Custom International And Domestic
Franchise Specialists

Healthy Franchises

Some franchisees have had a belly full from fast-food chains

By KAREN ROBINSON-JACOBS / The Dallas Morning News

10177289_10203211449199866_3783500510307965679_nThe restaurant world is rife with relationships on the rocks.

The parent companies of Quiznos, Subway and other well-known brands face lawsuits from unhappy current or former franchisees. Last year, Burger King temporarily cut off relations with its franchisee group because the two sides just couldn’t get along. Although such highly publicized spats haven’t substantially thinned the line of new recruits to franchising, some experts are concerned that the rough patches could slow the growth of some of the industry’s largest brands. “The first thing any good potential franchisee is going to do is call other franchisees and ask them about the system,” said franchising consultant Frank Steed.

“In brands where there is unrest and unhappiness, that doesn’t make for a great reference check. And that will hurt those systems and their ability to grow.” Mr. Steed, president of the Steed Consultancy, based in Kerens, Texas, will offer his thoughts on maintaining healthy franchising relations and communication during the four-day Multi-Unit Foodservice Operators conference that opens Sunday at the Hilton Anatole hotel in Dallas. The conference is largely for those associated with chain restaurants, including many that owe their current girth to franchising, in which independent operators pay to operate as part of an established brand.

Fast-food and sit-down restaurants account for nearly 30 percent of franchised businesses, according to a study released in August by the International Franchise Association and FRANdata, a research firm in Arlington, Va., that focuses on franchising. A separate FRANdata study estimates that last year there were 154,231 franchised dining units in the U.S., including fast-food outlets, sit-down full-service restaurants and baked-goods stores such as Panera Bread Co. That’s up 26 percent from 2000.

Encouraging signs

Some new franchisees are drawn by the “Be your own boss” aspect of franchising. Others are enticed by the money, and franchising has created millionaires, especially among women and minorities, said Udo Schlentrich, a franchising expert at the University of New Hampshire. “It’s a highly competitive environment, but it has been highly successful to the franchisee, particularly minorities and immigrants,” he said. “That’s pretty encouraging.” And there are many brands with harmonious relations.

In a satisfaction survey of franchisees published in September’s QSR magazine, which focuses on fast-food restaurants, Sonic Corp., and McDonald’s Corp. posted the best scores of 13 brands named. Mr. Steed conducts a similar survey for McAlister’s Corp., which runs the McAlister’s De! li chain .. Its emphasis on communication “results in happy franchisees that are anxious to grow,” he said. But happiness is not universal.

This week, Pizza Inn Inc. said it is being sued by former franchisees who say the company, based in The Colony, “intentionally and negligently misrepresented development and operation costs.” Subway parent Doctor’s Associates Inc. faces two lawsuits filed this summer stemming in part from a fight for control of the brand’s advertising dollars. The Subway Franchisee Advertising Fund Trust, which has historically handled the ad dollars, filed suit in June. The North American Association of Subway Franchisees Inc. filed its suit in July. Despite the legal fights, franchise relations are “very good and strong, ” and the company “fosters open communication,” spokesman Les Winograd said in an e-mail. Chris Bray, a franchisee of the Denver-based Quiznos brand, complained of what he views as a lack of communication between franchisees and headquarters. Mr. Bray is president of the Toasted Subs Franchisee Association, which is not officially recognized by the company. “There is no franchisee-franchisor relationship in this chain, which is very unfortunate,” said Mr. Bray, who has owned two stores in Killeen since the late 1990s. “You could call the relations strained, but it’s beyond that.” The brand had the worst showing in QSR’s franchisee survey.

Elusive goal

Bonnie Warschauer, a Quiznos spokeswoman, said the brand has more than 4,000 franchisees. “It would be impossible for every one of them to be happy at any given moment,” she said in an e-mail. “Nevertheless, we believe that our relations with the vast majority of our franchisees are strong.” Quiznos and its affiliates face at least 17 lawsuits filed since early 2005, according to the disclosure statement called the Uniform Franchise Offering Circular that the compan! y is req uired to give potential franchisees. Most involve claims the franchisees say were made about exclusive territories or the inability to get their outlets open within the required time. Ms. Warschauer said the disclosure statement “is very clear that we do not grant exclusive trade areas.””We believe very strongly in the Quiznos business model, and we have thousands of successful franchisees who feel the same way,” she said.

Not open to repeats

But given the level of unrest, Mr. Bray said he and other franchisees he knows are not planning to open new Quiznos outlets, though some may open outlets of other brands. That’s typical of brands experiencing difficulty, said Andrew Selden, a Minneapolis attorney who specializes in franchising. “If a system turns out to be conflict-ridden, investors/existing franchisees will put their capital somewhere else,” said Mr. Selden.

But soured relations can sweeten when both sides make a determined effort, experts said. The latest suit notwithstanding, franchisees at Pizza Inn say relations have improved as new management has worked hard to rein in costs and improve quality. Franchisees and the administration at Burger King Brands Inc. also have decided to kiss and make up after problems last year. While it was still owned by investors headed by Texas Pacific Group, Burger King said it was cutting off most communication with its franchisee group, the National Franchisee Association Inc. Now, said Mr. Anghelone, “we have reunited” as both sides “stick to their roles. My business is to provide services to the members. Burger King’s business is to sell hamburgers.” With that agreement, “we’ve been getting along fabulously,” he said. “We have that mutual respect.”