The changing landscape

Nation's Business, Jan, 1997 by Roberta Maynard

One dollar out of every three spent by Americans for goods and services is spent in a franchised business. And more than 8 million people in the United States are employed in franchising, contributes over $800 billion annually to the nation's economy.

What issues will the franchise community face in 1997?

Here's what industry authorities say the top challenges and opportunities will be this year for franchise companies, their suppliers, and their franchisees:

More Expansion

Continued growth of franchising will depend on a continuing flow of people attracted to the prospect of buying franchises, says DeBolt. "The challenge win continue to be [to educate] people to the positives and to the risks of franchising.

"Franchising growth in 1996 was equal to or better than the year before, when there was an increase of 10 to 12 both units and dollars in an economy that was growing at 2 to 3 percent." The reason, he says, is that people who sense their jobs are becoming less secure are "looking into franchising as an alternative."

New federal regulation of franchising is unlikely in 1997, DeBolt believes, because pressing national issues, such as balancing the federal budget, will take priority.

"On the state level, too," he says, "we're very optimistic [about minimizing new regulation]. Over 20 states have considered franchising proposals. All but one [Iowa] have rejected getting into the relationship issues inherent in franchising."

As for franchising generally, one trend to watch is the changing nature of franchisor-franchisee relationships, DeBolt suggests. "The line between [franchisors and franchisees] is becoming fuzzy and blurred. Partnership arrangements such as joint ventures between franchisees and franchisors to form a third concept will become more widespread.,

Another trend affecting franchising-and business generally, DeBolt note-is the increased use of technology by franchise companies and the growth of technology-based franchises.

Legislative Efforts

"Franchisees will be continuing the process of trying to establish minimum standards for franchising," says Kezios. "There will be legislative efforts on the federal and state levels in 1997. Even if they don't appear as strictly franchise measures, they can show up as part of other bills."

Two of franchising's thorniest issue-from a franchisee perspective-are encroachment of new locations into a franchisee's designated territory and the lack of fiduciary responsibilities for franchisors when they handle franchisee money such as pooled advertising funds.

"To address these, we want general guidelines, established by law. You've got to have a police entity for enforcement" says Kezios. The American Franchisee Association is expected to have available in early 1997 a model "responsible franchise practices" act for states to follow when drafting legislation. Among other things, it will allow for a private right of legal action by franchisees against their franchisor, she says. (Most franchise agreements either prohibit suits or require franchisees to use arbitration or mediation before going to court to resolve disputes with franchisors.)

Kezios also points to a shift away from the traditional standoff between franchisees and franchisors. "We are hearing from franchisors-mostly smaller, newer franchise companies-who have no problem with our agenda," she says.

Standards For Franchisors

Purvin says a marketplace solution would be more effective in protecting franchisees than more legislation and regulation: "The big trend is the advent of franchisor accreditation. Last June, we announced the fair-franchising standards. Now, we'll begin to offer the fair-franchising seal to franchisors.

My prediction is that we're going to affect the marketplace with this program because companies are trying to get a competitive edge in selling their franchises."

As of November, four franchise companies had earned the seal. Purvin's goal is to accredit 10 to 20 companies this year. "Our vision is to create something like the UL [Underwriters Laboratories] symbol, so that eventually all franchisors will have to meet these criteria in order to sell a franchise in the U.S."

Another development to watch in 1997, says Purvin, is that "trademark-specific groups are coming together to create more cooperatives to improve the buying clout of individual franchisees."

He also sees a change in the way that franchising is viewed by those outside it. "In the last six months, we've seen a signal turnaround in the thinking of the judicial system with regard to franchising. Four or five lawsuits, primarily having to do with encroachment and fair dealing, for the first time show that the courts understand the franchisee perspective."

Blurring Of Lines

"If 1996 has shown us anything, it is that the lines defining the roles of franchisees and franchisors are blurring more and more," says Sparks. "In the past, franchisors set the rules. But as franchisees increasingly form associations to represent them, franchisors recognize the political clout that this brings to the entire structure of franchising.