A Victory for Victims of Franchisor Abuse

A Victory for Victims of Franchisor Abuse

Today is a momentous day for victims current and past stuck in a broken franchise system in British Columbia.  Today at 1:30pm the government of BC will put forward the long-awaited Franchise Act put forth by Carole James on May 13th, 2015 now gets its second reading.

 

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We should be very careful not to give full credit to Coralee Oakes, though.  If it were not for the prodding and pushing of Carol James and Adrian Dix, it is doubtful that this bill would have moved forward so quickly, or, possibly at all.

Will this end the pain forever for franchisees?  Of course not.  Franchisees will always be in a lower position of power under their Franchisor, but that is more than acceptable if the Franchisor is ethical and gives a duty of fairness to their ‘partners’.

It is not by coincidence that almost every other Canadian province has enacted the legislation.   It may have taken a long time and lot more victims along the way, but now, finally, a Franchisee will have a chance to right some wrongs as well as make a much better investment for his/her family.

What are the implications for current Franchisees stuck in the system?  For some it will make their stores more difficult to sell, no doubt.  They may have prospective buyers come across truths about the Franchisor during the disclosure process that will make them flee.  But is that any worse than handing off the pain to yet another victim?  Over the long term, this is the necessary change to stop the abuse.

What are the implications for current Franchisors?  For those who are already operating in provinces like Ontario, this will be ‘business as usual’ with a few tweaks.  For those who have been operating only in BC and under the dark cloak of invisibility and hiding behind their top lawyers and beating down their victims with unbeatable legal bills so they can continue their wicked ways – starting today their day will get very difficult and very uncomfortable.

Dunkin’ Donuts Dunked by Quebec Ruling

A 12 year franchisee-franchisor court battle (more acurately ‘battles’ plural) may finally be coming to a close in favour of the little guy as described in this recent article in the Globe and Mail.

In addition, it looks as if franchise legislation may soon become a reality in BC

But what is often not discussed in all of these positive changes is the trail of destruction that occurs leading up to these payouts.  Depression, divorce, and bankruptcies are just some of the items in the list.

In the past, the game has been quite simple for the franchisor.  They not only usually have deeper pockets than their franchisees, but they also often have their own ‘errors and omissions’ insurance which essentially allows them to pay a relatively small deductible and then let this insurance pay for a lawsuit that might be the result of an ‘error’ or an ‘omission’.

But the Franchisees do not have the liberty of purchasing ‘Protection Against Errors and Omissions Insurance’ insurance to level this field.  The Franchisee is forced to fight the battle on their own.  Yet the whole reason they are even trying to fight, is usually because they are losing or have already lost all their money!

The only option that a Franchisee can do is what the Dunkin’ Donuts team did – organize a group and/or class action lawsuit.  This way they can split the costs at least and prove that it’s not just one noisy Franchisee that is upset but the majority.

Something stinks here and change cannot come soon enough.

Ray Russell’s ‘Fresh Slice’ and its Potential Impact on Franchisees

Imagine you had just invested your life savings into a Fresh Slice Pizza Franchise location when you read the headline in your local rag “FreshSlice Pizza owner had affair with employee before she was fired, judge rules”.  Chances are you won’t be feeling a lot better than Ray or his family.

Some people might argue that those kind of stories are not important and that they don’t affect the business.

Those people are wrong.

The first question I’d ask is ‘Did Mr. Russell have a prenuptual in place?”  If not, the ownership structure of their chain might quickly change.

The second question I’d ask is ‘If this is how Mr. Russell conducts himself in his personal moral life, might he also compromise on business ethics issues –  like how he deals with looking out for his Franchisees’ best interests.”

Everything just became very shaky, and a gambling man might make a wager that the FreshSlice stock, if traded on the exchange, just lost a few percentage points.

 

 

Blenz Coffee Franchise Poster Child Example of Need for BC Franchise Legislation

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In this most recent Business in Vancouver article on the topic of the need for franchise legislation in BC, Wayne Taylor briefly describes his personal experience dealing with Blenz Coffee (Blenz the Canadian Coffee Company Ltd) and just some of the claims he and two other former Franchisees have against the Vancouver franchise and its directors Sarah Kate Moen, Geoffrey Hair and Brian Noble.

Blenz Coffee and many other local Franchisors have essentially been able to do whatever they like while they hide behind their weighty franchise agreements and the shield of their pricey lawyers.

Until now.

Franchisees around BC have had enough and have figured out that the scales have not only been unbalanced but completely lop-sided in their Franchisor’s favour.

Typically what will occur is the Franchisee will enter into a binding legal agreement with the Franchisor and by the time he or she figures out that their investment is built on sand (or worse) they have no money left to fight the imbalance in court because government has been conveniently avoiding getting involved.

The result? Ruined marriages, unnecessary bankruptcies, lost homes, and serious cases of depression around our beautiful cities.

For some Franchisees there may be time to recover their financial house before retirement but for many others the clock has run out by the time the battle begins.

The government of BC needs to at least make a way for the small guy to have a fighting chance against companies that display sociopath and bully-like, in the same way that they have in other provinces.

It’s time to level the playing field.

 

Is McDonald’s Franchise Business Model Starting to Lose?

It’s daily business to hear of smaller Vancouver franchises milking their Franchisees’ profits and doing funny business, but it has been rare if not non-existent to hear negative stories like this one about McDonald’s from a business perspective.

We are often asked, at the VCSFA, “Are there any good franchises out there?” to which we always reply “Yes, there are a few good ones out there and not all hope is lost.  The model remains a win-win model, in theory providing there is a leadership who cares.”

But sometimes leadership doesn’t care.

It seems that more often than not, the Franchisor views their Franchisees as slaves in their revenue-stream producing retirement plan.  Any noisy ones are quickly silenced by their pricy lawyers and no media seems to exist to expose the wickedness of their ways.

Until now.

The wide webs of the world have made it possible for the little guy to raise his or her voice.

Obviously things are not well at McDonald’s these days and we hope that the Franchisees will continue to stay noisy about it which will help prevent new stores from opening so fast and force leadership to start caring about the financial well-being of their number one partner – their Franchisees.

Vera’s Burgershack – Port Moody Franchise Sells for Staggering Loss

“What? Me worry?” – This could have been the caption on Gerald Tritt’s recent Instagram upload that portrays him living it up with a smile that would put Alfred E Neumann of Mad Magazine to shame.  Mr.Tritt appears not to have a care in the world as he tools about in a loaner Ferrari for the weekend, living the dream as he weekends in Chicago and hangs out with the Boss Man himself, Bruce Springsteen – champagne dreams and caviar fairy tales indeed!
Alas, it is a lifestyle that many Vera’s Burger Shack Franchisees can only aspire to after investing in the Gerald Tritt Franchise system.

In September 2014, the original Port Moody Franchisee managed to escape The System after having his store on the market for over a year.  That particular Franchisee purchased a brand new location on Newport Drive and opened in or about September 2012 at a cost rumoured to be in the range of $375,000.00 to $400,000.00.   Initially, the location recorded robust sales as it consistently ranked among the top of Vera’s locations in monthly sales and $2,000 daily sales were often recorded.  However, the good times were not to last as the Port Moody location began a descent down the sales rankings by location.  By June 2013 a scant nine months after opening, the Franchisee had had enough and listed the location for $379,000.00, but, like the Broadway location, the Franchisee could not find any takers.  The location remained on the market as sales continued to decline pushing it ever downward on the Vera’s sales rankings by location.  In September 2014, the news broke that the location had sold but at a price far far below the Franchisee’s investment.  Reports suggested the location, less than two years old, had sold for a price between $215,000 – $200,000.00 representing a loss in excess of $150,000.00 to the Franchisee who had bought into the Vera’s Burger Shack brand.

It was the second location within three months that had sold at a loss in excess of $100,000.00 to its selling Franchisee.  Unfortunately, it appears that unlike Gerald Tritt, neither the Port Moody nor the Broadway Franchisees will be driving Ferraris anytime soon.

Style Over Substance: A Nightmare Recipe for Vera’s Franchisees

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It was the best of times for Gerald Tritt and Noah Cantor, co-founders of the Vera’s Burger Shack franchise, as the summer of 2011, saw Vera’s Burger Shack ink a deal to expand the Vera’s franchise to the United States Pacific Northwest.  Vera’s was flushed with a run of several years growth and had grown from a seasonal concession stand in West Vancouver to a flourishing franchise with sixteen locations.  However, it wasn’t to last – without an underlying business model that went beyond depending upon the personalities of individual Franchisees and a cartoon logo – it could not last.

A clue to the coming debacle for many of the Vera’s franchisees can be found in Gerald’s choice of individuals to expand the Vera’s brand in the USA.  The purchaser, Paul Brown, a promoter, who promoted such sport luminaries as Tonya Harding, figure skater turned boxer, appeared, at least according to Vera’s own press release,  to have no experience in operating a single restaurant, let alone operating/managing several restaurants within a cohesive franchise system. On the face of it, Gerald and Noah seemed to want someone to promote the brand as oppose to having someone with strong restaurant experience to screen and assist prospective franchisees in opening Vera’s franchises in the Portland area.

Up to the time of the signing of the U.S. expansion deal, Vera’ s Head Office had often emphasized style over substance when managing the growth of the Vera’s franchise system.   A failure to establish a head office training system for new Franchisees, a comprehensive training manual, regular inspections, and even one method of cooking the burgers had led to an absence of standardized behaviour across the Vera’s franchise system.  All the while, Gerald Tritt was fond of telling Franchisees he had spent over a $100,000.00 on branding the Vera’s name.

By the spring of 2013, Gerald Tritt had found himself rid of his most troublesome Franchisee who had made the painful business decision to lose six figures as oppose to continue being a participant in a franchise system that was failing to maintain standardized behaviour amongst its Franchisees.  However, it was clear that franchise’s troubles were just beginning.

By August 2013, eight of the thirteen franchises were listed for sale (and this was excluding the two that were sold at the beginning of the year) – a stunning indictment of the Vera’s franchise system for the stampede of Franchisees wanting out was nearly as crowded as the last train rolling out of Paris in June 1940 before the Nazi advance.

It is now over a year since the Franchisee stampede began and with the exception of North Vancouver and Broadway (which sold at a loss of at least six figures to its franchisee – see A Poor Broadway Performance), the remaining six Franchisees continue to list their stores for sale – albeit some at substantially reduced listing prices.  It was rumoured that others were listed for sale but these cannot be substantiated at the time of this article.  The U.S. expansion plans remain exactly just that – plans.

To date, Vera’s is limited to being a Lower Mainland franchise with half of the franchisees wanting to sell and with its head office having no immediate plans to open locations elsewhere in Canada or the USA.  As Gerald Tritt’s plans for a thousand store empire slowly fade to oblivion, the Vera’s nightmare lives on for its Franchisees.

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Vera’s Burgershack: ABERDEEN MALL: THE GERALD TRITT SYSTEM IN ACTION

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It was the spring of 2011 and many of the Vera’s Burgershack locations had recorded their best ever calendar year sales in 2010.  Flushed with success, directors Gerald and Noah must have been experiencing a supreme sense of confidence when Aberdeen Mall’s property management company approached them to open a Vera’s Burger Shack in the Mall’s food court to replace the recently vacated White Spot Triple O’s location.

Undeterred by the fact that Triple O’s had failed and clearly imbued with the confidence associated with his self appointed title of ‘franchising genius’, Gerald entered into a lease and quickly developed a concept that he was convinced would work in a predominantly Asian food court.  Gerald’s ultimate goal was to open the store with the resources of Vera’s Head office behind him and then flip the store to a Franchisee for a price of $399,000.00 thereby pocketing a hefty profit  – a common business play in the franchising world.

Vera’s Aberdeen opened in the summer of 2011 to great fanfare and high expectations for Vera’s directors, its franchisees, and its fans.  However, from the beginning there were grumblings from the Vera’s fan club that the quality of the food was lacking as compared to other locations.  Even more disconcerting to Vera’s head office, the daily sales figures were low and when the monthly sales rankings were published to the Franchisees, Vera’s Aberdeen finished dead last among the seventeen locations. Initially, it was downplayed with the excuse that ‘it was going to take time for the Gerald Tritt system to win over the Asian crowd in Aberdeen mall’ and that, ‘like Rome, a profitable and marketable Vera’s Burger Shack location would not be built in a day’.  However, as the months wore on and became fiscal quarters, the sales figures at Aberdeen Mall lagged behind every other Vera’s location.

Franchisees began to question why the Gerald Tritt system was failing so badly in Aberdeen Mall.  A quick glance at the physical layout of the location gave a clue that Vera’s Head Office had totally failed to take into account or simply disregarded that 90 per cent of Aberdeen Mall’s clientele is Asian.  For example, the menu board was in English only thereby failing to communicate in the first language of the vast majority of Aberdeen Mall’s Asian shoppers.  Further, Head Office failed to hire a Mandarin speaking manager to reach out to the Asian clientele to get to know the names of each customer or to tell them stories as burgers were being prepared.  Amazingly, it seemed that most of the staff were unable to speak mandarin/Cantonese as well.  The hallmarks of the Gerald Tritt system were seemingly abandoned in Vera’s Head office efforts to make this Vera’s location ready for a quick sale to a potential Franchisee.

In the fall of 2011, Vera’s Burger Shack Aberdeen Mall was listed for a price of $399,000.00 but the hope for a sale before Christmas 2011 quickly faded.  It was clear that the failure of Gerald Tritt system to bring the sales above the 17th spot out of 17 locations was going to result in a sale price far lower than $399,000.  As the months wore on through 2012, a number of Vera’s Burger Shack locations were experiencing sales figures far lower than the record year of 2010. Gerald Tritt responded to the grumblings of Franchisees by telling them they were not reaching out to their clientele and it was their fault the sales were dropping.  All the while, Franchisees noticed that either Gerald did not even believe and/or follow his own rhetoric based upon his management of the Vera’s Aberdeen Mall location and its bottom-of-the-barrel performance in the sales rankings, or worse, his system wasn’t working.

Vera’s Aberdeen Mall location remained on the market with the listing price dropping from $399,000 to $369,000  and ever downward in Nortel stock-like fashion.  For the next two and a half years, the price continued to sink with various incentives added in to make the location more attractive such as no Franchise fees for the first twelve months.  There were no takers.  By the late spring of 2014, it was being marketed for the price of $50,000.00 as a location that could be redeveloped into another concept.  In other words, the Vera’s brand in Richmond was worth the value of used restaurant equipment in a mall food court.

Then one gloomy day in early July 2014, a visitor arriving at the top of the escalator at the Aberdeen Mall food court was greeted by an abandoned food stall with the cartoon face of Vera smiling over the dark and empty counter that was the only remaining legacy of the Gerald Tritt system in Aberdeen Mall.

As for the Franchisees who had watched this debacle unfold before their eyes, they were kept in the dark as much as that the darkness of that food court counter.  Gerald, who made it a practice, to inform his Franchisees of a four hour closure of the flagship Kitsilano location due to construction, could not bring himself to tell his Franchisees of the passing of the Aberdeen Mall location.  Even more incredibly, he did not even bother to tell his loyal Vera’s fans of its closure notwithstanding Vera’s Burger Shack presence on the web, Facebook and Twitter thereby leaving Vera’s fans to discover for themselves the closing of the Aberdeen Mall location.  The question that arose from his omission was whether Gerald’s ego prevented him from announcing the failure of the Aberdeen Mall location or whether he knew deep down that no one in Richmond even cared.

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NEXT: Vera’s, The State of the Union Today

Burger Kings Purchase of Tim Horton’s and What it Means to Its Franchisees

Will Tim Horton’s Franchisees win or lose in this massive food and beverage deal as Burger King gobbles them up? And will they sell Tim Burgers?

It’s pretty rare to have news this big in the food and beverage industry, and especially one that impacts Canadian business so directly.  A quick search engine search on the keywords reveals articles like this one in the CBC.  This article is loaded with neat little stats about how big the two companies are, how much there shares went up and down, market cap numbers, guesses on why they did it,  what they will do next, and so on.  A very typical ‘business article’.

The article also went into details about the ‘important’ parts of the deal including where the head offices would be based, shareholder cash payments, and the like.  However, the following statement jumped off the page: “That would bring the cash value of the deal for current Tim Hortons owners to more than $94 per share.”   In particular, it is the usage of the word ‘owners’ that is most intriguing and one that leads to a new question: “Who owns a Tim Horton’s store?”

“Who owns a Tim Horton’s store?”

Perhaps a better question to start with is ‘what is ownership?’

According to corporate stuff, it’s someone who owns any number of shares in a corporation.  In real estate, it’s the person or entity whose name is on the title document.  For cars, it’s the ‘registered owner’ on the document you hand the police when they pull you over.  In small business, it’s the person upon whom takes the ultimate financial risks associated with it’s success or demise.

However, anyone involved in any of these ‘ownership’ scenarios knows something deeper: in corporations, it’s the person with 51% of the shares who has power.  In real estate, it’s the person to whom you pay your taxes who holds the power.  With cars, the police officer holds the power and tells you how you are going to use your car, and in small business, it’s the landlord, health authorities, and, in some cases, the Franchisor who holds the power.

So, does ownership really even exist? Or does the more important question when you make an investment become, ‘Who holds the power over my investment?”

Tim Horton’s was built on the back of it’s Franchisees, on their hard earned investments, and on their long, hard days serving the public cheap coffee.  Although these ‘business articles’ will talk about ‘revenue from royalties’ on the books, when was the last time you heard about Tim Horton’s from the perspective of a Franchisee?

Although this merger looks like a good deal for the power holders (shareholders and directors), one must wonder what will happen to the Franchisees.  Will things get better?  Will things get worse? Even more frightening of a question is “Does anyone even care?”

Customers just want their cheap double double.  They don’t care who hands it to them.

The Franchisor just wants a higher share value, sometimes at any cost.

Would anyone care if the Tim Burger’s global strategy one day switched from ‘Franchise Partners’ to ‘Corporately Managed’ stores like Starbucks did?

So next time you order your six pack of Tim Burgers or Whopper-Whopper think of who really built this business and be concerned.  This is your brother, uncle and neighbour, not a number on a stock exchange.

Shortcomings in the Vera’s Burgershack Franchise System

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By the summer of 2011, the Vera’s franchise chain was riding high.  In 10 short years, Gerald Tritt had created a chain numbering over a dozen locations.  The franchise locations were selling in excess of $300,000.00 with people lining up to buy them.  Underneath the surface though, a series of decisions at Vera’s head office along with the simultaneous end of the North American burger craze and Olympic stimulus spending would send Vera’s on a downward spiral from which it has yet to recover.
Firstly, Vera’s head office failed to set up an adequate training program for new Franchisees.  For the first franchised locations this did not prove too problematic considering these buyers came equipped with years of experience in the restaurant business. As some franchise locations were flipped to new franchisees, however, problems soon arose.  The new generation of Franchisees did not possess years of restaurant expertise and were trained by the Franchisees on their way out who no longer had a stake in the Vera’s franchise system or brand.  Secondly, Vera’s head office ceased inspections of franchised locations in late spring of 2012.  Thirdly, Vera’s head office failed to provide a comprehensive operations manual for the Franchisees until the summer of 2013.  The combination of these head office omissions resulted in an ill-trained and poorly supervised second generation of Franchisees who were being released onto an unsuspecting public creating a wildly inconsistent dining experience from location to location.

Rather than addressing these obvious shortcomings, Vera’s head office began to look for ways to simplify the burger making process for these ill-trained and unsupervised Franchisees.  The first attempt at simplification came when some locations introduced a conveyor belt style oven to cook the burger patties.  Vera’s, a place rooted in the tastiness of a flame broiled burger cooked under a gas grill, had thrown that aside and introduced an assembly-line-style oven using electrically powered coils to cook the burgers.  Aficionados were not fooled and began to complain to Franchisees about how the burgers tasted different depending upon the location.

A quick scan of Yelp reveals reviews that range from 1 to 5 stars depending on the location with many of the reviewers commenting on how there was no consistency between locations or even between multiple visits to the same location.   Vera’s head office’s failure to create a comprehensive training program, maintain inspections, and enforce even one uniform way of cooking the burgers, resulted in a complete failure in establishing standards for day to day behavior for its Franchisees thereby creating a product and dining experience that was markedly different from location to location.  Franchisees were learning the restaurant business through “trial by fire” and became resentful at the royalties being charged by a head office that never seemed to provide an idea as to how to make operations easier or more profitable.  Commencing in 2011, sales began to stall and decline at a significant number of the locations across the Franchise.

When concerns were raised regarding the absence of training and inspections within the Vera’s franchise system, Gerald Tritt brushed these concerns aside and insisted that the key to success for a Franchisee in the Vera’s system was for him or her to

  1. Get to know their customers’ names;
  2. Get to know the employees of surrounding businesses;
  3. Get to know their customers’ favourite burgers; and
  4. Tell the customers entertaining stories and become a person that your customers would want to patronize to differentiate from the nearby Quiznos.

It was becoming crystal clear to the more savvy of the Franchisees that Gerald Tritt was peddling a franchise system consisting little more than a cartoon face and a “magical” burger spice.

Next: Aberdeen Mall Vera’s – the Gerald Tritt system in action