The New York Times is urging Calif. Gov. Jerry Brown to sign the Small Business Investment Protection Act (AB 525):
…developments in franchise law in recent decades have increasingly reduced the power of franchisees in dealings with their corporate parents. The result has been lower franchisee profits and lower worker pay, while corporate profits and executive compensation soar.
Worse, the imbalance of power has been largely impervious to reform, until now. A bill in California awaiting the signature of Gov. Jerry Brown would strengthen the legal rights of franchisees in the operation, sale and closing of their businesses.
The bill prohibits the most egregious corporate practices, including the termination of franchises for minor violations of the franchise agreement. Such terminations can ruin a franchisee, but benefit the corporate parent, by allowing the corporation to sell the franchisee’s location at a higher price to a new owner.
The Times notes that the problem goes far beyond California and mentions the petition to the Federal Trade Commission seeking an investigation into abusive franchisor practices. “By signing the California bill, the governor would help in the drive to improve profits and pay at franchise businesses and show the federal government where it needs to go at the national level.”
You can take action to make a difference for franchisee rights: Urge Gov.
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Shrinking spa chain Planet Beach is suing a Mississippi franchisee who allegedly walked away from her franchise, demanding royalties she would have paid if her tanning salon had stayed open. The company charges in court papers that Marie Porter “abandoned” her Biloxi unit and is demanding she pay royalties for the remaining nine years of her franchise agreement – plus attorney’s fees and “additional sums arising from and related to Defendants’ damage to Plaintiff’s brand and the resulting loss of goodwill.”
Porter is not alone in closing up shop. Although Planet Beach touts itself as “the future of the spa industry,” a wave of closures has hit its franchisees, who have shuttered 85 outlets in the last three years. That represents 30 percent of the chain’s 280 units at the start of 2012, according to the Planet Beach Franchise Disclosure Document.
The Wall Street Journal reported that the Small Business Administration had charged off over $10 million in loans to Planet Beach franchisees over a 10-year period. WeAreMainSt research also shows rising failure rates on SBA loans to franchised businesses. Please let us know what you think about the risks and financial pressures in your franchise system.
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The California State Legislature has sent the California Small Business Investment Protection Act to Gov. Jerry Brown, and franchisees are urging the governor to sign it. The Assembly passed the measure 79-0 on Aug. 31 after the State Senate passed the bill 34-0 on August 28.
Noting bipartisan backing for the measure, Senator Hannah-Beth Jackson, D-Santa Barbara, said before the Senate vote that the bill will “help bring balance to the franchisee-franchisor relationship,” adding that it “provides needed protections against unwarranted actions by a franchisor.” Specifically, the bill, AB 525, strengthens protections against termination of franchisees; enhances franchisees’ ability to sell their businesses; and requires franchisor payments to franchisees if they do terminate or refuse to renew franchise agreements.
Overwhelming support for the bill prompted the franchisor lobby, the International Franchise Association, to stop its campaign against AB 525. The Coalition of Franchisee Associations and the IFA issued a joint letter stating that “the bill will further strengthen franchising as an engine for economic opportunity in California.”
Franchisees are signing onto a letter to Gov. Brown urging him to sign the Act. Brown vetoed a franchisee rights bill last year.
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A quarterly survey of McDonald’s franchisees shows operators are more pessimistic than they were three months ago, when the same poll found McDonald’s operators had the worst outlook in the survey’s 12-year history. And McDonald’s recent announcement of its plan to serve breakfast all day could make things worse.
The survey, conducted by industry analyst Mark Kalinowski and released last week, recorded its lowest-ever ratings, both on franchisees’ financial expectations and their relationship with McDonald’s corporate.
The survey also revealed skepticism about McDonald’s CEO Steve Easterbrook’s ’s turnaround plan, announced in May, which calls for streamlining McDonald’s corporate structure, cutting menu items to speed up service, and removing antibiotics and complex ingredients from food items.
But what about recent news that McDonald’s may soon roll out breakfast all day?
An all-day breakfast menu will require additional equipment and investment from franchisees whose coffers have been drained by corporate-imposed capex projects in recent years. One franchisee noted, “All the re-investments over the last five years with MRPs [major remodel projects], rebuilds and kitchen and lobby remodels – not to mention the McCafé and blended ice machine remodels – have absolutely killed the operator’s equity in their business.”
A former McDonald’s franchisee and current industry consultant argues that that all-day breakfast will only work if the current rest-of-the-day menu is significantly reduced.
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