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Franchise Groups Advocate Creating Franchisee Associations

SAN DIEGO, Calif. — On Thursday the American Association of Franchisees and Dealers sent an email to franchisees encouraging them to "achieve a win-win relationship with their franchisors" by forming an independent franchise association.  The email briefly answers why associations are important to franchise owners.

AAFD says independent associations provide franchisees services that franchisors cannot

The chairman and CEO of the San Diego-based AAFD, attorney Robert Purvin, contends that it isn't a healthy thing for franchise owners to sit back and let their franchisor big brother take care of them. After all, the franchisor has a fiscal obligation to its own business survival, one that doesn't always coincide with a franchised shop. Purvin argues that there are considerable benefits to franchise owning entrepreneurs to take charge and band together. There are advantages of economies of scale of a group, just like when local franchise owners on a mini-scale form local marketing cooperatives to leverage their collective advertising buying power.

Now multiply that purchasing advantage on a national level.

"A franchisee association can be a powerful asset to a franchise system," argues Purvin. He says that the checks and balances that a healthy independent association provides make a franchise chain better. Purvin says franchisee associations can provide a number of support services that the franchisor has no interest in offering. He says they also facilitate better transparency and communication. They can also fill in training gaps.

Purvin leads one of a small group of associations that train and guide independent franchisee associations. These associations of associations are small groups such as the Washington D.C.-based Coalition of Franchisee Associations, the Toronto-based International Association of Franchisees and Dealers, and the Chicago-based American Franchisee Association. Each group has a different vision for supporting franchisee associations.

In an email this week to franchisee association members and franchisees, the just-turned 20-year-old AAFD says it offers "members significant discounts on the important services and products that they need to run their businesses such as: legal services, payment processing services, PR services, VOIP bundles, graphic design services, health insurance and more. Members also enjoy free conference calling and webinar capabilities. The heart and soul of our organization, however, is our ability to organize and support independent franchisee associations as chapters of the AAFD."

There are holes in what franchisors will make available to franchise owners. Purvin gives two examples. He says franchisors will not provide health care plans or legal services to franchise owners. They typically don't provide cost-saving bundles in telecommunications, printing and other services. "Many franchisors are focused on their core businesses and aren't interested in generic opportunities [for franchisees]," he declares. "This provides an opportunity for a franchise owner association to negotiate attractive group pricing and shared rebates that the franchisor has left on the table," he states.

Why are franchisors so miserly in offering support services to franchise owners?

Money, of course, is one reason. Good support services to franchisees cost money for franchisors.

The AAFD, which creates and oversees independent franchisee groups, adds that franchisors do not want to provide human resource services to franchise owners for fear that the franchisor might be misclassified as an employer of franchisees and found liable by courts for all sorts of employee benefits. That means no group plan discounts in health care and retirement accounts for store owners, although franchisee associations can offer them.

Michael Webster, head of another association that leads franchisee associations, the International Association of Franchisees and Dealers, says that independent franchisee associations are a blessing to franchisors since they provide extra protection for the brand without incurring vicarious liability. "For example, suppose that in the recent Domino's sexual harassment case, the association had made available a preferred Human Resources vendor to its members," postulates attorney Webster. (A court ruled that an employee of a Domino's franchise in California can be treated as an employee of the Michigan-based franchisor.) "The franchisor gets the benefit of having sophisticated HR training for its franchisees without being liable as a provider of that training," says Webster.

Besides services, Purvin also thinks there is incredible benefit to an individual franchise owner to push peers into an association to collectively buy products that the franchisor doesn't mandate franchisees buy from the franchisor. "Look at the powerful and effective [purchasing] cooperatives that franchisees have built," he says, citing Subway's international purchasing cooperative, Dunkin' Donuts' supply chain cooperative, KFC's advertising cooperative, as well as the group buying of Meineke and other franchisee groups. "If you compare Subway and Quiznos, the former seems to breed profitable franchises, while Quiznos [franchise owners] have struggled." Contrasting the two, Purvin states, "Subway franchisees control their supplier contracts, while [franchisor] Quiznos controls the supplier deals to the detriment of the franchisees."

The IAFD's Webster adds that he thinks that franchisor power paradoxically resides with its ability to delegate certain tasks to independent franchisee associations. He understands how psychologically challenging that might be for a franchisor's leadership, but giving up control to franchisees allows the franchisor to concentrate better on its core competencies.

International Franchise Association says independent franchisee associations can be helpful to chains

The International Franchise Association also observes that independent franchisee associations can be helpful to chains. IFA communications and marketing vice president Alisa Harrison declares: "We fully support and encourage franchisees joining franchisee associations that are recognized by the brand. Communication among franchisees and with the franchisor is very important to ensuring that the brand remains strong and viable. There are many examples of where input from the franchisees has led to improvements and innovation benefitting the whole system. Franchisor and franchisees benefit from a strong system that supports the brand." The IFA spokesperson adds, "Ongoing communication through officially recognized associations has proven to be an effective way to facilitate that support."

Harrison also reminds franchisees that the International Franchise Association, which has promoted the licensing of franchises for over half a century, has deep pockets to lobby for better government policies that help both franchise owners and franchisors. "For franchisees who want to get involved in the policy discussions impacting the franchise industry and to learn best practices to grow their businesses, we of course encourage them to join the IFA," she declares.

The AAFD's Bob Purvin thinks this is a major change for the industry. "The IFA's endorsement of independent associations demonstrates a seismic shift in the franchising landscape over the past twenty years," he says. His association advocates the right of franchisees to form and support independent franchise associations. He points out that franchisors don't always want an independent association, but nonetheless franchisors have a duty to recognize an association that represents a significant number of system franchisees. "Too many franchisors refuse to recognize or work with independent franchisee associations," he states. "Most franchisees and most franchisee associations are seeking a mutually beneficial relationship—a good marriage. Franchise systems that respect the rights of franchisees to organize tend to breed trust, cooperation and a sense of system pride."

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