The equity extraction scheme that was exposed by 7-11 Employee Kurt McCord brings back painful memories for me. The scheme is eerily similar to what was perpetrated against Dunkin’ Donuts franchisees from 1998 thru 2008. In that period it is estimated that Dunkin’ Brands extracted over $100 million dollars of franchisee equity from hundreds of franchisees using similar tactics described by Kurt McCord.
Onerous franchise agreements create the tool, greedy investors set the stage, failure to meet sales or development goals create the desire for C-Suite management to look for other means to generate cash flow and bingo the franchisee equity extraction scheme is launched.
Outspoken franchisees are first ones on the hit list then come franchisees with high volume stores because they have the most equity to extract. Before you know it, they will going after the majority of franchisees. There were over 350 lawsuits at the height of Dunkin’ Brands scheme out of 1250 franchisees in the system at that time.
UPS is using a similar strategy in New York to move out outspoken franchisees and bring in other more pliable ones while getting transfer fees too, a side benefit for UPS.
Michael Seid and the IFA lobbyists scoffed at the suggestion that franchisee equity extraction is a problem in franchising. In Maine the IFA and franchisor lobbyists said that “there isn’t a problem in franchising, just with Dunkin’ Donuts franchisees, it’s an isolated incident”, well it looks like the quarantine is over and the equity extraction scheme is no longer isolated.
In Maine the IFA refused to accept any attempt to diminish franchisors ability to extract equity from franchisees, they even opposed “Freedom of Association” or termination with good cause, which is central to the effort of stopping equity extraction schemes in their tracks.
The position taken by Michael Seid and the IFA in Maine is not to save “the franchise business model” it’s to save the ability for the larger franchisors to treat their franchisees anyway they see fit. IFA membership fees are based on number of units, companies such as 7-11, UPS, McDonalds pay the highest fees to the IFA.
There is a need for pro-franchisee legislation to protect and defend the equity that belongs to franchisees. By the way 7-11, UPS and McDonalds endorsed the IFA’s position against pro-franchisee legislation in Maine and New Hampshire and they will continue to do so.
Also posted at BlueMauMau