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AAFD Chairman Purvin: Power of Franchisees in Bargaining and Cooperatives in Reducing Costs

    AAFD chairman Bob Purvin working on the words of a fairer franchise contract
Purvin leads franchisees & their franchisor to craft a fairer contract

In this interview, part 3 of a series, Bob Purvin,* founder and chairman of the 25-year-old American Association of Franchisees and Dealers (AAFD), speaks about the early years when his organization began to form franchisee chapters by brand. He also speaks about the importance of franchisee-owned cooperatives taking on national brand functions.

SNIEGOWSKI: How did the American Association of Franchisees and Dealers get started?

PURVIN: AAFD came into existence in 1993. Our initial mission was to bring fairness to franchising. We were all about legislative advocacy. Early on a man who had been our original legislative director, Dean Sager, a friend of mine from college days, and I realized that our ability to move the legislative needle was almost nonexistent. The IFA had a $5 million legislative fund and we had a $1.50.

SNIEGOWSKI: I would just say that it is amazing what franchisees can do with that $1.50. But yes, I hear you. It is expensive to lobby.

PURVIN: We were able to introduce a [federal fair franchising] bill. We had hearings on Capitol Hill on the bill. But that is as far as it went.

Something happened in that first bill that led me to a place of great learning. When we were introducing the bill, the head of the Republican side of the House of Representatives Committee on Small Business said to Dean and me, "What I don't understand about the bill is that you are mandating all these rights that we think are matters of contract. Why doesn't the bill follow the National Labor Relations Act and just create a right of association for franchisees to organize and be certified?" This came from a Republican.

That got me thinking. First, we don't have money. Second, what we really want is to have more ability for franchisees to negotiate.

The other thing that happened early on was that Congressman LaFalce asked me to bring together all of the leaders of franchisee associations that we could find. Dean and I worked together for six months. In 1992 we were able to identify 30 organizations. Half of them were franchisee advisory councils, and not independent franchisee associations. We were successful in gathering them to an event that he called a "listen-in" in which he could listen to franchisee leaders and their issues.

We needed to create more associations. The AAFD made that its center point. We were going to make it easy for groups to organize by creating chapters. Our business model followed Rotary International's, where we were going to create chapters. They were not going to be a Kentucky chapter or San Diego chapter, but rather they were going to be trademark specific. We helped a group of franchisees organize. In 1994, 1995, we created our first chapter called TechCare Enterprises.

That group of franchisees two years later bought out their franchisor. They were unhappy with the way things were being run. They came together. They put their dollars together and bought out the company. They still own the franchising company today as a franchisee co-operative.

Those events were an early influence on the thinking of the AAFD. In 1996 we published our fair franchising standards.

The International Franchise Association bought a hundred copies of our standards when they first came out. The president of the IFA at the time, Don Debolt, circulated our standards to its leaders. He said we would receive feedback from the IFA on our standards. He reported back to me.

About six months later we figured out that we were going to be in Chicago at the same time and that provided an opportunity for us to come together. The reports that he received from his membership was that we did a hell of a job with our standards with one exception. The AAFD says that all franchise agreements should be collectively bargained. That is probably real, but the words "collective bargaining" sent shivers through IFA members. [It sounded too much like a labor union.]

Sitting down at breakfast, Don Debolt and I came up with another term. I said, "Why don't we call it 'total quality franchising' "? I was borrowing from a popular business principle at the time of total quality management, which is a collaborative management enterprise. So the president of the IFA and the president of the AAFD came together and invented the term "total quality franchising."

This became our signature.

SNIEGOWSKI. The AAFD focused on creating franchisee chapters to collectively negotiate better contracts with franchisors and to lead franchisors to have a more collaborative relationship with their franchisees.

PURVIN: We are celebrating 25 years of collaboration. But it was in 1996 that we addressed what it means to do total quality franchising. The AAFD defined it. We have had seminars on it and further explored what that entailed. We have defined it as a relationship in which the franchisor interests and the franchisee interests are respected in a collaborative effort to drive a great brand. We have done this now for 25 years, building associations that have been able to move the needle.

We have not been that successful in passing laws, although recently we have had some small involvement in some.

With some 4,000 franchise systems out there, the AAFD has had 50 or 60 chapters. We have 18 franchise systems that have earned our fair franchising seal. We need 4,000 franchise systems to earn our seal before we have accomplished our goal, but when I turn and look over my shoulder, I see from where we have come. I see that we have a franchise community where franchisee rights are discussed, where franchisee associations are achieving negotiated agreements.

From what I can see, contracts in franchise systems where there are no associations continue to get worse. Franchisors have continued to figure out ways each year to push the envelope [in maximizing franchisor control of a franchise while minimizing the franchisor's liability when calling the shots].

The biggest challenge of my existence is convincing franchisees that they need me and that I am not just another person trying to take advantage of them. The guy who feels he was gypped in his $500,000 franchise purchase is the hardest guy to convince to pay $350 to join a franchisee association because he's already been burned once.

SNIEGOWSKI: Some franchisee associations, frankly, seem banded together merely as an excuse for a class-action lawsuit against the franchisor to resolve a grievance, or at least the threat to the franchisor of one.

AAFD chairman and founder Bob Purvin
Robert Purvin

PURVIN: Sadly, that is too often the case.

If a lawsuit is the only reason for a franchisee association to exist, it will disappear five years after its startup or until the next round of franchise contract negotiations. The successful associations do more.

The Griswold Healthcare Franchise Association [GHFA] is an example. Franchisees created a fabulous task force on best practices that worked with the company to put on seminars each month. They have great turnouts for their seminars, which are done by webinar. They are now getting involved in lobbying, especially around the issue of caregiver wages. Their legal fund is dedicated to working with various state and local agencies over the rights of caregiver business owners.

Griswold created a products committee, where the franchisee association is now getting involved in the supplier side in a collaborative way. It is not just the franchisor that is cutting a deal with this supplier [getting kickbacks] and mandating that franchisees use that product to enrich the franchisor.

Associations can be more about the supply side than about renegotiating the franchise agreement.

Associations are usually formed by franchisees coming together to protect their contractual rights. But if an association does not have any wherewithal beyond that, that association will eventually fold. Too often we start a chapter and they address the [legal] crisis. It is resolved and then the franchisees and their association chapter go away until the next crisis. And then they have to start all over again.

That has been my biggest regret. An association folds because its members and leadership did not have the will and talent to take the chapter to the next level.

SNIEGOWSKI: What should a franchisee reasonably expect of their association if they join?

PURVIN: A successful association that has earned a collaborative relationship with its franchisor is going to provide representation over issues that are beyond the contract. If the system faces challenges that the contract does not deal with, the association should work together with the franchisor to figure out a way to fix it for everyone's mutual benefit. A good association will have a mentoring arm. They will deal with their own specific operating issues, whether it be a training or supplier issue. There may be a unique problem with the company for which the association will have a grievance process built into the relationship that the franchisor must address.

The holy grail of an association is managing the supplier side. When I say that is the holy grail, in my mind the biggest grievance and abuse in the franchise culture is the abuse of the supplier element of the franchise relationship. It is the most difficult. You are hearing a lot of franchisees advocate that they individually want to source product.

To me that is throwing the baby out with the bath water. Franchisees want the buying power of the group to get them the best possible deal, the best margins. What a franchisee does not want is for the franchisor to abuse that function. Where a franchisee association can really come into its own is to engage in collective purchasing through a cooperative.

Getting the best prices, scoring the best rebates and scoring training fees and economic support of the owners association's annual meetings benefit the whole system. Some of the beautiful examples of this are purchasing bodies or franchise cooperatives – for example, a Burger King cooperative, a Subway purchasing cooperative.

Some may not see these cooperatives as franchisee associations, but they are. In Subway's case the franchisees control the supply chain and purchase of the food. In contrast, in the much troubled Quiznos sandwich shop system, the franchisor controls food purchases.

In these two brands with very similar products, one has a great margin for franchisees and the other one has had poor prices. I know that years ago Blue MauMau published failure rates of franchisees by brand, according to their Small Business Administration sponsored loans. Quiznos franchisees had some of the highest failure rates among all franchise concepts.

SNIEGOWSKI: That's right.

PURVIN: I would point out that the reason that the Subway owners have a better profit margin isn't just because of its size. It is better because Subway franchisees own their own national supply chain management firm, while Quiznos franchisees are getting raked because of all the hidden rebates and perks of buying that the franchisor receives from vendors.

Franchisees usually go through years of war with their franchisor to take over purchasing.

SNIEGOWSKI: Besides purchasing cooperatives, what about advertising associations that franchisees own?

PURVIN: Advertising cooperatives are essentially the same as purchasing cooperatives. Instead of the franchisee owning a piece of the national purchasing cooperative firm, he or she owns the advertising trust that decides and manages national advertising campaigns.

The cooperative dollars are going to a different purpose – advertising.

I am not sure I know the reason why, but in the evolution of the franchise culture over the last 50 years, marketing was the first place that franchisors let franchisees onto the grounds to peek under the tent and then come inside the tent to direct how the franchisees advertising fees were being spent.

McDonald's led the way. McDonald's has regional franchisee marketing cooperatives that give some local flexibility and they also have a national advertising cooperative that is led and owned by franchisees. There are a lot a franchise systems that have successfully adopted that model.

SNIEGOWSKI: So what is next for AAFD?

PURVIN: In May we will be celebrating what AAFD has accomplished and brought to franchisees. At our conference we will be honoring great behavior both by franchisors and franchisees. Our goal is to promote great relationships more than great franchising, although promoting great franchising is part of it.

*Robert Purvin is busy nowadays preparing the AAFD for a franchisee leadership summit from April 30 to May 3 in Indian Wells, California. Besides being an attorney representing franchisees for some 40 years, Purvin is also the author of The Franchise Fraud: How to Protect Yourself before and after You Invest. He has been a tireless advocate for franchisees and their rights for decades.

The AAFD's raison d'être is to help franchisees with a brand to collectively improve their franchise contracts by educating them and bringing them to the bargaining table. It does so by building strong independent franchisee associations.

More to come in this series of articles featuring Robert Purvin and the AAFD.

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