Key Highlights
- Corporate policies are unacceptable to franchise owners and often result in massive losses.
- Congress should ensure that regulatory bodies such as the Federal Trade Commission are properly staffed, as well as strengthen rules to reform the operation.
- Between 2010 and 2018, franchise owners opened 353,685 stores but the number only increased to 78,878.
Poor regulations led to the fall of the franchise model
U.S. Senator Catherine Cortez Masto calling for better Congressional and regulatory regulation of franchise companies. This also includes famous brands like Burgerim, Subway, Dickey’s, and Quiznos. Unfair and misleading franchise offers force countless franchisees into bankruptcy. The five guys franchise cost is also increasing with time. Cost taxpayers tens of millions of dollars in failed loans per year. When restaurants struggle, it is not just the franchisees that are left with the boot. Taxpayers do as well. US Small Business Administration is frequently approving loans to “at-risk” franchises. Franchise companies partake in unethical tactics or impose discriminatory regulations, such as requesting fees for insufficient preparation or imposing unfair contracts. They are still using government incentives and conditions to appear as a controlled investment or help in funding. The government unintentionally condones franchises’ misrepresentation.
Related: All you need to know about MrBeast’s Virtual Restaurant Brand
Franchise loss is becoming more widespread
Failure of a franchise is more popular than it seems. Between 2010 and 2018, franchise owners opened 353,685 stores. The overall number of franchises increased by just 78,878 which means 274,807 franchised outlets closed throughout that period. According to the survey, the International Franchise Association estimates that 8.67 million employees will operate for 785,316 franchises in 2020.
Franchises are considered a profitable business model. The real figures are revealed, shows that a large number of retail openings without taking into account store closures.
Franchising is a long-standing business strategy in which franchisors sell the right to run a company to franchisees. Franchisees take on the financial responsibility of opening and operating new stores. Poor regulation led to the loss of any company.
Burgerim, losing the investment
Burgerim’s issues were first exposed in a lengthy Restaurant Business investigation last year. According to California prosecutors, the firm reportedly took $57 million in franchise payments from 1,500 investors before its creator fled the country. The vast majority of those who applied were unable to open a restaurant and lost $50,000 in franchise fees though many of those who did were successful.
Major franchise complaint
- Unfair and misleading arrangements that grant the franchise corporation almost complete control.
- Inaccurate statements and a lack of accuracy in financial disclosure documents.
- Vendor kickbacks that push up operators’ food costs, as well as excessive payments with little actual value.
When franchisees of such brands struggle, they often end up failing to pay back loans backed by the U.S. Small Business Administration. Such loans come with personal guarantees meaning the operator could lose their homes while costing payers millions. When the franchisees fail, the government ends up paying.
Also Read: The 10 Leaders Transforming Franchise Business 2021
