In Its Feedback, Association Asks Commission to Revise Wording of Questions
The International Franchise Association for several months has encouraged franchisors and franchisees to push back against proposed Federal Trade Communication rules modifications that the IFA sees as a threat to the business model. The rules changes would, for instance, alter the content of franchise disclosure documents as well as affect the way franchisors can control franchisees and their workers.
IFA says hundreds of its members responded to its request, including the restaurant, hotel and retail sectors, and commercial, residential and business services industries. The IFA sent the FTC its own criticism of the federal agency’s proposed actions and requested improvements to its comments procedures. Now that the June 8 deadline for comments has passed, the IFA shares what some of its members and trade associations told the trade commission.
Following are excerpts from what individual brands told the FTC.
- Applebee’s: “Franchising works best when there are strong franchisor-franchisee relationships focused on the mutually beneficial objective of strengthening the franchise system and brand value. To that end, Applebee’s and its franchisees engage in constant, transparent communication to better serve guests. Moreover, the franchise business model inherently promotes entrepreneurialism and competition…”
- CertaPro Painters/President and CEO Michael Stone: “… [Our] franchisees have built equity based upon their investments of both time and money, which has allowed them to invest in their people and in the communities they serve. Franchisees benefit from established systems, operational guidelines, and ongoing support, which helps to mitigate the risks associated with starting their own business…”
- Great Clips/CEO Steve Hockett: “Our focus every day is to build and maintain a thriving and robust franchise system, one that treats everyone fairly and provides ample opportunity for all. As such, I urge the FTC not to take any action that would harm franchisees, franchisors and all those who benefit from being involved in franchising. Franchising is a wonderful business model. …”
- Hilton Worldwide/Danny Hughes, President of Americas for Hilton: “The broad growth of the franchise business model across so many different industries demonstrates the incredible strength of the model for all parties involved. It also demonstrates that significant perils exist in any attempt to regulate franchising as if it were a single industry. …”
- IHOP: “…Even more established and sophisticated industry players choose franchising time and time again because franchise systems like IHOP can actively invest in its franchisees and foster growth in diverse markets.”
- Marriott International: “…Given the success of the franchise business model, we believe that further regulation by the FTC is not warranted. The FTC’s regulation of the terms of agreements between franchisors and franchisees may in fact impede the effective and efficient administration of franchise systems, to the ultimate harm of the very franchisee investors that the FTC seeks to protect.”
- Sport Clips/Founder and Chairman Gordon Logan: “Franchising has created more individual and familial wealth than any other business model in multiple industries. If you were to focus the FTC’s attention on the unrepresentative negative comments of a relatively small number of current or former franchisees in your assessment of the RFI [the agency’s request for information], then you would also be choosing to disregard all of the many advantages of the franchise business model.”
- Tropical Smoothie Café/CEO Charles Watson: “We collaborate and support each other. We believe we are a system of great relationships that differentiate us from the non-franchised restaurants out there. Our franchisees [are] … part of a system but also as entrepreneurs running their own businesses, responsible for their own teams and success and able to invest in their future.”
What Franchisees Said
- Auntie Anne’s and Cinnabon/Alex Johnson: Franchising “enables the kind of ongoing innovation that I could never do on my own. It helps me remain competitive in a tough industry that’s only getting tougher by the day.”
- Dunkin’/Robert Branca: “A properly functioning franchise system is a boom to the American economy, offering a path to business ownership and support along the way to any American from any walk of life.”
- Express Employment franchisees: “Because of franchising, I am able to own my own business and provide a needed service in my community. In addition, franchising also offers me initial and ongoing training, marketing expertise, nationwide brand recognition and much more… It’s because of franchising that I can provide for myself and my family and, more importantly, provide good jobs to good people.”
- Multi-unit, multi-brand franchisee David Barr: “Our restaurants provide opportunities for advancement for our employees to reach their personal and professional goals. We invest in our communities, sponsoring local school events and youth leagues to build relationships with our consumers and employees beyond the products we sell in our restaurants… The risk to franchisees (as well as the consumers they serve and the communities they support) of a relationship rule that applies uniformly across all industries in which franchise brands operate is the elimination of those franchise brands because they are not afforded the same flexibility as their non-franchised counterparts.”
- Planet Fitness/David Humphrey: “Franchisors and franchisees are inextricably bound together in the entire ecosystem of franchising, and it’s very hard to significantly punish one side without unintentionally hurting the other… Imposing additional one-size-fits-all rules across dozens of industry verticals and thousands of franchise companies is unlikely to end well for the franchisees you’re trying to protect.”
Trade Groups, Franchise Consultant
- American Hotel and Lodging Association (AHLA)/Chirag Shah: “Franchising, as a business model, is critical to the success of the hotel and lodging industry and provides entrepreneurial opportunities for prospective small business owners of all types. Franchise arrangements vary considerably across industries and even across segments within the same industry… AHLA urges the FTC to recognize that a one-size-fits-all approach runs a high risk of unintended consequences.”
- American Action Forum/Isabella Hindley: “The success of the franchise business model lies in the unique and mutually beneficial relationship between franchisees and franchisors. Franchisees are more likely to remain in business after two years than independent businesses due to franchisor-provided support such as brand recognition, general business format, and various other assistances.…”
- Home Care Association of America (HCAOA)/Eric Reinarman: “Within HCAOA and the home care industry generally, the franchise business model has been the vehicle that has allowed dozens of franchisors to enable thousands of franchisees to start and grow thriving businesses that provide thousands of care-professional jobs and enable hundreds of thousands of families to have the peace of mind of keeping their loved ones in need of care at home rather than placing those family members in an out-of-home facility. … Franchising has proven to be a successful ingredient in meeting this growing need.”
- IFPG/Don Daszkowski: “…Applying a one-size-fits-all rule to the franchise model that is used by hundreds of industries and thousands of franchise systems within those industries is misaligned with the true nature of franchising and the franchisees who rely on it to achieve the American dream.”
- National Restaurant Association/Angelo Amador and Jordan Heiliczer: “…We request the FTC proceed no further with broad sweeping regulations of the franchise model, instead focusing on protecting potential buyers of franchises through education and due diligence requirements.”
- U.S. Chamber of Commerce/Sean Heather: The FTC proposal “suggests a desire to effectively destroy the franchise model in the United States, an objective clearly outside of the FTC’s statutory authority and unsound as a matter of policy… We urge the FTC to abandon this…”
- International franchise consultant Michael Seid: “I question the FTC’s assertion that there is a ‘growing concern around unfair and deceptive practices in franchising,’ as the evidence does not support this assertion. Simply because a relatively small group of individuals represent that they speak for the vast majority of franchisees, or anonymously provide anecdotal examples in reply to the RFI, does not equate to a growing or significant problem in franchising nor, does it make it a fact.”
IFA Emphasizes Opposition
In comments the IFA sent to the FTC President and CEO Matthew Haller urged the agency “to focus its efforts in improving the Franchise Rule to provide prospective franchisees a better opportunity to conduct due diligence of franchise systems and compare franchise systems within an industry.” Haller also criticized the FTC’s questions as being composed so they were more likely to result in negative responses about franchising rather than being structured to develop objective data. For instance, the IFA said, many questions asked how franchisors carry out certain behaviors instead of inquiring whether those behaviors are even occurring.
“We are troubled that the narrow focus of the questions… will yield incomplete and anecdotal accounts of franchise relationships rather than a holistic picture of franchising as it exists across the nearly 800,000 franchised businesses operating today… We are particularly troubled that the commission might rely on those anecdotal accounts, including many made anonymously…”