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: A Poor Broadway Performance for a Vancouver Franchise

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In late March 2013, Gerald drew a sigh of relief as the soon to be ex-Franchisee walked out of Vera’s flagship location in Kitsilano with lease assignment in hand.  As sales figures across a number of franchised locations had sagged, the Franchisee had proven quarrelsome and unwilling to follow the Gerald Tritt Franchise System to a tee.  Even worse, the Franchisee had shown Gerald up in email discourse that took place in full view of all the Franchisees when the Franchisee pointed out that absence of inspections and adequate training from head office had led to a lack of standardized behaviour throughout the franchise system.  Gerald’s response to this rebellious insolence was to change the email settings so that a Franchisee could only reply to Gerald and not to the Franchisees at large.

Gerald’s response to this rebellious insolence was to change the email settings so that a Franchisee could only reply to Gerald and not to the Franchisees at large.

In any event, the Franchisee was gone and with him out of the way only better days could lay ahead for the Vera’s franchise system – or so Gerald had assumed.  His optimism proved to be short lived.

In the fall of 2012, while warring with the aforementioned troublesome Franchisee he had approved the sale of the Broadway location to the youngest Franchisee ever.  The Broadway location had had a troubled history in that in recent years it had not been that profitable.  Of course, profitability from the Franchisees perspective is quite different from that of the Franchisor.  While a store Franchisee (location owner) can be barely paying the bills or even losing money hand over fist, the Franchisor will always take their cut off the top of every transaction that goes through the till. From Gerald’s perspective, franchise fees generated by this location read ‘just fine’ on the profitability meter.  In any event, the location had changed hands repeatedly over the past five years.

Notwithstanding new ownership, the Broadway location lagged at the bottom of the Vera’s locations’ monthly sales rankings being in front of only the Aberdeen Mall location.  As ‘victory has a thousand fathers and defeat is but an orphan’ as quoted by John F. Kennedy, Vera’s head office and the Franchisee began to blame each other for the location’s poor performance.  The details of the relationship between Gerald and the outgoing Franchisee remain murky but without doubt it was fractured.  The Franchisee blamed Gerald for a lack of training while Gerald blamed the Franchisee for being unable to operate the location in a professional manner – a typical Franchisor-Franchisee dialogue where systems are found wanting and Franchisee’s bank accounts drained.

By the fall of 2013, the negative reviews online were stunning in their criticism of the Broadway location’s operations with some of the reviewers going so far as to accuse the Franchisee of tax fraud because of its “cash only” policy.  Inexplicably, Vera’s Head Office failed to take steps to revoke the franchise and allowed Vera fans’ to part with their hard earned cash to pay for what appeared to be a substandard product and experience.  The negative reviews continued to pile up online yet Vera’s Head Office appeared, at least on the surface, to do little to intervene to protect the brand.  Other Franchisees began to express concern that brand integrity was being compromised yet Vera’s Head Office failed to revoke the location although, based on online reviews as a starting point, sufficient grounds may have existed for such action.

While it is uncertain when Vera’s Head Office began to sour on the Franchisee, it is clear that a scant 3-4 months after buying the Broadway location,  the Franchisee had seen enough of the Vera’s franchise model and listed the franchise for sale for $275,000.00.   Over the next twelve months the listing price inched downwards to the low $200s, as there were no takers.  As 2013 turned to 2014 and the online reviews went from the sublime to the ridiculous, the Franchisee finally had a taker to assume control of the troubled location.  Some reports suggest the sale price as low as $40,000.00 meaning the Vera’s Brand was worth little more than restaurant equipment at this location.  Other reports say the sale price came in between $100,000 to $120,000.00 meaning the Vera’s Brand was worth equal to the equipment and leasehold improvements leaving little value to goodwill.  At this location, instead of becoming a smash hit, the Vera’s Burgershack brand became a Broadway flop.

At this location, instead of becoming a smash hit, the Vera’s Burgershack brand became a Broadway flop.

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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

Alton McEwen of Second Cup: Summary of Coffee Talk Magazine Article

Coffee Talk Magazine featured an article about Alton McEwen, owner of what we know of as Second Cup in its ‘modern form’.

It’s important to read business biographies like these to gain a deeper insight and respect for brands or independent businesses we see on a daily basis.  One does not have to like or participate in the brand to appreciate the history and work that has gone into a well known enterprise.

In this article, there is a story of how Alton McEwen took 129 franchisees to the source of the coffee beans to help them understand the passion he shares for a cup of coffee.  This is truly a great story and perhaps part of why Second Cup has stood the test of time.  The old cliche “They won’t care what you know until you know that you care [or however that one goes]” is played out perfectly with this example.

Another highlight was how McEwen left the company and came back on more than one occasion.  This story seems almost like a rite of passage in the coffee industry when we think of the famous story of Howard Shultz coming back to Starbucks.

A final highlight from the article is how McEwen welcomes the rise of coffee prices.  Although it’s tough to bear to see any commodity jump in price, coffee is a complicated plant and process and must remain sustainable.  Cheap coffee on the back of slaves is doomed to failure.  It’s far better to suck up the increases now than risk losing coffee forever.