Educating Mayors on Franchising

According to the Miami Herald, "Attracting franchise businesses and leaping the digital divide" were two major topics that leaders tackled at the national mayors conference in Miami.

One blurb:

According to the International Franchise Association, chain stores generate $21 million jobs and $2.3 trillion annually.

And when mayors heard that, the question was - "how do I get my city some of that?"

One reader, posted a comment under the Herald article, joking that mayors should change their name to Chief Revenue Generator.

Dunkin' Brands and the IFA were two organizations present that were pushing to make it easier for franchise owners to set up in cities across America. Mayors can make it a lot easier for local franchise owners by removing regulatory hassles and at least being fair to all.

On Friday, representatives from the franchise industry told leaders at the annual Conference of Mayors that clear rules are a good start. ''We're not asking for carte blanche,'' said Guttenberg, who owns 17 Dunkin' Donuts shops in Miami, Broward and Palm Beach counties and two in Jacksonville. ``What we are asking for are fair, reasonable and consistently applied standards.''

...  regulatory hassles can suck the life out of a business, said David French, vice president for government relations of the International Franchise Association.

Got to give credit to Mr. French and the IFA. They have been remarkably successful in setting up straw men and beating them down. It is faulty logic, but hey...it has worked wonders.

In this case, I happen to lean towards the outcome sought by Mr. French. I object to his rationale on the basis of it being disingenuous and factually inaccurate.

My city council thinks that WalMart is the embodiment of Satan but when KMart, Target, and Home Depot did manage to slip into town they forced a reduction in retail prices which particularly benefited lower-income families. That is a real-world pocketbook issue which Mr. French does not raise, but he should.

I am also troubled by the philosophical question raised when legislators have different sets of laws depending on who owns the particular business.

Let's face it, one of the elements at play in these municipal debates is that the distant entity (be it non-franchised WalMart or franchised McDonald's) is really calling the shots and sucking money out of the local economy, benefiting from services which it declines to pay for despite ability to do so. (That gets us into the transfer pricing / tax nexus debate, which is a whole can of worms best left for its own blog.)

But ... to ascribe the legislators' concerns entirely to some anti-corporate bias is typical of the disingenuous IFA lobbying, and that is a shame since it suggests that the IFA has no response to the legitimate concerns of the local legislators.

Many people are concerned about the homogenization of their hometown, and the fact that the local McDonald's franchisee lives next to the local parsonage or lives 500 miles away is irrelevant.

The issue is that every burg in America is looking the same. Much of this is due to the "big box" stores, but much is due to franchising.

If the IFA stopped with the red herring logic, it might have discussions at IFA meetings as to how to balance the need for uniformity (as required by the franchise model and to some extent by IP protection--Lanham Act etc-- concerns) with the desire for some local-specific color. The IFA might show examples of franchise systems which provide for some local-specific latitude while not diluting the marks.

I'm not sure there is a way of reconciling the 2 concerns, and I have some constitutional and philosophical unease with anti-franchise and anti-"big box" laws.

But pretending that the local concerns are just some yahoo populist bias is not honest and will not make those local concerns go away.

Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400