2.+Success

Chapter 4, entitled "Success" focuses on the franchising and growth of fast food corporations, shedding light on the true success of the franchisee's in comparison to the overwhelming success of the franchise. The story begins with a narrative describing the humble lifestyle of Dave Feamster, the owner of a Little Caesars Pizza restaurant in Pueblo, Colorado. It explains that true well executed franchising began with McDonalds. Franchising led to the success of the overall corporation while many of the people who chose to invest and buy a franchise managed to profit, in proportion, minimal amounts.

The beginning of franchising began with the idea of the franchisee wanting to start their own business, but wanting a more "guaranteed" success. The actual corporation would then supply to name, their expertise, a plan, etc. for the franchisee who then fronts the money. The book used the example of General Motors in 1898, who didn't have the funds to staff car salesman and instead sold franchises to car dealers in order to grow the company. "Instead of the company paying the salesman, the salesman would pay the company," explained Stan Luxenberg.

McDonalds was the first of the fast food corporations to truly perfect the use of franchising. Ray Kroc used the mind set of expanding the company rather than making money right away to make McDonald's soar. The entire idea behind the franchises, for the company, was to come up with a way to not only expand the name of McDonald's and grow their company, but make large amounts of money in the process. McDonald's accomplished this through franchising schemes. The biggest money maker of them all did not make the person buying into the franchise pay a large up front fee, McDonald's demanded no large royalties and they didn't sell supplies. What they did do was buy properties that could then be leased to franchisee's- with a 40 percent mark up. Not only did McDonald's regulate on the business side of the agreement but McDonald's could evict them for violating a lease. Rental fees could also be added depending on their annual revenue.

Soon, corporations began to follow suit, aping the styles in which McDonald's did business, through simplicity, replication and uniformity throughout franchises. It was no longer just fast food chains mocking this style of business, but clothing stores, such as gap. Franchises exploded, franchises began more common than ever. The specific architecture of an establishment was now the brand name (McDonald's arches, etc.) which was regulated heavily by the corporation to ensure each one looked the same.

Today, at a place such as Burger King it costs 1.5 million dollars to become a franchisee, and around 500,000 dollars to purchase a McDonald's, and obviously considerably less for a smaller, less popular chain. Supporters of franchises believe that it is the best way to start a business. The book stated that an IFA (international franchise association) said that 92% of all franchises were successful. This did not include any franchise that went out of business. Another statistic was brought up in the book- 38.1% of franchises failed. The failure rate for independent businesses was 6.2% lower.

Another big concern between the franchisee and the corporation owner was that of a space concern. As popularity in fast food grows rapidly, so does the demand for it. Therefore, problems arise as more franchises of the same company are being put closer and closer to one another. While the franchisee loses money as customers are taken away because of the new franchise being put in down the street- the corporation earns money. Not only does the corporation gain money from things such as upfront fee's, supply's, land leases, etc., it also gains money from the total amount of sales in a specific area.

Adding to this, in 1978 congress passed a law to regulate franchising. However, while they must now give a lengthy description of their rules for potential franchisee's, it does not regulate how a franchise is run after that. Once the document is signed, the franchisee is not protected under an federal law that protects employee's, consumer protection laws, and they are not protected under laws that protect independent businessmen. The corporation could literally open a new restaurant right next to the existing franchisee, evict them, or make them buy supplies that they receive rebates on. The franchisee waves all of their rights to file under state law once they sign those papers, which means they must only sell their restaurant to someone approved by the corporation, and basically be fired any time they want. These corporations are often sued by former franchisees.

In 1999, Congressman Howard Coble suggested legislation that could place limits on encroachment from other franchises, only allow termination with good reason, allow associations for franchisees, let them buy from many different suppliers, and allow them to sue in Federal Court. Andy Ireland, a former congressman felt that franchisees who supported this legislation were all "whiny butts" who didn't take responsibility for their own mistakes.


 * Opposing View Point**

While franchisee's feel they have no voice and feel their freedoms/rights are being taken away, it truly is their fault. If the franchisee was truly concerned with being "taken advantage of" or not agreeing with the rules the corporation supplied, they could have read the fine print and not taken the deal. These franchisee's want a secure way to fast money and if they do, they need to follow the corporations rules. All of these franchisee's have the option of starting their own business rather than taking the label of a corporation and the strings that come along with that. The rules and regulations of the corporations guidelines are not hidden, and if the franchisee would take time to read them they would realize the rights they do and do not have in terms of protection laws. There are risks with becoming a franchisee, but also many many great successes, one must decide what they would rather have. And therefore, this by no means is the corporations fault for a franchisee's lack of judgement.