The Franchise Times recently reported on a survey conducted by the Coalition of Franchisee Associations. According to the publication, the Coalition of Franchisee Associations collected responses from “just shy of 700 franchisees,” the majority of whom own five or fewer locations. The survey responses shed light on a number of prevailing concerns, as well as some general trends in the franchise industry. Franchisee attorney Jeffrey M. Goldstein shares his thoughts below:
Nearly 30 Percent of Franchisees Closed or Plan to Close Outlets Due to the COVID-19 Pandemic
As reported by the Franchise Times, about 20 percent of franchisees surveyed said that they had to close one or more outlets due to the economic impacts of the COVID-19 pandemic. Another 8.8 percent said that they planned to close within a year. These figures far exceed those that the International Franchise Association (IFA) reported for 2020, and they conflict with the IFA’s projection that the franchise industry as a whole would rebound in 2021. This is likely attributable to the fact that assessments of the potential long-term economic impacts of the pandemic have shifted due to low vaccination rates in many parts of the country.
More Than 60 Percent of Franchisees Believe FDD Financial Disclosures are Inadequate
The Franchise Times reports that 63 percent of franchisees surveyed felt that the financial disclosures in their franchisors’ Franchise Disclosure Documents (FDDs) were inadequate. The Franchise Times article also quotes some franchisees’ comments with regard to the inadequacy of their franchisors’ financial disclosures. For example:
- “They didn’t include all the fees that I’d have to pay.”
- The FDD was “vague” in general.
- The franchisor’s projected “potential profit was not realistic.”
- Franchisees were “not briefed well enough to know what else to look for.”
While these types of issues are unfortunate, they are not uncommon. Despite federal disclosure requirements, franchisors routinely leave material information out of their FDDs (or make materially misleading statements). While prospective franchisees should be able to rely on franchisors’ disclosures to make informed decisions, this is not always the case. As a result, prospective franchisees must perform thorough due diligence, and they must engage a franchisee attorney to conduct a thorough franchise business review.
Many Franchisees Share Similar Concerns
Even setting aside pandemic-related risks and franchisors’ efforts to obscure key information, many franchisees share similar concerns. The Coalition of Franchisee Associations’ survey found the following to be the top four concerns among franchise owners:
- Limited supply chain options and franchisors profiting from the supply chain
- Lack of good faith and fair dealing
- Violations of franchisees’ protected territory rights
- Changes to the franchise agreement at the time of renewal
Contact Franchisee Attorney Jeffrey M. Goldstein
Jeffrey M. Goldstein is a national franchisee attorney who has more than 30 years of experience exclusively representing franchisees and dealers. Whether you are thinking about buying a franchise or facing a dispute with your franchisor, Mr. Goldstein can help. To learn more in a free and confidential consultation, call 202-293-3947 or request an appointment online today.
