Franchising Under Threat: Get involved to save the business model!

In many ways, the paths and opportunities for growth in franchising have never been greater. With developments in point-of-sale technology, improvements in marketing techniques, and advances in bookkeeping technology, there is no shortage of innovation blazing a trail forward for the franchise business model. However, for every powerful innovation, it seems there is an equally powerful threat to franchising coming out of Washington, D.C., and state capitals across the country.

Legislation regulating the private relationship between franchisor and franchisee, politically appointed bureaucrats making decisions for QSR owners, inquiries from the FTC designed to build a one-sided narrative based on a small number of anecdotes, and more are threatening the franchise model every day. The IFA is on the front lines of these fights, educating members of Congress, federal regulators, elected officials, and even franchisors and franchisees around the country on how franchising is a force for good in nearly every community.

The aggression against franchising is often born from a lack of understanding, including the common misperception that franchises are all big businesses and should be regulated as such. Franchising is a model created for growth and to reach new markets and consumers. This business model has the unique power to provide aspiring entrepreneurs with the ability to own their own businesses when they might not have had the tools or ideas to do so on their own. The model bolsters business ownership around traditionally underrepresented communities. Franchising has led to the creation of nearly 800,000 businesses and, as IFA’s 2023 Franchising Economic Outlook showed, continues to grow at historic rates. 

Franchising wouldn’t be seeing this growth if its business model weren’t working as well as it does. We’re not saying franchising is perfect, and there are certainly areas for improvement, but the proposals directly targeting the business model are misguided at best. At worst they are an outright attack on the business equity you’ve worked so hard to build.

Take, for instance, the case of Arkansas House Bill 1783. Before the IFA and hundreds of brands spoke out against it, the bill was written to insert the state government into the commercial contract between private parties. It would have been the most extreme franchise regulation of any state. Fortunately, after the franchising community spoke out, the bill that was signed into law was merely a technical change to existing law; the worst of the proposal was spared. Unfortunately, what starts in one state tends to spread to others as we have seen with California’s FAST Act. This is but one example of the many significant state-level threats that have arisen this year.

Now, franchising in California is facing yet another piece of legislation, Assembly Bill 1228. This legislation, which passed the Assembly on May 31 and was being considered in the Senate at press time, would establish joint liability between California QSR franchise brands with 100 or more locations nationwide and their independent franchisees. This is a direct retaliation for California voters speaking out to put the FAST Act on hold until they can have a say. Joint liability would erode the heart of the franchise model and threaten the livelihoods and independence of tens of thousands of restaurants in the state. 

And in Washington, D.C., the FTC just finished collecting comments through a recent RFI that consisted of a series of 75 questions on “Franchisors Exerting Control Over Franchisees and Workers” and clearly written with an outcome in mind. It is apparent this process was designed to yield incomplete and anecdotal accounts of franchise relationships rather than a holistic picture of franchising as it exists across the 800,000 franchised businesses in more than 300 industries. In addition, it could be used for future rulemaking against the franchise business model. To counter this, hundreds of franchisors, franchisees, and suppliers weighed in to share their positive franchise experiences, helping provide a more accurate and balanced approach than the FTC seeks.

With all these challenges and more on the horizon, the situation can seem daunting. But it doesn’t have to be. As we know, franchising creates opportunities for growth unlike any other way of doing business, and the single most important infrastructure for protecting your business is advocacy. Elected officials do not understand your business the way you do, and your voice makes the difference. Whether it’s the desired outcome in Arkansas, Californians stopping the FAST Act, or the franchising community working to ensure the FTC doesn’t harm their businesses, speaking out to policymakers and advocating for the issues that affect your livelihood day in and day out can change the game.

To this end, IFA is here to help connect you with your government representatives and increase your impact in any way we can, from our grassroots network of franchise advocates known as the Franchise Action Network (FAN). to our Open for Opportunity Roadshow. to our flagship D.C. event, the IFA Advocacy Summit this September. Franchising needs you, your voice, and your advocacy to continue growing, and with it, your business will thrive and grow too.

Matthew Haller is president and CEO of the International Franchise Association.