Several large fast food chains are subject to investigation by the Federal Trade Commission as allegations of abuse of franchisees recently came to light by companies like Subway and McDonald’s.
According to Catering company, Keith Miller of Franchisee Advocacy Consulting and the National Coalition of Associates of 7-Eleven Franchisees sent a formal request to the FTC, asking the government agency to investigate nine major national franchises, including the fast food giants aforementioned, based on abusive franchising practices.
“This petition provides an opportunity for the FTC to play a proactive role in evaluating the franchise industry,” Miller said. “We call on the FTC to take a comprehensive look at the imbalance of power in our industry today.”
The request follows the FTC’s renewed commitment to further investigate franchisee agreements. For its part, the agency circulated a memo to employees last week, saying their main areas of focus would be take it or leave it, contracts of non-compete, restitution restrictions and exclusion clauses, Catering company reported.
“We have seen how abuse of market power and consumer protection concerns can emerge when unilateral contractual arrangements are imposed by dominant firms,” Khan wrote. “Consumers, workers, franchisees and other market participants are at a significant disadvantage when they are unable to freely negotiate terms and conditions.”
Here’s a look at four restaurant chains whose franchise practices may soon come under government scrutiny. For more, check out The Locations of This Crumbling Burger Chain Change Names and Go Rogue.
We have reported extensively on Subway’s controversial franchise management. Whether it’s forcing franchisees to make losing decisions or changing their signed deals without warning, the chain has suffered long-standing despotic treatment of its operators.
The latest development in the franchise agreement was particularly drastic: the chain increased its royalty rates from 8% to 10%. However, he gave operators the choice of signing the new agreement or staying at an 8% rate with several much tougher conditions imposed. The new terms would prevent owners from reporting the brand, charge them high fees if they closed their stores, and give businesses the power to dictate store hours.
Subway commented on the matter, stating, “Our franchise agreement and all of its terms are disclosed in the [franchise disclosure document]. The terms are competitive with others in the QSR franchise industry. “
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The controversy surrounding McDonald’s handling of its dessert machine repairs is one of the main reasons the FTC has conducted preliminary investigations into the chain. According to The Wall Street Journal, the agency contacted McDonald’s franchisees this summer for information on how the company reviews suppliers and equipment and how often operators are “allowed to work on their own machines.”
McDonald’s operators have been involved in a maintenance battle for the sweet serve machines for some time. They allege that the chain and its OEM Taylor have a monopoly on repairs to machines known to be extremely picky and oversized. When a third-party tech company Kytch created a shackle that would allow restaurateurs to troubleshoot and repair the machines themselves, Taylor attempted to block those efforts and steal the technology, Kytch makers claim. The case is now before the courts and involves a restraining order.
The world’s largest barbecue franchise is important for a reason: the business has grown rapidly since 2010 thanks to the franchise system. However, the chain has also seen an alarming rate of restaurant closings in the United States, many of which have been brought about through terminations of franchisee agreements. Catering company reported in 2019 that 135 locations had been closed this way in two years, representing one in four locations in the chain of 550 units.
“We are proud of our business model which has helped create so many successful franchise operators,” Dickey’s said in a statement. “While we intend to cooperate with any review, we do not know of anyone we have worked with, done business with, or even spoken with who is involved in this petition. [to the FTC]. “
One of the world’s largest franchise companies was recently accused of forcing its operators to keep stores open 24 hours a day, even during a labor shortage crisis. But this is not the first strain on the relationship between the mega-company and its franchisees.
The chain, which sells everything from pizza to gasoline, has increasingly reduced the bottom line for its operators over the past two decades. In 2018, he came out with a new contract that made profits for franchisees even more difficult: the company demanded a new franchise renewal fee of $ 50,000, required stores to open at Christmas, and required operators to use suppliers who could not guarantee the best prices for items sold in stores, according to a report by The New York Times.
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