But she's doing it: Can franchisors treat franchisees differently?
You bought into a franchise system because you wanted be a part of the recognition, stability and systemization of a proven business model. You understand the value of a hotel room in San Francisco having the same quality and overall feel as a hotel room under the same chain in Washington D.C. You like knowing that out-of-town visitors will come to your restaurant because you serve the exact same delicious milkshake that they can get 500 miles away.
So, what do you do, then, when your fellow franchisees start using rougher towels, or take the milkshake off of the menu? Now all of a sudden some of the inherent value in your franchise is gone. Your hotel chain is seen as declining in value, and out-of-towners stay away because they think that you, too, have taken their favorite milkshake off of the menu.
You complain to the franchisor, of course, only to find out that they ok’d the change. What now? Are you stuck losing business over things out of your control and within the control of the franchisor?
The answer in these types of situations, like most others in the legal realm, is “it depends.” Most franchise agreements give franchisors broad rights to grant variances to franchisees based on individual circumstances, local preferences, and the like. And fundamentally this makes sense—inherently what works in one location won’t necessarily work in all others across the country. Plus, it is important to keep in mind that you, too, may want to seek certain exceptions to the norm one day in order to enhance your chances for success.
However, many franchise agreements and some state lawsfr, in one form or another, also impose obligations on the franchisor (at least to a certain extent) to make good faith efforts maintain the value of the system and the relevance of the brand. In addition, from a franchise relations (and litigation avoidance) perspective, franchisors will generally want to keep the best interests of the system as a whole in mind when making decisions about possible exceptions for individual outlets. Of course, maintaining the integrity of the system may also mean granting variances in order to keep outlets in business and/or avoid more-costly disputes.
As a result, broadly speaking, franchisors have the right treat different franchisees differently. This is required by the very nature of the franchise concept, and when done properly it can (at least theoretically) be better for all parties involved. However, few rules are absolute, and that is clearly the case here. Franchisors can get into trouble for differential treatment based on discriminatory classifications, and when undertaken in clear violation of express contractual obligations. In addition, under certain circumstances, franchisors may be deemed to have waived their right to require uniform compliance—thereby allowing franchisees to make otherwise-unauthorized modifications.
Franchisees harmed by changes in their counterparts’ operations – and those seeking variances themselves – are often well-served to raise the issue with their franchisor, and attempt to reach a mutually-satisfactory resolution early on before things spiral out of control.
This article is provided for informational purposes only, and does not constitute legal advice.
Jeff Fabian is a lawyer who represents prospective franchisees in evaluating and negotiating new franchise opportunities. Jeff also represents franchisors in franchise compliance and trademark matters. Follow Jeff on Twitter @jsfabian.
Why I Have an Issue with the Forbes Franchise Rankings
The 5-Year Growth Rate and 5-Year Franchise Continuity are both great independent metrics of how a franchise is doing on average. As a potential franchisee both of these statistics are vital for selecting a franchise - you want to select a franchise that will provide you with a high return on investment and which will survive in the long run. I think these are, as FRANdata and Forbes suggested, two of the biggest (if not the two biggest) and most obvious metrics for whether or not a franchise is a “good” opportunity for a franchisee. But how do you use these to determine which franchise is BEST? This is the fundamental difficulty in coming up with a ranking system - it isn’t the difficulty in separating the good from the meh from the bad - it’s separating the great from the good and the best from the great. In the case of these rankings I found it to be pretty difficult to comprehend how they differentiated between the top ranked franchises. For instance, if you look at the difference between Discover Map (Forbes #4), Just Between Friends (Forbes #5), & Seniors Helping Seniors (Forbes #6) they all have extremely close continuity ratings and substantially different growth rates. In fact, in the case of these three, the overall rankings are opposite the growth rate rankings. Seniors Helping Seniors is ranked at the bottom of these three franchises despite having a growth rate that is 31 percentage points higher than Discovery Map and a continuity that is only 2 percentage points lower. This suggested to me that continuity was viewed as the dominant factor. But that logic didn’t hold for the rest on the “Economy Class” Top 10, as BrightStar Care (Forbes #7) had the same growth rate as Pop-a-Lock (Forbes #8) but a continuity rate that was 12 percentage points lower. These comparisons show that these were not the only two factors that went into the rankings, which is understandable, but no other factors that are explicitly listed in their results seem to be major factors.
Why Doesn't Chipotle Franchise?
I’m a huge Chipotle fan and I’m not ashamed to admit it. I love a big fat carnitas burrito with every possible topping (is that even the right word for what you put on a burrito?) on it, especially guac. But every time I’m outside of New York I wonder why there aren’t more Chipotles out there. Sure there are a bunch (at the end of 2014 there were more than 1,700) but their numbers pale in comparison to other “fast food” giants like McDonald’s or Subway (they have more than 36,000 and 43,500 restaurants respectively). So why hasn’t Chipotle followed suit and gone the obviously successful franchising route?
9 Keys You Need to Know to Buy a Franchise Through the Eyes of an Expert
Assume that I’ve already identified a franchise opportunity that fits my personal, business and financial profile and my application has been approved.