and large upsets like that of Quizno’s, UPS Stores and Cold Stone Creamery act as cautionary tales as franchisors and franchisees prepare for a new year. Some critics believe the failings of U.S. franchising are rooted in the slow movement toward a more collaborative culture that can attract savvier franchisees; investors who are educated enough to identify the arguably lopsided nature of the franchising industry in favor of franchisors and thus stay away from it. The risks for potential investors are narrowing the field of attractive franchises, which some feel may be weakening the community as a whole. For more on this continue reading the following article from Blue MauMau.

What’s wrong with franchising in 2012? Perhaps I would invoke the words of Charles Dickens and assert that franchising is experiencing “the best of times and the worst of times." The whole of the franchising community is neither entirely flawed nor without blemish.

The franchising community continues to spawn successful new concepts and to help build powerful industries.  When franchising works as advertised it continues to create exciting wealth opportunities for franchisors and franchisees.  At the same time, the incidence of franchise failures continues at an alarming rate, and profitability issues often plague perceived ‘blue chip’ opportunities (as well as start-ups and fly-by-nights) such as Quiznos, Cold Stone, and UPS Stores. 

Perhaps the greatest challenge for the franchising community is a serious lack of franchise systems that are able to attract truly quality franchisee prospects. I attribute this situation directly to a lack of franchise offerings that have been engineered to attract sophisticated quality prospects.

Happily, we are beginning to see a growing number of effective franchisee associations and a nascent community of franchisors who embrace collaborative franchise cultures—franchise systems that have embraced independent owners associations, negotiated agreements and shared vestment for the common good of the franchisor and the franchisees.  

Unfortunately, there are many more autocratic franchise systems that enforce one sided franchise agreements that disrespect franchisee rights and interests, or that otherwise disdain meaningful collaboration and sharing of the fruits of the franchise system’s fortunes.  Not surprisingly, such systems are finding it increasingly difficult to attract ‘A’ list prospects. 

The question should not be whether there is something wrong or right with franchising, but how to identify and promote that which is excellent, and eschew that which fails to deliver a quality investment.  The goal of the AAFD has been to define our vision of Total Quality Franchising practices, and to offer accreditation to companies that meet the AAFD Fair Franchising Standards.  

For the first time, franchise investors can identify a score of franchise systems that have passed rigorous review and received approval from their franchisee populations.  Unfortunately there are hundreds of franchise systems that continue to pose a significant risk to investors—in part because the business model may either be flawed or subject to a fickle marketplace, and in part because the franchise agreement affords the franchisee few rights to protect the franchisee’s interests with things go wrong. 

Or said another way, we now have a process, a tool, to evaluate what is right and wrong in franchising, and how to reward what works and avoid what does not.  Over the course of this year, I (and other agents of the AAFD) will be profiling some of the most significant issues facing franchise owners and the franchise community as a whole.  Our purpose is to show existing and prospective franchise owners a better way.

This article was republished with permission from Blue MauMau.

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