When the president of the American Franchisee Association (http://www.afa.org) spoke before the U.S. House of Representatives (http://www.house.gov) Subcommittee on Commercial and Administrative Law, she acknowledged the "highly visible" role franchising plays in the U.S. economy. But she spared no words in criticizing what she called "fundamental flaws" in the franchise structure.
"Some franchisors take advantage of those flaws," she told the committee. "The American dream of owning your own business is the lure that leads many individuals to investigate franchising as a means of small business ownership. The reality in most cases is you're not owning your own business; it's more like renting an apartment."
Harsh words. But Kezios has some figures to back up her assertions. In the AFA's Franchisee Satisfaction Survey, the group found that 40 percent of franchisees surveyed characterized their relationship with their franchisor as unsuccessful. The same amount said their franchisor has encroached upon their territory, and that they are locked in a dispute with that franchisor. More than half (55 percent) would not recommend the system to others.
Not surprisingly, Kezios is a big advocate of legislation that would regulate the franchise industry, such as the Small Business Franchise Act of 1998. Rep. Howard Coble (R-NC) sponsored the bill, which never made it to a vote. He plans to introduce a similar bill before Congress convenes for recess in August. Kezios is convinced that such legislation would ensure that franchisors and franchisees alike abide by standards of conduct.
"There's just fundamental flaws in the structure, and the franchisors' side of the fence is trying to protect the status quo, their exclusionary and anti-competitive practices," she told Suite101. "What we're trying to do is open up competition among vendors, so that they can deal with honest vendors at competitive prices. We're also trying to have both franchisees and franchisors abide by duty of good faith."
In her testimony before the House subcommittee, Kezios outlined several flaws in franchising.
1. Transfers. When a franchisee sells his site, the new franchisee must abid by the current franchise contract-not the one in effect when the current franchisee signed on. Kezios says this automatically drives down the franchise's value because the current franchisee cannot sell on the same financial and operational terms that dictated his original agreement.
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