World of Franchising - SUBWAY & NAASF

A discussion of issues affecting franchisee operators in the Subway franchise system and how the system may be improved. If you have any comments and wish to contribute to this web page; feel free to email the author.

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Location: Canada

My background is in Research and Development (Science) as well as Economic Development (Business). Currently managing my own businesses. My degree; B.Comm, Finance Major.

Thursday, April 15, 2004

NAASF was formed to represent the franchisee and to provide a common voice to DAI (Doctor's Associates Inc. = Subway). In many ways this is similar to how unions were formed. The big difference is that unions were formed out of conflict with employers while NAASF was formed to work with the 'employer', DAI.

Unions had some very specific objectives and they were charged by their members to achieve these in a reasonable time. Due to the voting power of the membership it was also possible to influence politicians to change the law to include specific labor friendly legislation. This was not won easily as people even lost their lives in the struggle for fairness in the work place.

To put a franchisee in the perspective of a historic comparison one has to go back to the medieval times of kings and serfs. It is a long way back in history and actually served to illuminate how far we have to go to get to where employees are in society today.

A franchisee buys a right to operate a franchise business. They pay for all cost involved in the construction and development of the business and then pays a further royalty (I wonder where the origin of this word came from?) to the franchiser; first for the license and then as a percentage of the sales. All the risk is born by the franchisee and he may loose his investment if the business is not successfully. The success or failure is the responsibility of the franchisee. Now, I don't think there is one franchisee who disputes this or has any objection to this risk.

The area where there is problems is that the franchiser, through his development agents, may remove the franchisee at any time at their discretion. There may be some recovery of the investment if the franchisee can sell the business to another franchisee but there is no assurance of this. If the business is too successfully the franchiser will sell another franchise to another person in the same trading area, thus reducing sales to the store but increasing the total revenue to the franchiser. If the franchisee objects to this the development agent may set in motion a process to discredit the original franchisee and have him removed from the system. There is no recourse to this. If the development agent does not like an individual franchisee he may also set about a process to have the individual franchisee removed. Again there is no recourse available to the franchisee. The courts tend to favor the franchise agreement and the process of the law. In addition, the cost of going through the courts is a very expensive proposition which few small operators can afford.

When you enter into business with a partner there is a presumption of fairness and good will on both parties to do what will be the most beneficial to all. In other words to maximize the return on the investment. In the Subway franchise system this has been perverted to where what is good for DAI must be good for the franchise. In some cases this is true, but not all. Adding hours of operations without a consideration for local conditions or labor laws is a perversion of the agreement. There are many areas where having anything less than two employees on at all times is considered criminally negligent. And it should be. Adding menu items which increase food costs is not fair nor should it be done without the full agreement of all parties. Adding operational items and procedures to the store which reduces productivity without a demonstrated increase in profits is not fair. Adding equipment which is for the sole benefit to DAI and must be purchased by the franchisee is not fair.

I could go on but you get the point - I hope.

Where does NAASF fit into this scenario. As a franchisee operation one would expect that it would be very active in getting the inequities corrected as soon as possible. The reverse is almost the observed situation. They have spent franchisee money on developing a POS system which is about as poor as the one developed by DAI. They are talking about developing a training program for the stores because DAI is not doing this. No thought of how ridiculous this sounds? It is DAI's responsibility to develop a training program for their operations manual! If they don't do it and you really feel they are required to do it, sue them. Don't waste more franchisee money on something DAI should be doing.

It may be difficult for an outsider to understand how an organization which is not supported financially by franchisees represents them. It may be even more difficult to understand that there are development agents on the board of NAASF or people very closely related to them. Development agents represent DAI and not franchisees, no matter how any one individual development agent behaves or supports NAASF. Possibly one of the reasons why NAASF appears to be so timid is the very precarious revenue source. It is almost all dependent on the good will of none franchisee support!

More to come..


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