What every Franchisor should know about Franchisee Advisory Councils and Franchisee Associations – Part 1

B. Why are advisory councils and franchisee associations formed?

Franchisee associations and advisory councils are usually formed to unite franchisees in acting together to deal with common issues, to lobby more effectively for greater collective rights, and to acquire a greater say in the operation of the franchise system. Moreover, these organisations provide opportunities to fill vacuums which are created because the franchisor charges too much for ancillary services or doesn’t provide these services at all, ie health insurance, utility services, legal services, and local marketing and advertising.

There are a number of reasons why franchisee associations and councils form, including:

1. Declining sales or margins which are not acknowledged or addressed by the franchisor.

2. Inappropriate use by the franchisor of discretionary funds, such as marketing funds.

3. Unilateral changes to franchisee contracts which are seen as unfairly disadvantaging franchisees.

4. Franchisors not sharing the benefits of purchasing programs with franchisees, especially if the franchisor is seen as benefiting from rebates from suppliers at the expense of franchisees. This problem is particularly acute when the administration of rebates lacks transparency.

5. Concerns relating to a franchisor’s oversaturating of a market, and encroaching on the businesses of existing franchisees.

6. System expansion and a franchisor’s competence in overseeing expansion, while providing adequate support to existing franchisees.

7. Failed product or marketing initiatives or a lack of clear marketing strategy and direction.

8. Changes to the brand, leadership and culture of the company that undermine a franchisee’s sense of identity.

9. Concerns over the financial viability of the franchisor. For instance, reports of a drastic decrease in market share, or report that a franchisor has gone into receivership.

10. The franchisor company going public, with fears of a subsequent drive for profit at the expense of franchisee profitability.

11. Franchisor leadership behaving indifferently or arrogantly to franchisees, or treating them as though they are employees.

12. Overcharging the franchisor for ancillary services or where the franchisor does a poor job in providing these services (e.g. provision of health insurance, utility services, legal services, or local marketing and advertising). The association or council may fill the vacuum and become a competitor to the franchisor vis a vis a preferred supplier.

13. Providing a forum given the human predilection to express one’s views and have grievances recognized, promote collective rights, and assert a group identity. Many franchise disputes are exacerbated, if not caused, by franchisor ignorance of these factors.

In the next issue, we will explore the roles of franchise associations and advisory councils and the franchisor’s reaction to, recognition of, and involvement with them.