Forward Franchising

The Effect Of Discounting On Franchise Relations

In a recent interview with Chain Leader magazine, Minnesota attorney J. Michael Dady briefly commented on the current state of the franchise industry.  According to Dady, one of the key problems currently plaguing franchisor-franchisee relations is widespread franchisor-mandated discount pricing programs.  Dady’s view is myopic but understandable, given that he represents franchisees exclusively. 

Taken from the perspective of a franchisee (as Dady does), discounting may appear harmful or even pernicious.  Most franchisors charge royalty fees that are calculated as a percentage of their franchisees’ total revenue, so an increase in overall sales systemwide means more money to the franchisor.  But this view vastly oversimplifies a complex issue and all but ignores the purpose behind discounting programs -- positioning the brand to better compete with similar systems. 

By decreasing prices, franchisors hope to increase the overall traffic to individual stores, thereby increasing sales volume.  And it works – when prices drop, customers come.  For example, through an aggressive pricing program ($5 footlongs), Subway has been able to make the brand one of the success stories through the current economic downturn. 

Nevada Franchise Business Network Meeting

The next meeting of the Nevada Franchise Business Network is scheduled to occur on Tuesday, April 6, 2010 at Cili restaurant in Bali Hai Country Club, 5160 Las Vegas Boulevard South, Las Vegas, NV 89119. The topic of the meeting is "Social Networking for Franchisors: Pitfalls and Potential," and will feature a program by attorney Craig Moore from the St. Louis office of Armstrong Teasdale LLP. Mr. Moore will speak about the use of social networking by franchisors and their franchisees, and the potential issues that franchise systems may face in connection with the use of social media.   

Registration will begin at 11:45, with the program scheduled to start at 12:00 P.M. Lunch will be served. The meeting is open to all members of the franchise community. There is no cost to attend, but please RSVP in advance to Mary Rodell at (800) 243-5070 ext. 7489, or mrodell@armstrongteasdale.com.

Matt Kreutzer Honored in Las Vegas "40 Under 40" List

In Business Las Vegas has named Armstrong Teasdale partner and Las Vegas-based franchise attorney Matthew J. Kreutzer as one of the city’s outstanding professionals. Kreutzer and 39 of his contemporaries are included in the publication’s 2010 “40 Under 40” list to be published on February 25.

This is the 10^th year In Business Las Vegas has recognized 40 outstanding professionals younger than 40. The honorees were chosen by a panel of six business community members based on community service, entrepreneurial spirit, and impact on their respective industry. They were honored at an event on February 25, at Pure Nightclub located inside Caesars Palace.

Franchising As A Growth Strategy

Author's Note: A version of this article was originally published in the Business Resource Guide of Las Vegas, Winter/Spring 2009 Edition.

More and more businesses are discovering the franchise model as a method for increasing sales and brand visibility. Over the past two decades, franchising has been one of the largest growth industries in our nation’s economy, with a net annual economic impact close to one trillion dollars.  Franchising is no longer just for roadside motels and quick service restaurants; today, companies are franchising their businesses in industries as diverse as mortgage brokerage firms, medical spa treatment centers, auto repair shops, and veterinary clinics.

 

If you are thinking about growing your business, you may want to consider franchising as a way to reach your goals.  While most people have general knowledge about franchising from their experience as consumers, not many understand how it works.  Simply put, a franchise is a license granted to an individual or business entity (the franchisee) to market a company’s (the franchisor) goods or services in a particular territory using the franchisor’s business systems, trademarks, and methods of operation. 

 

There are many reasons that businesses decide to franchise.  Franchising offers the potential for rapid growth with a relatively low capital investment.  Moreover, franchise companies retain a significant level of control over the use of their brand and system, while at the same time having the comfort of knowing that each location is being operated by an independent business owner that is highly motivated to maximize the sales and profits of the business.

 

Nevada: An Ideal Home For Franchisors

President Obama’s recent remarks about Las Vegas have inspired criticism from a variety of Nevada’s political and business leaders (Mayor Goodman’s comments being the best example).  And rightfully so: Las Vegas is dependent on tourism as the engine for the city’s economy.  A dip in tourism can mean lost jobs for Nevadans – adding insult to injury to a state that has suffered as the epicenter of the foreclosure shockwaves that have been sweeping the country.

The President’s remarks, and the reaction they provoked, also serve as a stark reminder to those of us who live and work in Las Vegas as to how dependent our economy still is on the gaming and entertainment industry.  Which necessarily begs the question: how do we diversify our economy so that it is not so dependent on tourism?  The current economic recession (or, as some would say, depression) has disproportionately affected Nevada, completely shattering the myth that our economy is recession-proof.  One of the positive effects of the downturn, however, is that it has re-invigorated interest in economic diversification.

In my view, diversification is something our civic leaders should have focused on more closely during the boom Nevada experienced in 2004 and 2005.  Of course, the Nevada Development Authority disagrees.  According to Somer Hollingsworth, executive director of the NDA, growth in the non-tourism related sectors of our economy have significantly outpaced the resort and gaming sectors over the last ten years.  Regardless of your perspective on that issue, however, most of us can agree that tourism still accounts for the majority of Nevada’s economic activity.  Given the current recession, now seems like the right time to reenergize and refocus our efforts on growing non-core industries in Las Vegas and Reno.

Matt Kreutzer Named Chair of Armstrong Teasdale's Franchising, Distribution, and Antitrust Practice Group

Armstrong Teasdale LLP has named Nevada franchise attorney Matt Kreutzer as Chair of the firm’s Franchise, Distribution and Antitrust subgroup practice, which includes 22 attorneys firmwide. These attorneys combine their expertise in franchising law with their knowledge of antitrust issues that impact business planning, statutory and regulatory compliance, and the formation and management of business relationships.

Vicarious Employment Liability in Franchising: From Nevada Franchisor Roundtable June 2009

When can a franchisor can potentially be found to be an "employer" of a franchisee, and how can that relationship lead to legal liability for a franchisee's actions?  That question was asked, and answered, during the discussion at the June 2009 meeting of the Nevada Franchisor Roundtable.  The discussion was led by Berna Rhodes-Ford, an employment attorney based in the Las Vegas office of Holland & Hart LLP.

In addition to talking about the circumstances that may lead to potential vicarious employment liability, Berna helped identify some of the tools available to franchisors to help avoid the appearance of an employer-employee relationship.

Click to hear the roundtable discussion audio.

The Credit Crisis: Obama’s New Plan to Stimulate Small Business Lending

Most franchisors would agree that the biggest problem currently facing the franchise industry is the lack of credit.  In this recession, bank lending to small businesses has all but dried up, with the total number of Small Business Administration (SBA) loans falling precipitously in 2008 and again in 2009.  With less credit to go around, franchisors have found it difficult to close deals for even well-qualified franchisees.  The lending picture has been even worse for restaurant concepts, with banks refusing to extend financing to all but the best-capitalized applicants.  

While the effects of the credit crisis are well known, the cause is less certain.  Some employees of the SBA blame the banks, accusing them of being unreasonably tight-fisted and afraid of doling out their liquid cash.  The banks, on the other hand, blame the regulatory authorities, which they say have changed lending guidelines to make it difficult for banks to make critical small business loans. 

Franchisors: Protect Those Trade Secrets

Here’s the scenario: one of your company’s franchisees is served with a subpoena issued by a regulatory authority in their home state. The subpoena, which is very broadly written, requires the franchisee to provide its business records to the state agency. To comply, your franchisee will have to produce confidential information that is owned by you, the franchisor (for example, a portion of your Operations Manual). How should you react?

First, read your franchise agreement. The agreement should have well-defined terms relating to the company’s ownership of information that has been deemed “confidential” and your franchisee’s right to use that information. Most importantly, the agreement should clearly state that your franchisee has no right to disclose confidential information to anyone except for its employees and agents, and require your franchisee to use reasonable efforts to protect the privacy and secrecy of that information.

Unusual Marketing Ploy: Holiday Inn To Test Market "Bed Warmers"

This has to be the strangest marketing idea I have ever seen: Intercontinental Hotels Group announced this week that, at the end of this month, it will be test marketing "human bed warmers" in its Holiday Inn-branded hotels in the United Kingdom. Apparently, employees of the hotel dressed in special all-in-one sleeper suits will lie in your bed for five minutes to warm it up for you before you turn in for the night. The idea is that hotel guests will be able to fall asleep faster, and sleep better, if the bed is warmed up first.

While it's certain to create buzz, I seriously doubt that this gimmick will get much of a "warm" reception by customers. To the people at Intercontinental: have you ever heard of electric blankets?