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Should Franchisors Encourage a Franchisee Association?

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The establishment of the Coalition of Franchisee Associations and its ratification of the Franchisee Bill of Rights could portend more franchisees seeking to organize their own associations. How should franchisors deal with the formation of a franchisee association? Resist, encourage, and remain neutral?

I can recall a time as a franchise executive when the common dictum was don’t encourage, organize or support a franchisee association unless circumstances warranted it. I can’t speak for all franchisors, however, in those days there was a general feeling that unless there are problems with the franchisees, then leave well enough alone. Moreover, some franchisors believed that if there was a franchisee association or franchise advisory council, then there will be an organized group that could thwart franchisor initiatives and possibly interfere with the operation of the franchise system. However, a good number of franchisors fostered and encouraged franchisee organizations or advisory councils. A common approach used among franchisors was to establish franchise advertising committees that included franchisee representatives that would participate in the administration and application of advertising funds. Some of these groups grew quite large and were not without their problems. For example, a lawsuit brought by KFC franchisees that involved the forty year old KFC Advertising Cooperative, over the issue of control, resulted in a ruling favorable to the franchisees, this year. Nevertheless, there are countless franchisee associations and committees that function rather smoothly.

Considering the amount of organized franchisee activity that has taken place recently; how should franchisors deal with the issue of franchisee associations within the confines of their own company? What are the advantages and disadvantages of a franchisee association?

Advantages:

  • There is a representative body of franchisees that the franchisor can deal with.
  • New products and programs can be presented to the group for feedback and suggestions.
  • The franchisee organization can report potential problems or issues to the franchisor before things get out of control. Problems can be discussed among the franchisor and its franchisees to obtain a solution instead of engaging in conflicts and litigation.
  • The franchisees may perceive the franchisor to be more willing to engage in fair dealing with franchisees, as they have an opportunity to express their lack of satisfaction with certain aspects of the franchise operation.
  • Prospective franchisees will see a franchisee association as a positive attribute of the franchise company.
  • Franchisees who are members of an association may have a greater sense of loyalty and commitment to the franchise organization.
  • Both parties can speak openly at association meetings and address sensitive topics in a productive way. In many cases a relationship with added trust can develop among franchisor and franchisee representatives.

Disadvantages:

  • There is an organization that can challenge and resist new programs implemented by the franchisor.
  • The association can have legal standing to litigate against the franchisor and tap into the financial resources of its members.
  • More difficult to deal with a collective group of franchisees compared to individual franchisees. It’s difficult to “divide and conquer”
  • Some members could be militant and seek to battle the franchisor

A poorly structured association that includes negative franchisees can create problems. Some members may try to promote their own self interest.

What should a franchisor do?

I take the position that a franchisor should encourage a franchisee association once the system reaches a minimum size of 75-100 franchisees. To resist or discourage the formation of an association because there is a fear that conflicts and major issues will arise, belies good business sense. If the franchise program is flawed and franchisees are unhappy, then resisting an association is ignoring the obvious. In fact, I have witnessed problematic franchisors work through some difficult problems, because there was a franchisee association that the franchisor could work with.

A starting point for emerging franchisors is to form an advertising or marketing committee that includes franchisee representatives. This enables both parties to establish a working relationship and build mutual trust. It can also provide a forum for the franchisor to obtain feedback from the franchisees from time to time.

Franchisors shouldn’t fear the formation of a franchisee association. If they do, then they have far greater problems to deal with. In most cases it’s inevitable that franchisees will speak among themselves and share both the good and the bad. It’s far more effective for franchisors to recognize this fact, and have a productive relationship with their franchisees.

© 2011 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com

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