Hospitality Net published an insightful article also applicable to non-hospitality franchisees. Below are excerpts:

1. good Faith Or Bad What Constitutes A “wrongful” Termination Of A Hotel Franchise Agreement?

However, it should also be noted that if a franchisor has legitimate business reasons to justify termination of the franchise such as the failure to pay franchise fees or royalties, the Court may not care that the termination was also motivated by an improper reason and may uphold the termination based upon the legitimate grounds.

2. Does a Hotel Franchise Agreement Contain an Implied Covenant of Good Faith and Fair Dealing and, If So, What Is It?

Generally speaking, it’s the franchisee who attempts to use the implied covenant “creatively” to assert rights which may or may not be expressed in the contract. The franchisor, on the other hand, is likely to claim that the franchisee is using the implied covenant as a “blank check” to create a contractual right which doesn’t exist and to “rewrite” the contract in a manner which is more favorable to the franchisee.

3. After a Notice of Termination is Served, Should the Franchisor Or Franchisee, or Both, Run to Court to Obtain an Injunction?

By striking first, and moving for a preliminary injunction to prevent termination of the franchise, the franchisee may be able to focus the Court’s attention on the franchisee’s strongest argument — that without an injunction, the franchisee will lose its business, forfeit its investment and have its franchise canceled.

…it never ceases to amaze me…this one from India:

Apollo Health and Lifestyle limited Ltd. (AAHL), the wholly owned subsidiary of Apollo Hospitals, has launched boutique maternity centers. To be called the “The Cradle”, these state-of-the-art specialized maternity care centers will cater to the needs of expectant mothers and newborns.

The Cradle is targeted at parents who do not compromise on quality. It will bring to Indian mothers the best birthing facilities all under one roof in line with global trends like private birthing suites for normal deliveries as well as fully equipped OTs, entral foetal monitoring.

On an unrelated note, if you like to take pictures, here is a sports and school photography franchise (no franchise fees – so higher royalties):

Today, Future Stars Sports Photography is one of North America’s premier, franchised sports photography services, providing youth sports organizations with high-quality, innovative photo products and unparalleled service. It is complemented by Pegasus School Images, launched by Bruno in 1999. Recognized for its superior product line and comprehensive school program, Pegasus has become one of the fastest-growing school picture companies in North America.

More biting accusations from 28 Quiznos franchisees in this class action in Wisconsin. Here are some excerpts:

Quiznos Sub forces its franchisees to buy food and supplies from the company or its approved vendors at unfair prices and sets retail prices too low for the stores to make a profit, according to a lawsuit filed by 28 operators of Quiznos franchises in Wisconsin….

The lawsuit, which seeks millions of dollars in damages for lost investments, accuses Quiznos of fraud, violations of federal and state antitrust laws, racketeering, breach of contract and violations of Wisconsin’s fair dealership law, attorney Justin Klein said Tuesday…

“They tell you who you can buy from and who you can’t buy from,” he said. “The prices are unreasonably high. Quiznos gets rebates from approved vendors.”

Is arbitration preferable to litigation? While it is usually less expensive, this case illustrates how things are rarely simple in litigation or arbitration:

BACKGROUND:

MailCoups…provided the 30-page preprinted form contract, which contained an arbitration clause that reserved MailCoups’ right to protect its intellectual property in court and provided for arbitration proceedings to be held in Boston at the American Arbitration Association regional office closest to its headquarters.

DISPUTE:

In September 2000, Nagrampa [franchisee] unilaterally terminated the agreement after two years of operating her MailCoups franchise in Contra Costa County at a loss. She allegedly incurred over $180,000 in personal debt and had to pay more than $400,000 in fees to the franchisor, but did not receive the 41 percent in profits that the company had promised her.

Claiming Nagrampa owed it over $80,000 in fees, MailCoups initiated arbitration proceedings in December 2001, initially designating Los Angeles as the hearing location. After her attorney objected to the proceeding and refused to file a response to the arbitration, the AAA case manager notified the parties that the hearing would take place in Boston in accordance with the arbitration clause’s forum selection provision.

The arbitration clause in a Mailcoup’s Franchise Agreement allowed the franchisor to pursue intellectual property claims in court while restricting all of the franchisee’s issues to arbitration, and designated Boston as the arbitral forum.

CLAIMS:

Among her [Mailcoup’s franchisee] various claims was a cause of action challenging the validity and enforceability of the arbitration clause as violating the California Consumer Remedies Act. The clause was substantially one-sided, unconscionable, oppressive, outside her reasonable expectations and contained within an adhesion contract, the franchisee alleged.

JUDICIAL DECISION:

It was procedurally unconscionable because “Mail Coups had overwhelming bargaining power, drafted the contract, and presented it to Nagrampa on a take-it-or-leave-it basis,” she wrote.

Moreover, the judge noted, Nagrampa was a first-time franchise owner and apparently had no specialized education or training in the direct marketing industry even though she had been a sales manager for some years.

The clause was also substantively unconscionable because the forum selection and provisional remedy provisions exhibited a lack of mutuality.

“The parties’ bargaining positions were unequal, resulting in an oppressive contract of adhesion containing a forum selection clause that places venue in Boston, Massachusetts, only a few miles away from the MailCoups headquarters in Avon, but three thousand miles away from Nagrampa’s home,” Wardlaw said.

The arbitration clause was so permeated by substantive unconscionability that it cannot be cured by severing it from the contract, she concluded.

** Judge Kozinski (occasionally batted around as a possible Supreme Court nominee for President Bush) dissented:

In a separate dissent, Judge Alex Kozinski argued that Nagrampa had waived her right to object to arbitration by dint of her participation in the proceedings, however minimal. He also called the decision a “paternalistic endeavor” that carried “seeds of great irony.”

“By invoking the unconscionability doctrine to protect ‘the little guy’ in this case, the majority has construed California franchise law in a way that will result in fewer opportunities for other ‘little guys’ in the future,” he wrote, explaining that only those who are economically on par with corporations are considered “sophisticated” enough to enter into enforceable arbitration agreements.

“The result is that fewer aspiring business owners—many of whom are minorities and first generation Americans—will find franchisors willing to offer them opportunities like the one MailCoups offered to Nagrampa,” the judge said.

McDonald’s plans to replace more of its kids’ Playlands next year with R Gyms (R = Ronald). R Gyms are mini-fitness areas within the seating area of McDonald’s and feature stationary bikes, monkey bars, obstacle course, and various dancing and jumping activities. There are only 7 in the US right now. I hope this doesn’t turn into a liability magnate for McDonald’s and their franchisees, because it is worthwhile endeavor and will help teach kids to equate fun with exercise.

update Dec 8: McDonald’s Corp. said Friday that same-store sales rose 6.2% in November, as more U.S. customers came in for breakfast and late-night meals.

Franchises (particularly restaurants) are slow in incorporating efficiencies and technology. We’re all aware of the new technology out there (gaming, wireless, Internet, flat-panel TVs, handheld devices), but now think of your typical Subway or Arby’s? High-tech and fresh? I haven’t noticed a change in 10 years!

A few recent examples of streamling that should have caught on much fast are in the high-tech Alternative Payments, Ordering & Entertainment space:

• fast-food accepting credit cards
• offering “fast pass” or other radio transmitter payment options to speed payment (like gas stations).
• Centralized call center for drive thrus,
• touchscreen self-ordering ordering systems for customers (in both fast food/casual and sit-down restaurants (like movie theaters),
• gaming, internet, television and other entertaining activities while you eat,
• wireless handheld ordering systems for waiters/waitresses.
• automated/robotic fountain drink dispensers

Small, but annual high-tech improvements that refreshes the customer experience with convenience and entertainment goes a long way in generating repeat customers and word-of-mouth buzz.

While the menu and customer service must be at least average, the main differentiator in attracting customers is atmosphere and theme. Having a high-tech reputation will create a premium perception and enable the charging of corresponding premium prices.

Herein lies a weakness in most franchise systems – Franchise Agreements do not require the speedy adoption of innovative improvements. Additional capital expenditures in most franchising systems beyond what is required to startup are typically only mandatory when the Agreement is up for renewal in 10+ years. Without uniformity in a product offering, customers will become frustrated and resentful when only 65% of the restaurants stay on the cutting edge.

Advice? Can the franchise you are thinking of buying survive a store with similar quality food but top-notch systems like the ones described above? Look for franchise offerings that quickly adopt, incorporate and promote their focus on high-tech conveniences and entertainment, and expect their franchisees to continue to invest wisely in new innovations. There are not many restaurant franchise offerings out there now that match this criteria, but customers will gravitate to a fresh and familiar high-tech atmosphere.

• Papa Johns down .6% four weeks ending Nov 19
• Applebees down 3% four weeks ending Nov 19
• Wendy’s: October same-store sales at Wendy’s franchised restaurants were 1.8% compared to negative 1.0% in October 2005.
• Cracker Barrel (not franchised): restaurant sales increased 1.4 percent and retail sales 4.4 percent for the first quarter that ended Oct. 27, compared with last year’s first quarter. Revenue was up 4.3 percent to $558 million for the same period.
• Limited’s (not franchised) November same-store sales rose 12%,
  
• Pacific Sunwear’s (not franchised) monthly comps declined 3.8%, and
  
• Bebe Stores (not franchised) had a same-store sales increase of 5.6%.
• Guess? (not franchised)said comparable sales were up 12.1% in November, and
  
• Wet Seal (not franchised) had an increase of 5.5%
• Pier 1 had another drop, with same-store sales falling more than 15%.

Here is an article discussing 10 tips on making it in the PC repair business.

Most important tips (#2 and #5)…

#2. Determine who your ideal customer is. If you’re looking to sell and service computers within your local community and remain a one-person operation, residential clients may suit you best….If you decide to target the non-residential market, think small. “Niching is one way to go,” says Reaves.

• My comment: If you are going to put any serious time into this business, you need to understand what strategy will give you the most return on your time. Are you going to offer an innovative service in a growing market segment that meets an otherwise unmet need? You better!
• Do you have the people skills to sell your consulting services through networking and intelligent promotions? If not, either take in a partner who can sell or stick with your day job.

#5. Market your business everyday…. “I easily put in five to 10 hours a week of promotion,” says Jason Kaufman, owner of Computer Troubleshooters of Mamaroneck, New York. “This doesn’t mean just sitting at a desk, punching out press releases. You’ve got to get your face out there, go door to door if you have to, to let people know you exist. If you’re bashful–not comfortable putting yourself out there or handling rejection–you might find this business isn’t for you.”

• My comment: Contrary to popular belief, a franchisee has to work just about as hard to make a their franchise profitable as an entrepreneur going the non-franchise route.  Generating (1) sufficient free cash flow and (2) within a few years generating a 12%+ return on invested capital are two metrics partly dependent upon sales.  Inability to generate enough sales to justify continued investment in a business is the leading reason why small businesses close their doors.

I disagree somewhat with #1. Know your street (and hourly) value.

• My comment: Why do I disagree? Because by nature people prefer predictable, flat-fee pricing as opposed to hourly pricing, especially for individual and small business clients who are much more price sensitive. And when you are starting a new business, you want customer to make a quick decision and remove hesitation that an hourly pricing model will generate (Will this guy screw me? What if he works 1.5 hours, will he be honest?) My father recently went to a computer repair shop to get his laptop keyboard fixed. If the guy said, “I’ll charge you $100/hour and it may take me 1-2 hours.” That is way too open ended and would have walked out with that response. Instead, the computer repair guy said, “I’ll order the part and install it all for $100.” That appeared fair, and my father accepted the offer.

• Calculating how much personal income you’ll need to pull out of the business is a different consideration.

QSR Magazine published it’s Best of 2006 in Franchising. I’ve heard positive reviews about Pollo Campero.

• Timex Watches looking to open 100+ franchised locations
  
• L.A. Weight Loss loses court battle – must offer refunds
• How one business protects its patents
• 10 Big Ideas for 2007
• Sales at Applebee’s opened more than 1 year decreased 3%
• Class Action against Snap-On

Another group of franchisees accuse Quiznos of fraud:

A group of Quiznos franchisees have filed a class-action lawsuit against the Denver sandwich chain in U.S. District Court for the Eastern District of Wisconsin.

The lawsuit alleges that Denver-based Quiznos has “systematically defrauded its franchisees in a scheme designed to build the brand at the expense of its operators in the field.”

The suit contends that the company forces franchisees to buy food and supplies from Quiznos or its affiliates at inflated prices while setting retail prices so low that franchisees can’t profit. The lawsuit also alleges that Quiznos omits or misrepresents key facts about its business operations when selling franchises.

Link to another background article.

Link to previous Quiznos articles on Franchise Pundit

I heard of the Fresh Fruit Bouquet Co. (article) and Edible Arrangements (article) franchise a few years ago. It seems like a fun alternative to traditional flower arrangements and gift baskets.  I don’t imagine it would be too difficult to create a steady stream of sales from partnerships with traditional flower and gift shops.

Another good article in Inc. describing one restaurateur journey to discovering how to successfully manage his ever-changing restuarant staff. 

The startegy is illustrated by the conversation of two restaurant owners.  One restaurant owner is teaching the other about human behavior and tendancies, and he does this by asking the other owner to place the salt shaker in the exact center of the table…it takes several tries before he even comes close to the center.  The point?

Until you understand that [people’s perception of the where the center of the table is located is different], you’re going to get pissed off every time someone moves the saltshaker off center. It is not your job to get upset. You just need to understand: That’s what they do. Your job is just to move the shaker back each time and let them know exactly what you stand for. Let them know what excellence looks like. And if you’re ever willing to let them decide where the center is, then I want you to give them the keys to the store. Just give away the f—in’ restaurant!” 

…Leave any one element out-constant, gentle, or pressure-and you are far less effective…

It’s my job, and consequently the job of every other leader in my company, to teach everyone who works for us to distinguish center from off center and always to set things right. I send my managers an unequivocal message: I’m going to be extremely specific as to where every component on that tabletop belongs. I anticipate that outside forces, including you, will conspire to change the table setting. Every time that happens, I’m going to move everything back to the way it should be. That’s the constant aspect. I’ll never recenter the saltshaker in a way that denies you your dignity. That’s the gentle aspect. But standards are standards, and I’m constantly watching every table and pushing back on every saltshaker that’s moved because excellent performance is paramount. That’s the pressure.

The end result:

Ultimately, of course, the purpose of constant, gentle pressure is less to eliminate problems than to create a staff that is expert at finding imaginative solutions to address your business’s problems–creating a system that can anticipate and accommodate the patron who arrives late for a reservation, for example. Lasting solutions rely on giving appropriate team members a voice, as well as responsibility for making decisions. There is definitely an art to this inclusive type of leadership. It can take a lot more time than leadership based on “my way or the highway.” It demands dialogue, compromise, and a willingness to share power.

Employees want direction, often specific steps and direction on how to perform their job.  Feedback helps employees refine their techniques and deliver what you, as the owner, wants.

Life is Good has another simpler method of selling its t-shirts to the public instead of using corporate owned or franchised storefronts (Inc. magazine):

The ubiquity of its products notwithstanding, Life Is Good doesn’t want to be Starbucks. The Jacobses detest the homogenization of retail that is turning downtowns into Stepford zones and possess an abiding affection for the mom-and-pops that have always been their backbone. Rather than Gap-ify, they plan to open no more than five to 10 corporate stores in total.

But without a glut of company stores, Life Is Good had no widespread physical showcase for its eclectic product line, which fills a 136-page catalog and includes tire covers, picture frames, and dog toys. Franchising would send the iconoclastic Jacobses down cookie-cutter lane and entail the assumption of legal liabilities; in addition franchisees couldn’t benefit from corporate advertising, given that Life Is Good doesn’t do any. So the brothers hit upon an intriguing alternative: Genuine Neighborhood Shoppes. A GNS is an independently owned and operated business that sells Life Is Good products and nothing else. GNS owners get some signage, a 10 percent discount on merchandise, a few exclusive products, and as much or as little help setting up stores as they desire. They pay no franchise fees, but they do agree to propagate the Life Is Good philanthropy model (more on that later) in their communities. The company expects to eventually have 300 such stores; there are now 40, most run by retailers who have a history with the company or by former or current Life Is Good employees.

So, for example, Shannon and Michael Bourassa and Shannon’s brother Sean Patel recently opened Blue Monkey Trading Co., a GNS in Tucson. The Bourassas are steeped in Life Is Good culture–Michael has worked there for five years and is head of the receiving department–so they eagerly accepted the company’s help with layout, merchandizing, website art, signage, and fixtures. “We really haven’t come up with much ourselves,” says Shannon Bourassa, who handles the finances from the couple’s home in New Hampshire while her brother manages operations in Arizona.

Bob Ehrlich, by contrast, designed his own layout and décor for Simply Comfortable, a GNS in Lahaska, Pennsylvania. Ehrlich needed flexible shelving to accommodate a very small space and chose white fixtures to make the products’ colors stand out. (Life Is Good favors natural wooden floors and walls made from dismantled barns.) “They’re up in New England so they have a somewhat different point of view, but they looked at my plans and understood what I was doing,” says Ehrlich.

“I think this notion of avoiding the cookie-cutter approach is cutting-edge, like mass customization where you’re able to adapt something to a local market,” says Frank Hoy, director of the Centers for Entrepreneurial Development, Advancement, Research and Support at the University of Texas at El Paso. “It also gives both the licensing company and the licensee more flexibility in their relationship.” The cost is in control, says Hoy. As GNSs proliferate, “they will end up with more people in their network they don’t know, and so trust counts for less.”

While the franchise-less approach to distribution is not new, it should remind folks that buying a franchise is not the only way to enter into a paved path to small business ownership.

• Pharmacy franchise industry snapshot
• Sponsoring little league baseball teams can be a cost-efficient marketing strategy
• Take-n-bake pizza (Papa Murphy focused)
• An MRI franchisee that I know did not have this kind of success with his recruiting business (he recently closed it down when he couldn’t take the cash drain anymore).
• Aaron Rents same-store sales up 6.9%
• GNC – Again, company owned store have higher sales than franchised stores – sales growth of 11.7% for company-owned stores and 7.0% for franchise. Some franchises have higher franchisee sales rates, such as Denny’s where company unit same-store sales increased 4.2% and franchised unit same-store sales increased 4.7%, and Panera where September same-store sales grew 5.2 percent in company-owned stores and 6.2 percent in franchise-operated stores
• Independent businesses may freely copy a franchisee’s best ideas:

Seafood restaurant owner – “We’ve had a decent to-go business, but nowhere to put the to-go orders,” Chase said. “It was a 30-minute to two-hour wait in the summer. It was hard to get a space to sit.”

As she pondered solutions, she called Outback Steakhouse, who took her order, asked for details on her car and told her to park in a specialized location. Once she did, a camera notified wait staff to walk out with her order and take her money. It was effortless.
Inspiration struck the seafood restaurant owner, and it smelled like beef. “I sat there and laughed,” she said. “I thought, ‘This is my answer. What am I thinking?’ So it just went from there, and we fine-tuned it from there.”

Instituting the same to-go program as the 915-restaurant chain, Adams unknotted the bar’s tangled crowd flow. Take-out orders swelled from a few dozen to 130-170 orders during season.