IFA comes to the rescue of Franchising in the Economy study

Nation's Restaurant News, May 8, 1989 by Ken Rankin

IFA comes to the rescue of Franchising in the Economy study

Late last year lame duck Reagan administration penny-pinchers pulled the plug on Franchising in the Economy--the U.S. Commerce Department's widely followed annual census of American franchised business.

Ordinarily, the demise of one of the government's 50 zillion publications would pass virtually unnoticed. But this particular federal publication is different.

For nearly 20 years now, Franchising in the Economy has served as the barometer of American franchising. It has documented the spectacular growth of the fast-food industry, and it has provided invaluable insights into the policies, practices, and plans of franchisors in and out of the food-service field.

Ironically, Franchising in the Economy was not marked for death because it had outlived its usefulness. Today, with franchised businesses accounting for more than one-third of all retail sales, total franchise sales approaching the $700 billion mark, and American franchisors finding strong demand for their concepts abroad, the need for an authoritative "annual report" on franchising is greater than ever before.

Rather, the study was doomed by the Reagan administration's ludicrous "privatization" program. In this case, however, privatization worked like a charm, and there's a happy ending.

The International Franchise Association came to the rescue by agreeing to assume responsibility for the continued compilation and publication of Franchising in the Economy. Moreover, Andy Kostecka, the Commerce Department's top franchise expert who retired just last month, will serve as a consultant to the trade group in preparing the first non-governmental edition of the annual study. Furthermore, the association will be taking over the department's franchise trade mission activities overseas.

Under the group's stewardships, the annual franchising study will undergo a number of changes, however. For one thing, the IFA plans to shift from a "census" of all franchising firms to a true "survey" measuring a representative sample of franchisors.

In addition, the trade group is restructing the project to reflect franchising worldwide--not just franchise results in the United States. Even the timing of the study will be changed. Instead of being released each year in late January (timed for the IFA annual meeting), the report is expected to be issued in early fall.

Indeed, the first IFA-sponsored Franchising in the Economy survey may be released as early as this September.

While the association is entitled to a vote of thanks for rescuing this valuable study, it also deserves praise for recognizing that the credibility of Franchising in the Economy needs to be preserved as well. To ensure that the results of the annual study are reported impartially, the franchisors association recruited a prominent Big Eight accounting firm, Horwath & Horwath International, to compile the survey results and co-publish the report.

The selection of Horwath & Horwath appears to be particularly appropriate for the task. The firm's international expertise will facilitate broadening the survey's horizons beyond the United States. Moreover, the company's U.S. branch, Laventhol & Horwath, already prepares a similar industry-wide annual report for the hotel and motel industry.

However, in order for the IFA to ensure that Franchising in the Economy remains a credible and authoritative yardstick for measuring franchise activity, the association needs to take still another step.

It is not enough to ensure that the answers to the survey questions are tabulated and reported accurately. The IFA -- and Horwath & Horwath -- must also take pains to guarantee that the questions asked are designed to elicit an accurate and meaningful response.

The format of Franchising in the Economy, which has been used by the Commerce Department for years, is up for review now by the IFA. The association must avoid the temptation to eliminate areas of inquiry (such as franchisee terminations and non-renewals) that could prove embarrassing to franchisors.

Indeed, the IFA must bend over backward to avoid the appearance of converting the annual franchising study into a self-serving tool. I'm confident enough about the integrity of the people who run the trade group to predict that it will be able to avoid both the appearance and the reality of such a conflict.