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Dunkin' Says It Must 'Build and Protect' Franchisee Equity
CANTON, Mass. (Blue MauMau) - Moments ago, Dunkin' Donuts headquarters submitted its response to Friday's article, Dunkin’ Stalking Scheme Plagues Franchisees in Court. Stephen Caldeira, Chief Global Communications & Public Affairs Officer for Dunkin’ Brands Inc., issued this statement:
At Dunkin’ Donuts, we clearly value the partnership with our franchisees, whose entrepreneurial spirit and drive have helped to create a powerful and much-loved brand. We also understand that our primary responsibilities as a franchisor are to build and protect the long-term equity of our franchisees, over 70% of whom are small business owners with five stores or fewer. When one franchisee does not operate a Dunkin’ Donuts store in a lawful manner or run the business ethically and in accordance with the standards outlined in their franchise agreement, it diminishes customer goodwill, damages the brand and hurts other franchisees by association.
We do insist that our franchises be operated legally, but that has nothing to do with size. Franchisees who have been terminated for fraud or other criminal activity range from small to very large. What they had in common was illegal behavior. The article cites an underreporting case the Company lost several years ago, but that is one of three losses in nineteen years. Courts look at evidence and the behavior of litigants. Our record is extraordinarily successful because of the care we take in bringing cases that are investigated properly.
Regarding what was said and written at the ABA Forum in New Orleans eight years ago, there was absolutely no discussion there, or anywhere else for that matter, of looking into our franchisees’ private lives. The only discussion of lifestyles was had in the context of wealth, contrasting how some people live with what they claim to earn. A few examples were given of franchisees who, year after year, claimed to earn little or no money from their franchises (their only source of support), yet who were able to purchase expensive second homes entirely for cash (no mortgages).
We do not investigate franchisees because they are wealthy. We have many of them and they are a source of pride in the strength of our brands. But when a franchisee who is suspected of hiding his true sales is relatively poor on paper but has an expensive lifestyle, it’s fair to ask how that is done. And the assets in question, the houses and boats talked about in the article, were discovered by reviewing public records and not through any kind of surveillance or spying.
At no point was it ever suggested that franchisees should be threatened with turning over evidence to the IRS or any law enforcement agency. That is clearly improper and a practice we would never engage in.
Last, Dunkin’ Donuts’ viability as a franchisor depends entirely on the success of our franchisees; the satisfaction of our franchisees is borne out by their actions:
* The vast majority of all Dunkin’ Donuts franchisees who are eligible to renew their contract elect to do so;
* In addition to high-quality new franchisees that we have brought into the system over the last 24 months, it’s important to note that 2/3 of all new Store Development Agreements were executed by strong existing franchisees.
Great operators understand that their investment in Dunkin’ Donuts is best protected when every franchisee upholds the same laws and standards, and they look to us as the franchisor to ensure that everyone is playing by the rules. When all else fails, it is Mr. Horn and his team who defend the credibility and integrity of our brand, and to suggest otherwise is a disservice to Bluemaumau readers and all Dunkin’ Donuts franchisees.
(1 vote)
An example of Stephen Horn's extortion tactic at work.
As a Franchisee currently being extorted by little Stephen Horn, here is an example of DBI's Loss Prevention tactics of Guilty until proven Innocent or until you go Bankrupt. My partner and I joined the DD system in 2001 by signing a 3 unit SDA. We barely hit financial requirements but managed to become approved Franchisee’s. In 2002, we built our 1st store by risking everything we had including collateralizing all of our personal assets with our SBA financing facility. The 1st 18 months was brutal sweat equity. There were times, sometimes months at a time, where we couldn’t afford our payroll, so my partner and I would send our employees home and work the counter until either 11PM or 12AM when our overnight crew checked in. Every DD mom-n-pop operator knows what it is like to sleep on a 50lbs bag of flour. And quite honestly, it’s actually not that bad, when you accept failure as not being an option. We did whatever needed to be done to make our investments work.In 2004 we opened our 2nd store and felt the relief of a successful opening. With that, my partner and I began drawing a minimal $500/wk salary. In 2005 we opened our 3rd store with greater success compared to store #2. Finally, we starting to see and feel the fruits of our labor come to life.In the summer of 2006 we signed another 3 unit SDA and opened our 4th store around the same time. What I thought was good, at the time, was actually the pretext to their extortion game. Our 4th store was developed exactly 1 mile away from another Franchisee’s store and things got emotional during the period leading up to the store’s opening. During that time, DD Loss Prevention somehow received a tip that our organization was paying cash to employees. They acted on the information and we were lucky to be randomly selected for a Loss Prevention Audit the same year. Like Stephen Horn says, “A lot of our guys have backgrounds as former FBI investigators and IRS audit agents.” They will say they don’t but trust me little Stephen Horn acts on anonymous tips. If his buddies at the FBI do it – Why wouldn’t he?The 1st interview with Loss Prevention occurred 2 months after we delivered, in entirety, including some original files, the documents that were requested. What I thought was going to be a friendly business review followed by discussion was actually a strong handed attempt to find anything, even if immaterial, to support the anonymous tip received. The individual slammed his hand down in my store’s dining area and said, “We have all the information we need at this point but we’d like to hear it from you personally. How is it that you get the cash to pay your employees?” He had my Manager’s W-2 in his hand and continued, “The average DD Manager makes $40K plus per year. How is it that your Manager can make a living earning only $29K per year?” My response was simple. “Before answering that question, I would like you to ask me 1st – Did this individual work the entire year? The answer will be No. Now, to answer the 2nd part, he was away for 3 months during the year at which time he had gone to India to marry his wife. If you annualize his salary, the numbers will show a salary of approximately $39K. In addition, I provide him with a SUV, cell phone, life insurance, and a gifted ticket to India.” With that said his tone became friendlier and asked some other questions trying to figure out this grand scheme that had no basis. I run a clean shop operationally and financially bottom line. Four months later, in October 2006, the same individual from Loss Prevention requested to meet with one of our other Managers in a different store. The store in question is a NTO within a supermarket. In order to operate the store, effectively, it is business critical for the Manager to live within a close proximity. After consulting with our CPA, we decide to include, as a convenience to the employer, a leased apartment facility for the primary Store Manager. Regardless of whether or not the Manager occupies the leased apartment has no bearing on the individuals pay and treated as a general business expense as a convenience to the employer.The Manager being questioned had an annual salary of roughly $41K. The conversation was more to the point this time around: LP - “Who pays for your apartment?” SM - “Boss pays.”LP – “Do you have to repay him?”SM – “Boss has done a lot for me and I owe him a lot.”LP – “Meaning, for the apartment.”SM – “Yes.”LP – “Do you know it’s against the law to have your Boss pay for an apartment without paying taxes on it? Do you pay taxes on your income?”SM – 1st part “No.” 2nd part “Yes.”LP – “No, you do not pay taxes on all of your income because your Boss does not give you a 1099 for the apartment. What do you do with the cash that your Boss gives you?”SM – “I deposit my check in the bank.”LP – “I don’t think you’d deposit all of the cash in the bank. If so, I want you to go home right now and get me your bank statements. Otherwise, you are also going to get in trouble with your Boss.”* The above conversation is not verbatim but provides a general description of the tactics used during the conversation. It is my assumption from the manner in which the questions were being asked that all conversations with Loss Prevention were recorded by the individual handling the case. However, it has not been confirm to date. At that point, my Store Manager wasn’t sure how to handle the questions and started tearing thinking he had done something wrong. Not being able to respond any further, LP excused my SM by saying he’s going to ask Boss the same thing and that the bank statements may still be requested. Once again, they had nothing to go on.In March 2007, I had presented a development plan to the Development Team demonstrating, in detail, our strategy on growing our existing 4 store network to 10 stores in 2 years followed by an additional 2 stores in year 3. The development plan, fully executed, would have positioned our organization as a 12 store network within a very unique geography within the Mid-Atlantic region. Most Franchisee owned networks are in geographies that overlap with other Franchisee owned stores that foster development competitiveness between Franchisees of the same brand. Our specific market would have been exclusive to us, within a 15 square mile radius, creating significant value added synergies.After the presentation, I was given numerous “pats on the back” with one particular comment that stuck with me made by the Regional Director of Development, “I wish all Franchisee’s thought about development the way you do. What they need to understand, is we are going to penetrate the markets. And if you don’t do it, someone else will.”We began executing on our plan, within 2 weeks of the meeting after securing the necessary financial commitments, by issuing a LOI to acquire 2 stores. The LOI was sent to Dunkin, by the selling Franchisee, for review and acceptance. The selling Franchisee was also under a lawsuit with DD at the time. I was expecting their approval of the acquisition, based on the positive presentation and being an integral piece of our strategy; instead, I was delivered a Termination Letter, within 30 days, in April 2007. The allegations being made are as follows:1) Underreporting of Gross Sales. The basis is in 2004. Our primary production store reporting $1.2M, in gross sales on our annual filings, our total deposits into that account was $1.7M. They are alleging we have concealed sales of $500K. The difference was reconciled to the penny, in perfect balance, during the 2nd interview with Loss Prevention. The reconciliation was performed with 35 minutes using an excel spreadsheet that was printed and given as support.2) Payment in lieu of compensation (snowballs as a payroll tax issue since we don’t issue a 1099 on fringe benefits):a. Expenses taken for the lease of a SUV given to a key associate.b. Expenses taken for the lease of a residential apartment.c. Expense taken for a tuition payment made on behalf of a cousin who had built an excel model for us to use in our business operations. Hitting us for breach of contract and obey all laws has nothing to do with protecting the integrity of the Brand. It’s about a Den of Thieves who hawked our books to uncover the value. The value to them has to do with the Collateralized Debt Obligation (CDO) issued to finance the LBO by the 3 pigs (Private Equity):a. Churn our franchise agreements from a 16 year average life into fresh 20 year franchise agreements. This creates greater ongoing present value for the assets that underlie the CDO that was supposed to “Liberate” us. The underlying pool of assets is made up of Franchise Agreements and options on real estate leases held by the Franchise’s.b. Our portfolio of store leases is only 5% of our total Gross Sales. By exercising the options, on behalf of the Franchisor, they will reap the residual spread by subletting our leases to new Franchisee operators at 10% for the next 16 years.c. Generate immediate transfer fees.d. Enforce ridiculous penalties for allowing us to sell our stores.The last item d, above, exemplifies the extortion. Being for settlement purposes only, I received their purposed settlement letter from little Stephen Horn’s friends at GPM. Highlighted as follows:1) Allowed to sell to our “selected” not just “approved” franchisee.2) The sale must be completed within 3 month otherwise we will impose a $300K penalty.3) If the sale is not completed within 5 months, then we will impose a $500K penalty.4) In consideration of the above, we will waive our right of refusal in selling your stores. I wonder if this about “In Her Defense” or maybe the “Laws of Gravity” because it’s certainly not reality. When presented, I asked them to justify the $300K & $500K penalties. That was over 4 months ago and I’m still waiting for an answer. More importantly, it’s been over 16 months since receiving the termination letter. They are holding up the development of my 5th store that was in process when were “Terminated”. Having secured the property, I am bearing the holding cost of the rent as an ongoing expense. Maybe they can’t win in court because they technically sold the company to finance the LBO. Meaning they have a Master Franchise Agreement with the TRUE FRANCHISOR – DB Master Finance, LLC – the bondholders on Wall Street. It’s difficult to win a case based on fraud when the true Racketeers aren’t even named as a Plaintiff. That’s right Dunkin Brands, Inc is a dual servicing organization on behalf of the bondholders and the Franchisor. Like a management fee relationship that can get replaced. Little Stephen Horn has to compensate with his overly confident and arrogant character because he managed to win by scaring little mom-n-pop operators in the past. It makes me wonder why no one inside the company has been able to speak with me as businessmen since filing the complaint. We went from “A” rated operators to “C” rated overnight with no indication of this coming. Their audit lasted over 1 year and now we have been in litigation for over 16 months. Our organization has not been able to move forward over the last 28 months while absorbing on-going legal cost on top of increasing operating expenses. And what is Stephen Horn doing – taking pictures of my house? What a d*ckhead!
Under Reporting Sales
If you are under reporting sales - you are obviously under reporting on your income taxes because your P&L will not reflect accurate numbers. So you can afford to own a business - cheat the franchisor & the government and it is all because you are thinking that the Corporation is making too much money. Come On, I wasn't born yesterday - I bet there are many things that under reporting franchisees think is okay to do. (Where do they draw the line between right and wrong - at their front door?)
If you are scamming the Corporation (& the Government) and trying to make more money I would assume that you naturally think everyone is doing it - even the Corporation (& the Government). How sad.
I bet somehow they are scamming their customers too!
Think about it!
Under reporting straw man--WHere does it end?
Guest--Please refrain from telling everyone that under reporting is bad. Everyone agrees on that. It cheats other franchisees out of advertising, money for the franchisor's R&D, training, and a thousand other things, not to mention that it is in violation o a written and enforceable promise you made. We don't have to "think about it." We know it is wrong.
The REAL problem is franchisees who do nothing wrong, has paid in full, and STILL gets targeted for abusive, unseemly and dishonorable investigations as a lever to extrort huge sums of money from them anyway. Because I am bigger than you are and can punch you until you give me your lunch money because you just cannot take the punching any more does not make your extorting my lunch money right because your lies say I deserve it.
Where does it end? Fabricating of "evidence"? Maybe it is ordering your employees about to not write things down and not use e mail so you don't create a paper trail of what you are really doing to franchisees? Nope. Been there. Done that. Got the t shirt at a deposition.
Think about it.
Surveillance and spying
Steve Caldeira said: "And the assets in question, the houses and boats talked about in the article, were discovered by reviewing public records and not through any kind of surveillance or spying."
Then where did the photos of francisee's boats, cars, houses, beach houses and girlfriends in the slide show given by Steve Horn come from?
I do agree that people cannot be permitted to not pay royalties that they owe. That is simply not acceptable. But there has to be a more honorable way to protect against this.
Por favor, vuelve
It was posted:
We also understand that our primary responsibilities as a franchisor are to build and protect the long-term equity of our franchisees, over 70% of whom are small business owners with five stores or fewer.
My comment:
I have never read any DD franchise agreement, so I am speaking in general terms only, but this comment is interesting. As a sweeping generalization I would ask what long-term equity does any franchisee have? My gut is very, very little, basically the salvage value of equipment unless you have some sort of guarantee renewal clause, and even then I would think of it as suspect.
Maybe I am missing something here. But as far as I can tell the zor has the equity, the zees are the functional equivalent of a sharecropper, only with more risk. The closest thing I have seen to the way franchising seems to work is the rental agreements in most Latin American countries.
FuwaFuwaUsagi
Equity versus Valuable Lease
Fuwa writes: "But as far as I can tell the zor has the equity, the zees are the functional equivalent of a sharecropper, only with more risk. The closest thing I have seen to the way franchising seems to work is the rental agreements in most Latin American countries."
1. There is no equity if one means trademark goodwill.
2. Locational goodwill depends on the agreement, and critically upon the post term covenants which may render the asset worthless.
3. In the end, the only asset the franchisee has is the value of the renewal rights - which the franchisor can arbitrarily destroy.
Fuwa is correct in decrying the use of the term "equity", in the franchising context this is nonsense.
But on the other hand, if the DD Franchisor can commit to increasing the value of the renewal rights, this is meaningful.
Michael Webster PhD LLB
Franchise News
Where is my Equity now
I spent a lot of money building a store within a supermarket. Now that PG is selling directly to the supermarket my sales are down over 40% and I'm losing money everyday. Where is my equity now. I can't sell the location and can't close it.
Calling TIF
"We also understand that our primary responsibilities as a franchisor are to build and protect the long-term equity of our franchisees"
Interested in your opinion about this statement from Mr. Caldeira. Agree?
Re: Calling TIF
Mufflerman writes - "We also understand that our primary responsibilities as a franchisor are to build and protect the long-term equity of our franchisees"
Interested in your opinion about this statement from Mr. Caldeira. Agree?
Reply - I'll bite! If he means building equity in the brand so that the franchisees benefit then I agree.
Now go ahead and say want you really want to say, Mufflerman.
The Truth Shall Set You Free!
TIF
Re: Calling TIF
So requiring franchisees to buy equipment, supplies or raw materials from a specific supplier at significantly higher prices than market rates to simply realize rebates or commissions would by its very nature violate the "primary responsibility as a franchisor" because by mandating lower profitability at the franchisee level in exchange for an added franchisor revenue stream the long-term equity of the franchisees is adversely affected, correct?
(This presumes, of course, that the more profitable a franchise unit is, the more equity exists if and when the franchisee goes to divest).
Mufflerman writes - So
Mufflerman writes - So requiring franchisees to buy equipment, supplies or raw materials from a specific supplier at significantly higher prices than market rates to simply realize rebates or commissions would by its very nature violate the "primary responsibility as a franchisor" because by mandating lower profitability at the franchisee level in exchange for an added franchisor revenue stream the long-term equity of the franchisees is adversely affected, correct?
(This presumes, of course, that the more profitable a franchise unit is, the more equity exists if and when the franchisee goes to divest).
Reply - I don't know what you are talking about? Are you suggesting that Baskin Robbins should sell its ice cream at cost to franchisees and not profit from it?
The Truth Shall Set You Free!
TIF
Re: Mufflerman writes--
Are you suggesting that Baskin Robbins should sell its ice cream at cost to franchisees and not profit from it?
No, but what I am suggesting is that if the primary responsibility as a franchisor is to build and protect the long-term equity of franchisees, then to insist the franchisees buy that ice cream from one source at a price that not only eclipses what can be obtained on the open market but also precludes the average franchisee from making a profit on the product would be a direct violation of the premise put forth by Mr. Caldeira, and subsequently agreed to by you TIF. I hasten to add that I have no clue if that is current practice by Baskin Robbins--that was your hypothetical, not mine.
Ideally, profit making ventures of the franchisor should never be at the cost of the profitability of the franchisee, but as the postings on this website indicate, that is very often the case.
Re: Mufflerman writes--
Are you suggesting that Baskin Robbins should sell its ice cream at cost to franchisees and not profit from it?
No, but what I am suggesting is that if the primary responsibility as a franchisor is to build and protect the long-term equity of franchisees, then to insist the franchisees buy that ice cream from one source at a price that not only eclipses what can be obtained on the open market but also precludes the average franchisee from making a profit on the product would be a direct violation of the premise put forth by Mr. Caldeira, and subsequently agreed to by you TIF. I hasten to add that I have no clue if that is current practice by Baskin Robbins--that was your hypothetical, not mine.
Ideally, profit making ventures of the franchisor should never be at the cost of the profitability of the franchisee, but as the postings on this website indicate, that is very often the case.
Re: Mufflerman writes--
Are you suggesting that Baskin Robbins should sell its ice cream at cost to franchisees and not profit from it?
No, but what I am suggesting is that if the primary responsibility as a franchisor is to build and protect the long-term equity of franchisees, then to insist the franchisees buy that ice cream from one source at a price that not only eclipses what can be obtained on the open market but also precludes the average franchisee from making a profit on the product would be a direct violation of the premise put forth by Mr. Caldeira, and subsequently agreed to by you TIF. I hasten to add that I have no clue if that is current practice by Baskin Robbins--that was your hypothetical, not mine.
Ideally, profit making ventures of the franchisor should never be at the cost of the profitability of the franchisee, but as the postings on this website indicate, that is very often the case.
Re: Re: Mufflerman writes--
If we go with your premise then franchisors should not charge a royalty since it reduces the profitabilty of the franchisees.
The Truth Shall Set You Free!
TIF
Quintessential TIF...
Build a straw-man argument so you can easily tear it down.
Mufflerman isn't your typical 'cowardly troll' tifster. Need a better argument than that. good luck finding it.
Not talking about royalties, TIF
No, TIF, without the royalties there are no franchises. Royalties are the cost of doing business within a franchise system, a cost that is most commonly spelled out in no uncertain terms in the FTA. What I am referring to is supracompetitive pricing on inventory, equipment, or other supplies which by its very nature saps the franchisee of the ability to run a profitable enterprise. If individual units are by and large constrained by purchasing requirements that eliminate their likelihood of acheiving profitability, the long-term equity of the franchisees is nil, even as the franchisor enjoys the spoils of such an agreement. Collecting royalties is ethical, reasonable, and expected--gouging franchisees on product, materials and/or supplies by mandating a single source who is backfunding the franchisor is not.
RE: Not talking about royalties, TIF
Mufflerman let me state it again Tying is not illegal. It is perfectly fine for franchisors to require franchisees to purchase from approved suppliers at a profit, whether you like it or not.
The Truth Shall Set You Free!
TIF
TIF the tyrant
I am reminded of a quote from Benjamin Franklin regarding tyranny--"Tyranny is a charge invented by the winners as a reason to hang the losers"--
TIF, I am not contending that it is illegal or even necessarily improper for franchisors to require franchisees to purchase from approved suppliers at a profit. In some cases, it might even be preferable in order to ensure consistency and protect the brand's quality image. What I AM saying, however, is that the gouging of franchisees to the point of eliminating their opportunity for successful profitable unit operation is not "perfectly fine" regardless of the legality.
Because I can is an inadequate justification for such predatory behavior on the part of a franchisor.
Re: TIF the tyrant
If you want to talk about a particular franchisor that gouges go right ahead, but don't mislead folks into thinking that required purchases at a profit to the franchisor are wrong or illegal.
The Truth Shall Set You Free!
TIF
Not wrong or illegal, just dangerous to the franchisee....
TIF admonishes, "don't mislead folks into thinking that required purchases at a profit to the franchisor are wrong or illegal"
Conversely, TIF, let's not mislead folks into assuming that required purchases at a profit to the franchisor aren't subject to abuse.
In my opinion, purchasing restrictions present an inherent danger and peril to the profitability of the franchisee if left unchecked, and should be considered thoroughly before investing into any franchise system.
RE: Not wrong or illegal, just dangerous to the franchisee....
Please don't be obtuse Mufflerman, I am making a general commentary about required purchases whereas you are being specific about abuses of required purchases without actually being specific by example.
If you have specific knowledge this subject and you want to start a thread about a franchisor you think is abusing required purchases be my guest.
The Truth Shall Set You Free!
TIF
Obtuse? I don't think so....
Not being obtuse, TIF.
This website is literally littered with examples of systems beset by some version of this disease. (UPS/MBE, Quiznos, CandyBouquet, Dominoes, to name just a few).
I am currently blessed that my individual experience (Meineke) does not currently include this type of circumstance, but your general commentary about required purchases fails to address the reality that they are often used to insure franchisor profitability at the direct expense of the profitability of the individual franchisee, a matter that seems to be repeating itself within the franchise world. Ignoring this trend would be foolish on the part of anyone currently invested or thinking about investing in the franchise industry.
Perhaps you could enlighten us with some examples of where this type of mandate has directly benefited the franchisee?
Re: Obtuse? I don't think so....
No. I am not going to do your research for you.
The Truth Shall Set You Free!
TIF
TIF Subterranean Homesick Blues....
TIF writes: No. I am not going to do your research for you.
I think that response simply bolsters my position. If I can, off the top of my head, name multiple cases where required purchasing has proven detrimental to the franchisee, but it would take research to cite an example of where such provisions have benefited the franchisee, well as Bob Dylan so famously said, "you don't need a weatherman to know which way the wind blows".....
Re: Re: Obtuse? I don't think so....
"No. I am not going to do your research for you."
You brought it up, Shorty!
Re: Re: Obtuse? I don't think so....
Mufflerman, mufflerman. Don't you realize by now that tif never answers anything? He can pump out hundreds of questions (really dares), but don't confuse the twit any further by asking him to actually answer a question. Besides, it's forbidden in his Troll Handbook, 4th edition. Ask him to look it up the next time he's under his bridge.
Queen City Pizza
"worth $450 million per year, form[ing] a significant part" of franchisor profits.
Just one of the more famous examples, and one which both Mufflerman and TiF are familiar with.
Mufflerman is correct, though TiF does have a technical point that this line of discussion really belongs on a different thread since there is no allegation of supracompetitive pricing that has been raised with respect to the zor which is the topic of this thread.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Back to due diligence
and talking to past franchisees etc etc. So many areas for potential profiteering [mandatory purchases, lease admin etc]; but it ain't illegal and it might or might not be abusive. Ya jus gotta find out.
Re: Back to due diligence
Rebates or discounts are not illegal as long as the rebates go back to the original purchaser and the rebate income would offset the expense, otherwise if someone else gains it is considered ordinary income for the beneficiary on a tax return.
If a deal is entered into for a special food or equipment is a mandatory requirment and it is a public company and someone knowingly buys the stock before the contract is signed it is considered insider trading and now the SEC can and would mostly be involved which is no fun at all.
Re: Re: Re: Back to due diligence
Franchisors would have to report rebates as income, so what?
I do not see any SEC problems since the rebates are in the normal course of the franchisior's business. Obviously, if someone bought stock in either the franchisor or the supplier on the eve of signing some sort of supply agreement then the buyer of the stock would have an SEC problem.
The Truth Shall Set You Free!
TIF
Re: Re: Back to due diligence
Rebates or discounts are not illegal as long as the rebates go back to the original purchaser and the rebate income would offset the expense, otherwise if someone else gains it is considered ordinary income for the beneficiary on a tax return.
If a deal is entered into for a special food or equipment is a mandatory requirment and it is a public company and someone knowingly buys the stock before the contract is signed it is considered insider trading and now the SEC can and would mostly be involved which is no fun at all.
Treason is the invented charge
You might want to check that quote again.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Got my T's confused....
Thank you Mr. Solomon, I stand corrected....
To the best of my
To the best of my knowledge the quote is attributed to Franklin but not actually stated by him. I recall the genesis being a play(maybe the musical 1776???) in which the actor muttered the phrase that is now associated with Franklin, but never actually said by him.
FuwaFuwaUsagi
Okay, no more quotes
Well, if Ben didn't actually say it, he should have....
The point remains the same....what seems fair and reasonable to the side with power and control might not seem so to the one being fitted with the noose...
And yes, Fuwa, it was in the script of 1776, which remains one of my alltime favorite musical productions....:-)
Royalties
TIF writes: "If we go with your premise then franchisors should not charge a royalty since it reduces the profitabilty of the franchisees."
No, a franchisor is entitled to charge royalties for use of his brand and operating manual, and possibly some other network effects.
What the franchisor is not entitled to is charge the franchisees for payments which will eventually reduce the value of the brand.
Michael Webster PhD LLB
Franchise News
Michael writes: What the
Michael writes:
What the franchisor is not entitled to is charge the franchisees for payments which will eventually reduce the value of the brand.
My reply:
I was with you up unitl the above sentence. Please provide an example or elaborate on how the payments might reduce the value of the brand?
Confused,
FuwaFuwaUsagi
Reduce brand value
by abusive charges to franchisees that attack the viability of the franchise leading to franchisee failure. Get a reputation for franchisee turnover or high levels of store closures and then try and sell your franchise for what it may have once been worth. It is all about balance.
Do you mean "penalties?"
Those huge fines that the Dunkin gumshoe brigade seems to love so much?
TIF, it is not a pissing contest
It is a business. Sure, you COULD shoot yourself in the foot. You'll still bleed to death.
Yup. Dunkin could bleed its franchisees dry because the agreement says it can, but its big stated goal is to sell thousands of new franchises.
Want to buy one?
Re: Royalties
Tying is legal Michael.
The Truth Shall Set You Free!
TIF
Royalties
I have not made myself clear to either Fuwa or TIF.
First, I agree with TIF that tying is legal and should. But, as a matter of historical fact, anti trust arguments were used to prevent trade unions from organizing in the earlier 1900's. So, I would be happy if history repeated itself, and with the anti-trust arguments being irrelevant to franchising these days, perhaps we can get on with organizing franchisee associations.
Second, Fuwa takes me correctly to task for being cryptic. My point was that a franchisor must take steps to make sure that the value of renewal of franchise lease is valuable. To take too much from the future royalty streams and spend it foolishly now will not increase the value of the renewal.
Michael Webster PhD LLB
Franchise News
Trust me, my friend, you
Trust me, my friend, you were not being taken to task. I merely wanted to further myself and gleam yet another tidbit of information that was eluding me. I concur with your explanation.
FuwaFuwaUsagi
Obey All Laws
Steve writes: "At no point was it ever suggested that franchisees should be threatened with turning over evidence to the IRS or any law enforcement agency. That is clearly improper and a practice we would never engage in."
Hmm, yet your franchise agreement clearly permits the franchisor to terminate because of the obscene "obey all laws" clause.
You want credibility: eliminate the clause from all franchise agreements.
Otherwise, King George you just might face a revolution.
Michael Webster PhD LLB
Franchise News