Learn what members of the International Franchise Association Board of Directors have to say about the state of franchising.
Franchising World January 2012
EXECUTIVE COMMITTEE
Jon L. Luther
Chairman, Dunkin’ Brands IFA 2012 Chairman
The most significant challenge facing franchise today is the potential impact of political/policy decisions. While the political arena may act in well-intended ways, the end result often puts immense pressure on business enterprises, particularly small businesses, and that means franchising. This pressure can result in jeopardizing the financial viability of the franchise operation, restricting job growth, ultimately reducing interest in participating in the entrepreneurial aspect of franchising and damaging the passion of the American Dream. We must get in front of potential policy changes that are negative to franchising and present our views to persuade policymakers to alter the outcome in our favor.
Stephen P. Joyce
President, Chief Executive Officer Choice Hotels International, Inc. IFA Second Vice Chairman
The most significant issue facing the franchise industry in 2012 is access to credit. It is imperative that the federal government and banks work together to thaw what are essentially frozen credit markets. Providing access to capital will help bolster our nation’s economy by accelerating job creation. For our company—the nation’s second-largest hotelier with nearly 5,000 properties open in all 50 states—easing access to credit will facilitate the development of new hotels, as well as enable owners of existing assets to reinvest in their hotels to meet evolving consumer preferences.
Steve Romaniello, CFE
Managing Director, Roark Capital Group, Chairman, Focus Brands IFA First Vice Chairman
The most significant issue facing the franchise industry and business in general is uncertainty. Whether it be the unknown costs of health care and the new financial regulations or the uncertainty regarding the tax code, business owners and managers are hesitant to make decisions without knowing the outcome of these and other issues. Many will continue to wait to make decisions, to invest or to hire, until they have a much better idea of what the outcome will be. Historically, small business has been the nation’s economic driver and until certainty returns to the marketplace and small businesses can once again invest and hire with confidence, the economic recovery will be hampered.
Melanie Bergeron, CFE
Chairwoman, TWO MEN AND A TRUCK/INTERNATIONAL, INC. IFA Secretary
The most significant issue facing the franchise industry for 2012 can be summed up in one word: “uncertainty.” Whether it is health care reform, access to capital, possible high taxes, forced union polarization or regulation, there is a lot to worry about. The increased costs to operate due to initiatives from Washington combined with the uncertainty of more regulation makes even the healthiest of businesses hesitant to invest and add to employment rolls. At Two Men And A Truck, we will continue to keep our focus on our customer while supporting FranPAC to protect our franchising industry.
Harry D. Loyle, CFE
Managing Director, Cybeck Capital Partners; Chairman, ComForcare of Dayton IFA Treasurer
There is no new normal. While each franchise system and every individual business will have its own opportunities and challenges, I believe our common issue will be our ability to deal with the unprecedented amount of change. From macro economics that now include the entire world, to government involvement, to changing demographics and psychographics, to the local competition on Main Street, we are barraged with changes, many of them unique and faced for the first time. To truly succeed, we will need the information and metrics that first identify the need to change and then the fortitude to use the information to make the decision and implement it.
Kenneth D. Walker, CFE
Chairman and Chief Executive Officer Driven Brands, Inc. (Formerly Meineke Car Care Centers) IFA Past Chairman
Getting financing for franchisees, it’s so hard to get, draining the ability of getting stores opened. On a scale of 1-10, it’s significant, it would be a 9+.
John A. Kujawa
Vice President of Franchising McDonald’s USA, LLC IFA Franchisor Forum Chairman
The biggest issue facing the franchise industry today is outside intervention in the franchisor-franchisee relationship. When third parties interfere with fully agreed upon contracts being enforced as written, protecting the interests of the brand (including the franchisees and customers) becomes much more difficult. To ensure the success of its system, a franchisor must safeguard its brand for the mutual benefit of both parties and for its customers. No one benefits from protecting underperforming franchisees.
John “Jack” Earle
Managing Partner Earle Enterprises LP IFA Immediate Past Chairman
A key responsibility we have as an association is to advocate for pro-business outcomes on health care, taxation and access to credit for franchise businesses so that we can do what we do best: create jobs and stimulate economic growth. Though the challenges are formidable, we must recognize the progress we are making through consistent efforts and the relationships we have established. I am so appreciative of the efforts made on behalf of franchising by so many. Steve and his team, the board and countless members of the IFA have ensured our voice is being heard. We are making a difference.
Saunda Kitchen, CFE
Owner Mr. Rooter of Sonoma County, Calif. IFA Franchisee Forum Chairwoman
Whether it’s franchise expansion by way of buying and selling a new brand, or franchisees growing to multi-units or multi-concepts, capitalization is imperative to provide the certainty employers need to expand job creation. Many of my colleagues have discussed how good franchisees have had to implement significant cut backs, reduce staff, or even worse, close their doors due to under capitalization. Consumer confidence begins and ends with jobs. To fuel the regrowth of the economy, we must first give those on the frontline the ability to continue to create jobs. Entrepreneurs, especially those in the franchise industry, are the backbone of employment all over the world.
Darrell M. Johnson, CFE
President and Chief Executive Officer FRANdata IFA Supplier Forum Chairman
The most significant issue facing franchising in 2012 is economic predictability. Uncertainty leads to more conservative business decisions and even inaction, which in turn creates a further drag on the economy. Almost every business wants to grow revenues and add jobs. Congress can improve economic predictability with more business-friendly tax and health care programs. Lenders will make more capital available when franchisors provide better system-wide credit risk information. Franchisors can reduce uncertainty for their franchisees with greater benchmarking of operational and financial performance within their franchise systems and across other systems. BOARD OF DIRECTORS
Doug Allison
Vice President of Industry Relations and Communications PepsiCo Foodservice
PepsiCo and the franchise industry share many of the same challenges so I can speak from the perspective of both. In an increasingly valueconscious world, whether it’s PepsiCo’s food and beverage brands or a franchise concept, for consumers to spend money on your product, they must immediately feel like they’re getting an equal or greater benefit in return. Diversity in developed and emerging markets, as well as in product offerings, is a key component of providing that value, especially during the continued economic challenges consumers are facing. With commodity prices pressuring businesses everywhere, and an understanding that bottom-line results begin and end with consumers’ acceptance of your product, another key to success is the ability to balance price with value. Finally, it is critical to provide products that have broad appeal whether your target is value conscious consumers or those who are willing to pay a little extra for a premium product.
David B. Barr
Chairman PMTD Restaurants, LLC (YUM! Brands, Inc.)
Uncertainty! Operating businesses in any environment is the art and science of evaluating risks versus rewards, and within that context there is always some level of uncertainty. However, in 2011 and projected into 2012, there is a tremendous amount of uncertainty regarding legislative and regulatory matters, including taxes, health care, access to credit, NLRB actions and federal government budget discussions. This uncertainty is resulting in fear among the small-business community. We need to replace this uncertainty with confidence. If small businesses are able to appropriately able to assess risk, then they will begin to grow once again.
James Anhut
Chief Development Officer – The Americas InterContinental Hotels Group
Susan E. Black-Beth, CFE
Chief Operating Officer Super Wash, Inc.
I am most concerned about the strain these challenging times could put on the relationship between franchisors and their franchisee partners. With many individual units facing uphill battles, that puts pressure on franchisees to make ends meet any way they can, including: using cheaper/lower quality products (which can lead to system standards violations); reducing front-line staff; over-promising to a client, but under-delivering; and so forth. I believe we must be vigilant, reliable, available and understanding, but firm partners to our franchisees to ensure joint success. They must know we care about them and their business.
Joe Bourdow, CFE
Senior Advisor Valpak
Access to credit continues to be the biggest issue facing franchising because the lack of it has stunted the growth in new-unit development, and, in many cases, even where development agreements were already in place. Countless new jobs would have been created if these units could have been opened in the past few years just since the downturn. IFA has taken a strong national leadership position on this issue in the past 12 months by bringing the issue to the forefront with the Credit Summit in April and through alliances and new programs being developed in cooperation with the banking industry associations. I expect to see the credit access picture begin to improve in the next 12 months as a result of these efforts, franchise unit growth begin to accelerate and new jobs created in the many industries we represent. Liam Brown
Chief Officer, Owner and Franchise Services; Chief Operations Officer, Select Service & Extended Stay Hotels; The Americas/Marriott International
The most significant issue facing the franchise industry is uncertainty. Political uncertainty and uncertainty as it pertains to regulation, pro/anti-business rhetoric, higher taxation, fiscal policy and economic growth. This uncertainty breeds caution and ensures that the business outlook is opaque. As a consequence, lenders don’t lend, capital formation and investment becomes more problematic and we end up in a self-sustaining negative cycle of caution that affects risk taking, thus impacting new business formation and existing business growth, thus killing jobs and opportunity.
Rocco Fiorentino, CFE
President Swiss Farm Stores
Economic strength is certainly a significant issue for the industry. In working through the economy that we have been experiencing since 2007, there are multiple factors posing a challenge in the business environment. It is not just limited financing. The bottom line is that 2012 will be as good as we decide to make it. We must constantly adjust our sails without losing sight of our destination. Those in business, driven by disposable income, will continue to trend in the same direction as the economy unless they outmaneuver and out market their competition. Apple is a great example of this. Now is the time to focus on core competencies, customer service and innovation.
William G. Hall, CFE
Chairman of the Board and Chief Executive Officer International Dairy Queen
The continued lack of access to credit for small businesses and the costs and uncertainty of the new health care laws are the big issues facing franchising in 2012. The lack of leadership from the administration and Congress has put small business, and therefore franchising, at risk. The implications of these two “elephants in the room” have and will restrict job creation that is so vital to the recovery needed in this country. IFA has taken a leadership position on both these issues and hopefully will continue to work for solutions that are fair and will work for franchising.
Carlton L. Curtis
Vice President, Industry Affairs Foodservice & Hospitality Coca-Cola North America
For the past nearly 40 years, I have worked for what is probably the first franchised business, Coca-Cola. And it was mostly an accident. Coca-Cola started as a hand-mixed beverage sold in drug stores with a soda fountain in 1886 in Atlanta. Near the turn of that century, the product had significant distribution as a fountain beverage when in 1899, two businessmen from Chattanooga, Tenn. asked for the rights to produce Coca-Cola in bottles. The owner, Asa Candler, didn’t think there was much of a business there, but at least he could sell them some syrup. With the exclusive rights for almost all of the United States, the two businessmen set out to sub-license the rights across the country. In each market, they sought out the best partners with the right access to capital. It worked out pretty well for everyone. For success today, not a lot has changed. Find the right franchise partners with the right access to capital, and it works out pretty well for everyone.
Lane Fisher, CFE
Partner FisherZucker, LLC
Clearly the most significant issue facing the franchise industry in 2012 continues to be access to credit. The resounding message we hear over and over from the 75 brands we represent is that otherwise qualified prospects cannot find lenders to finance their franchise. In addition, existing multi-unit franchisees, who represent the largest pool of new unit purchasers, need ongoing access to credit to fuel and grow their operations and obtain market efficiency. While recent legislation helps bridge the gap for some, we need a way to restore credit access for good companies with sound business models.
Scott R. Haner, CFE
Director, Franchisee Recruiting KFC Corporation
The most significant issues facing the franchise industry are franchisee access to credit and the uncertainty of future operating costs due to implementation of the health care reform law and increased government regulation. Credit access is critical for franchisees to build new locations; many brands, especially emerging concepts, can’t get the funds they need to grow. Franchisees grow when they feel optimistic about receiving a reasonable return on their investment. Business ROI is near impossible to project with rising health care costs and fees and ever increasing government demands; this uncertainty causes small-business owners to forego expansion, at least until the future business climate is more clearly defined.
Michael D. Joblove
Partner Genovese Joblove & Battista, P.A. IFA Supplier Forum First Vice Chairman
Stuart Mathis
President The UPS Store
As we enter 2012, economic uncertainty is on everyone’s mind, including those within the franchise industry. We have some very real challenges ahead of us in the franchise industry, namely access to credit, government regulations, including health care and national labor reform. To weather these challenges, IFA will continue to create awareness of the impact these issues have on franchise businesses.
Aziz Hashim
President and CEO National Restaurant Development Holdings IFA Franchisee Forum First Vice Chairman
On the surface, the goals of franchisors and franchisees are diametrically opposed. Franchisors make their returns off the top line, while franchisees make theirs off the bottom line. In today’s economically challenged times, these opposing objectives can unnecessarily stress franchising relationships. Therefore, the most important challenge facing our industry is how to foster a true partnership relationship between these two groups. The partnership is not a legal one, but one of attitude. We, as an industry, have to do what our government often fails to do: understand each side’s aspirations and work together to establish a healthy, sustainable, mutually advantageous platform for our great industry.
David Liniger
Co-Founder and Chairman of the Board RE/MAX, LLC
I think the bipartisan standoffs in our political parties are wreaking havoc with our economic recovery, unemployment rates and consumer confidence. The middle of the road 80 percent of our population who could find realistic solutions are being held hostage by the radical 10 percent on the the left and the radical 10 percent on the right. The current crop of politicians are no longer statesmen.
Margaret McClain McEntire
Owner/Founder Candy Bouquet International, Inc.
Currently, the most significant issues facing the franchise industry continue with the worldwide economic conditions and financing of franchises. With the current economy, individuals and groups alike are hesitant to spend and have pulled back, hording cash and currencies of all types. Spending becomes a necessity and not a pleasure. The recession may be less grim than some conclude, but this does not take into consideration the lack of the number of loans that are being processed. The Federal Reserve considers the record rate of mortgage delinquencies, foreclosures and their impacts on communities as urgent problems.
Barry Miller
President NBM Management Inc. (Sylvan Learning Center of Girard, Ohio)
The business environment has shifted in ways that we are only beginning to understand . Many of the assumptions we have counted on for decades are no longer true. For example, franchisees have enjoyed multiple sources of credit and many business plans have been based on this availability. Franchisees with a moderate number of units have found lines of credit have been reduced or canceled, regardless of history or performance. They now have few if any options for expansion or even remodeling. The lack of rational credit lending is restricting business growth and ultimately preventing our economy from expanding and creating jobs. IFA efforts in these areas must have top priority.
Tabbassum Mumtaz
President and Chief Executive Officer Apex Restaurants Management, Inc.
When a business is experiencing difficulty in maintaining positive cash flow, it becomes extremely important for both the franchisee and franchisor to develop and implement strategies and plans to improve the bottom line. Looking at 2011 and beyond into 2012, my priorities for growing the business always start from a bottom-up perspective. In the current economy, you are fighting for every single sales dollar in a highly competitive and saturated market. We anticipate that 2012 will be a strong year for those companies that demonstrate a willingness and ability to develop mutually beneficial partnerships with their franchisee community. Only by continued growth in the profitability of its franchise operators will companies be enabled to reinvest in their core business and grow the value of the brand.
Catherine Monson, CFE
Chief Executive Officer FASTSIGNS International, Inc.
Rather than address just one issue, I am going to address two: access to credit and our government’s over regulation and taxation of business. Both pose significant limitations to small business and franchise growth in the years ahead. Our government continues to make it even more challenging to open and operate a business with the myriad of regulations, mandates and high taxes. And the lack of access to credit for creditworthy franchisees and franchise candidates is hampering franchise growth. Both of these issues constrict the potential economic growth and job creation potential of franchising, which is needed to get our economy growing again.
Todd R. Recknagel, CFE
Partner and Board Member Mr. Handyman International
Clearly franchising provides the jobs, growth and taxes our economy is begging for right now. The issue facing us is a lack of available capital invested in the growth of these businesses. Because of diminishing cash assets, home equity and 401(k) retirement assets, the top three capital sources for funding a small franchise, new franchise development has been hampered in all sectors. Unfortunately our government, while dealing with its own problems in debt, housing and Obamacare, stood idle in providing SBA guarantees and programs lending to franchising or small business in general over the last three years. I have been very pleased with IFA’s efforts to push this very important issue forward in 2012.
Michael H. Seid, CFE
Chief Concept Officer CFWShops and Managing Director MSA Worldwide
Franchising will be facing several significant challenges over the next 18 months, including the emergence of franchise relationship laws, the continuing difficulty of franchisees to obtain financing, declining same-store sales in some sectors, difficult financial conditions for some franchisors because of slowed expansion and reduced revenue and a potential increase in litigation between franchisors and franchisees because of the general economic stress. Given the 2012 election period and a continuing dysfunctional Congress and the president (at least until the elections are over), looking for non-governmental solutions to franchising’s problems will be essential as will the continuing paradigm shift from franchise system growth to brand and relationship management.
Shelly Sun, CFE
CEO and Co-Founder BrightStar Franchising LLC
The most significant issue facing franchising in 2012 is a continued regulatory environment that is negatively impactful to the growth of small businesses. Health care reform should be repealed. Tax rates for corporate entities should be reduced and individual tax rates for employers should remain at current levels or lowered. Laws and regulations such as those introduced by the NLRB should be tabled to create an environment of stability from which businesses can feel good about growth, investment and job creation.