Franchisee Associations: “Strength in Numbers”

The use of the cliché "in business for yourself, not by yourself" is often used by franchisors when describing the benefits of owning a franchise. The cliché is also very pertinent when describing the benefits of forming a franchisee association. Perhaps a more applicable term, however, is that there is ‘strength in numbers.’

A brand specific franchisee association that is a respected asset of the brand can be a vital component in any successful franchise system. The franchisee association is an independent organization of franchisees, organized to effectively support the interests of the franchisees in the system. A franchisee association is usually different than a franchisor sponsored advisory council, because advisory councils (though valuable vehicles for communication) rarely have resources to affirmatively develop an agenda of support and service to the franchisees it represents. Advisory councils are a common tool utilized by many franchise systems, and the American Association of Franchisees and Dealers (AAFD) strongly supports and encourages the development of such councils.

At the core of the AAFD efforts is to promote market driven franchise reform. In furtherance of its goal, the AAFD is dedicated to the growth and empowerment of strong and effective franchisee associations.

On January 23, 2007, the Federal Trade Commission (FTC) issued amendments to its Franchise Rule, which had been in place since 1978. The Amended Franchise Rule is mandatory as of July 1, 2008. One of the provisions of the Amended Franchise Rule is the requirement of the franchisor, if requested by a franchisee association, to disclose details of the independent franchisee association. This rule change now enhances the importance of the franchisee association because prospective franchisees will now be aware of their existence prior to purchasing a franchise.

A franchisee association is a very effective method to advance the shared interests of franchisee members of a franchise system. Franchisees share in common many business interests, particularly the interest of current and future success of the brand and business model.

Very often the business interests of franchisees differ from the business interests of the franchisor. Most often, a franchisor is concerned with gross revenue growth at the expense of unit level profit margins, when the franchisee’s interests are exactly the opposite—even though both the franchisor and franchisee share a desire for greater market share. Even in the best of circumstances, franchisee and franchisor are utilizing different business strategies and often are operating from conflicting perspectives.

Many franchisee associations are formed to address a crisis or in response to a system-wide dispute. In such instances, the association will, at a minimum, be a resource to monitor the problem and engage in a group effort to resolve the problem, crisis or dispute.

A franchisee association can have impact not only on promoting the interests of the franchisee but also on the franchise itself, and enhance the value of the brand for all parties involved. Many associations are able to offer insurance benefits not available from their franchisor, training and mentoring programs, and supplier programs that are not dictated by the franchisor.

The franchisee association can have the effect of creating balance in the franchise relationship. The franchisee association can often produce results that individual franchisees are incapable of achieving by themselves.

Benefits of Forming a Franchisee Association:

There is strength in numbers! At its essence, you are forming an association to aggregate the collective interests of your fellow franchisees. Members who share common interests and concerns are represented more effectively through a formalized support group, rather than speaking as individuals.

Enhanced Franchisee Communication: While the importance of monitoring events and dispute resolution cannot be overstated, the opportunity to communicate with other franchisees who share common interests, obstacles and opportunities is an equally important and vastly more interesting reason to form an association.

Nominating Franchisee Representatives: Some franchisee associations have identified which of their members are the best negotiators and then put them in-charge of a purchasing co-op to the benefit of all members. Such efforts generate not only great discounts up front, but also rebate programs based on achieving volume targets. While franchisor sponsored advisory councils may provide a certain level of service, nominees from an independent franchisee association can provide a perspective that more closely reflects the interests of the franchisees.

Shared Legal Counsel: One of the advantages of a franchisee association is to engage legal counsel on a shared cost basis, just as the franchisor engages legal counsel; franchisees are better protected by having available ongoing legal advice.

Franchisor Recognition: Formal recognition of the franchisee association by the franchisor is helpful but not necessary to the success of an independent franchisee association. Hopefully the amended FTC franchise rule that now requires franchisors, if requested, to disclose the existence of the independent franchisee association, will help all franchisors realize what some franchisors have learned on their own, that independent franchisee associations can indeed bring about positive outcomes for the entire franchise system.

The AAFD strongly believes that there should be an owners’ association in each franchise system. Whether you do it though the AAFD or independently, we hope that you will consider forming such an association. Contact the AAFD to learn more about our franchisee chapter program.