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LEXINGTON — As spring 2010 comes to a close after an extraordinary recession, new independent franchisee federations are springing up, while old ones have either changed or otherwise passed quietly during the dead of winter.
One new umbrella association, the International Association of Franchisees and Dealers, launched its inaugural conference on May 10. Meanwhile, one of the industry's richest trade associations, the Asian American Hotel Owners Association, is preparing to launch a franchisee federation for all franchise owners of all sectors, not just hotel owners, and not just Asian Americans.
These are interesting times for franchisee federations.
Benefits of franchisee associations
Franchisee associations can provide members with benefits such as discounted products for their stores that their franchisors may not supply. They can provide health care plans for owners and employees that are open to trade associations, but have been closed for decades to franchisors. They can help provide resources to negotiate contract disagreements, and organize to provide fair franchise lobbying, something that few franchisors want. On rare occasions and in the right circumstances, these groups have even been instrumental in replacing franchisor CEOs and boards.
Jim Coen, president of Dunkin’ Donuts Independent Franchise Owners, a group of franchisees owning 2,500 locations, states, “Independent franchisee associations are trade associations who act to benefit and enhance their members.”
Associations are considered by many experts as the best source of information for a franchise buyer. Yet few buyers take advantage of the opportunity. Instead, they often speak with franchisees that the franchisor points them to.
That may be changing. The franchise rule that was permanently changed in 2008 now requires franchisors to list independent franchisee associations relating to their brand — if the independent franchisee association requests that the franchisor put information about them into the Franchise Disclosure Document. Buyers will now find it easier to contact these associations.
Older federations struggle
Despite benefits to franchise owners of trade association membership, the past is littered with defunct or financially troubled umbrella groups.
The American Franchisee Association, a well-known franchisee lobbying group founded in 1993, went dormant four years ago, although it still maintains a website. However, the group has not held a conference in years. And the American Association of Franchisees and Dealers (AAFD), which just celebrated its 18th birthday on May 1, has been struggling.
Another organization, the Coalition of Franchisee Associations, a group that helped successfully lobby for the Rhode Island Fair Dealership Act, looks financially troubled, according to competitor Bob Purvin, AAFD head.
The AAFD has had financial troubles of its own. Since Mr. Purvin announced his retirement last fall and said that he would look for a successor, the organization has had to cancel its spring convention. It has been mired in financial negotiations and disagreements with its leaders and members who split and formed the International Association of Franchisees and Dealers. But Purvin says he's back. "AAFD has had a fabulous return to profitability. May was a good month," says its chairman. He is looking forward to the association's fall franchise standards committee meeting that will focus on raising the fair franchise bar in standard franchise agreements.
Room to grow?
A major problem is that franchisees seem unwilling to contribute even modest sums to membership fees. For example, although not a federation of franchisee associations, the International Franchise Association, a trade association that largely represents the needs of some 1,300 franchisors, attracts franchisees into their association by allowing them in free—if their franchisor is an IFA member.
That leads to the question, is there enough room for newcomers, or will an increase in umbrella groups result in franchisee federations eating each other’s share of a meager pie?
There are an estimated 3,500 franchise chains in the United States. This news journal estimates that currently 7 percent of franchised chains have independent franchisee associations. Out of that 250 or so existing groups, Blue MauMau lists nearly 130.
Bob Purvin, retiring chairman and CEO of the American Association of Franchisees and Dealers (AAFD), points out the innate, but currently largely latent, power of franchise owners, "Franchisees," he states, "outnumber franchisors 300:1. If 10 percent of franchisees (there are altogether over 900,000) put up $100 a year supporting an association, you would have a $9 million a year organization. If a significant portion of franchisees step up to the plate, even nominally, they would be much more influential and effective."
Paul Steinberg, a franchisee attorney and a former Subway franchisee, disagrees. “Franchisees who are highly motivated, sophisticated and have a lot of skin in the game are the kind who will support a trade association,” says Steinberg, a long-time supporter of franchisee associations himself. On the other hand, he continues, “The typical franchise owner wants to put their family money down and buy themselves a job. These types of owners work in their investment, but don't bother to invest in a trade association to represent their self-interests. They falsely expect their franchisor to represent them."
The New York City-based lawyer thinks that the market probably has room for one, maybe two umbrella organizations. "It might be nice if every brand had a franchisee association as a sounding board and mechanism for balance," he declares. "The fact is that very few brands have independent franchisee groups. Let's be frank. It doesn't exist because there is huge apathy among franchisees. These kinds of franchisees do not want to think about their business. If they wanted to think, they would not have bought a franchise.”
DDIFO’s president thinks that the market for franchisee associations is limited and that association percentages are low compared to the total number of franchise systems because only franchise owners who have significant capital investments tend to have franchisee associations. But he also stresses that independent associations fill an important function. “Franchising needs both franchisor and franchisees to mutually share in the benefits of the relationship. When one party overpowers another party, that’s when things get skewed. Franchisors need franchisee associations. Franchisee associations help balance the relationship to keep a franchise system functioning well.”
Chandrakant "C.K." Patel, chairman of the Asian American Hotel Owners Association (AAHOA), thinks there is ample room for many more newcomers. “The market could support a lot of umbrella franchisee organizations. Whether they make it or not depends on what the goal of the trade coalition is and what value they bring to helping franchisees. It is up to the market to decide which ones effectively address franchisee issues.”
“Independent associations are critical to the health of a franchise, as opposed to franchise advisory boards, which lack authority and can only advise franchisors on what franchisor leaders and employees are willing to hear," says Patel.
Patel thinks that franchisees in every franchise chain should have an independent franchisee association. He declares, "Franchisee associations will continue to grow because they are some of the best groups to grapple with problems affecting the self-interest of franchisees within chains. And frankly, franchisees see that franchise advisory boards are not as effective."
Organizations struggle to differentiate themselves in the franchisee support market. The two newest umbrella associations with different visions are the small International Association of Franchisees and Dealers, and the large, powerful and deep-pocketed Asian American Hotel Owners Association.
Conflict between AAFD and IAFD
The newly formed International Association of Franchisees and Dealers took its first steps this spring, and walked straight into controversy.
On March 10, Steve Ellerhorst, chief operating officer of the group, sent out an e-newsletter to announce his new organization. He wrote, ”The International Association of Franchisees and Dealers (IAFD) was formed last October upon the announcement of Bob Purvin’s retirement as Chairman and CEO of the American Association of Franchisees and Dealers (AAFD). This was mutually agreed upon by both Purvin and the existing Board of Directors.”
Bob Purvin, founder of the American Association of Franchisees and Dealers, quickly responded that the IAFD announcement was in error. The creation of the IAFD had not been mutually agreed to, and was not the next incarnation of the AAFD.
“The IAFD is being organized by former members of the AAFD who have disagreed with my leadership,” wrote Purvin. “Although I respect anyone’s right to organize, it is apparent that the IAFD has acquired and used the AAFD’s database to communicate with our members and friends, an unauthorized and improper use of the AAFD’s valuable property and good will. The representation that the new organization is a successor to the AAFD, or has been endorsed or approved by me or the AAFD, is also untrue.”
But Purvin then concedes, “It had been our intent to work with this new organization for the common good of franchisees.”
On April 1, Michael Webster, chair of the IAFD’s strategic committee, publicly apologized. “As longtime supporters of the AAFD, the IAFD leadership desires and hopes to be a collaborative successor to the movement that Bob Purvin launched two decades ago,” he wrote.
“We regret any confusion our recent newsletter may have caused, and we acknowledge that the AAFD is very much still in operation, and although we continue to have discussions between the IAFD and the AAFD, there is no agreement in place between us at this time.”
Attorneys and franchisee associations were nonplussed by the conflict. In April, well-known franchisee attorney Michael Garner told the monthly Franchise Times, “I find the situation confusing.” Garner renewed his membership in the AAFD and did not attend the IAFD meeting.
IAFD emphasizes business solutions
Despite its initial setback with the AAFD, on May 10 the IAFD held its inaugural conference. Where the AAFD is known for taking franchisees who are angry with their franchisors and trying to smooth things out, the IAFD isn’t interested in focusing on such things. Instead, it wants to focus on business solutions and resources for franchisee associations and their franchise owner members.
Webster says that the IAFD is all about helping franchisees better run their businesses. “There are things that franchisees cannot get from franchisors for good legal reasons, but they can get from their own trade association,” he says.
The IAFD’s chief operating officer Ellerhorst adds, “Our goal is to accomplish this through better communications, improved benefits of membership, advanced education for franchisee association leaders and advocacy on the part of all franchisees as small businesses.”
He thinks that emphasis on franchise operations and business really differentiates the IAFD from other franchisee associations.
He gives an example: “I was alerted by the Society of Human Resource Managers that franchisees and businesses have to use a new I-9 form and what to be on the lookout for," he says. It is the form used to confirm that an employee is authorized to work in the United States. Ellerhorst suggested that franchisees contact him regarding the Fair Pay Act.
The IAFD leader asserts that franchisors rarely divulge such information to franchise owners.
Webster explains why: “The franchisor typically will not bring this to the franchise owner’s attention because if the franchisee failed to execute properly, the franchisor may be vicariously liable. The franchisor’s problem is that they may want to get information out, but you can see the attorney’s hand in persuading them to not give too much because the franchisor may be seen to have too much control and be held vicariously liable in court. Trade associations have no such problem.”
IAFD attendees pleased
The new IAFD, a coalition of franchisee associations, wound up its inaugural convention in Indianapolis on May 12. According to Ellerhorst, there were 70 or more individuals who attended. At the meetings some 30 to 40 could be seen, from such independent associations as Dunkin’ Donuts, Hardee's, Domino’s, Meineke Car Care and ActionCoach.
The business emphasis on how to operate a finely tuned franchisee association was largely well regarded by the attendees.
Former Indy racer Derek Daly, a featured speaker, emphasized how associations win just like race car drivers: by being prepared and anticipating the race track ahead. That enables leaders to adapt quickly to change. Justin White of newsletter firm WellWorks spoke about the nuts and bolts of how associations could better use effective e-newsletters and email campaigns to produce results and revenue.
Social media was a popular topic. Massachusetts-based TRB Design Inc’s expert Reiko Beach spoke about how trade groups could more effectively use social media platforms (e.g. Facebook, Twitter, LinkedIn, and Blue MauMau). She also discussed how franchisees and their stores could tap into these platforms at the local level to deliver customers.
Even the singing seemed franchisee-related. During the evening's entertainment, singer Paul Thorn, who calls himself half pimp and half preacher, sang what could be a franchisee anthem. “I’d rather be a hammer than a nail,” the earthy star crooned. The audience howled.
DDIFO’s Coen liked what he saw. “The best part of attending Indianapolis was meeting the other heads of associations and learning how they handle certain situations,” he said. “One of the best presentations was attorney Eric Karp and Dave Melton talking about what happens when your brand is sold. The franchisee gave his real-life experiences about the buy-out of his franchisor.”
Coen would like to see the IAFD and other umbrella associations help open up communication channels between franchisee associations, who often can be isolated in their own worlds. He emphasizes, “The real value of umbrella organizations is the sharing of best practices.”
Despite the quality of the forum, speakers and entertainment, there were a few suggestions on how to improve. Meineke Car Center franchisee Mark Zuckerman thinks the IAFD needs fair franchising standards to apply to franchise contracts, like what the AAFD has, in order to stand out. He says, “Franchisees need third-party standards. Hopefully, this organization will have standards.”
Ron Soto, executive director of Meineke Dealers Association, and a leader of the Coalition of Franchisee Associations, stressed that attendance for the IAFD’s first meeting was low. In order for the IAFD to be effective, “a recruiting effort will be needed,” he declared.
Enter lobbying power house AAHOA, emphasizing fair franchising and association professionalism
The Asian American Hotel Owners Association, a huge lobbying and trade group of over 10,000 hotel owners and members, will use its deep pockets to spread from the hotel industry into all franchise sectors. A federation of hotel franchisee associations and independent owners, AAHOA is regarded as a powerhouse among franchise lobbying groups. According to one recent survey by PKF Hospitality Research, AAHOA members own more than 40 percent of all the nation’s hotels. AAHOA members' estimated holdings are at $129 billion in property value. The study goes on to say that AAHOA’s members spend over $32 billion annually on operating expenses.
“These numbers dramatically confirm the significant role that Asian American hoteliers play both in our industry and in our country’s economy,” said Tarun S. Patel, AAHOA chairman. “These survey results will be invaluable as we advocate on behalf of our members with franchisors, legislators, bankers and others.”
Yesterday in Chicago, during its annual conference, the association explored, with several restaurant, service and hotel franchisee associations, how to proceed in launching the new federation. It aims to inspire excellence in its members through lobbying, industry leadership, professional development, member benefits and community involvement.
Laura Lee Blake, AAHOA's in-house attorney, says that the purpose of the new franchisee federation will be to “promote fair franchising for the benefit of all franchisees in the U.S. and their respective franchise systems overall.”