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View Full Version : Pitfalls of buying into a franchise.


Steve
07-31-2006, 08:28 AM
So here you are. You purchase a franchise and find yourself happy. Next thing you know it, the parent company wants to advertise 2 for 1 specials. The parent company gets paid 8% of sales, regardless if you make a profit or not. Would you be concerned the parent company wasn't looking out for your best interests then?

Do you think this is a good deal for the restaurant operators or not?

The Subway saga (http://money.cnn.com/2006/07/28/smbusiness/subway.saga/index.htm) - Restaurant operators square off against the parent company of the world's largest sandwich chain in a growing dispute over control of its advertising budget.

Earlier this month, a group representing more than 14,500 Subway restaurant operators sued the parent company as part of a growing dispute over control of its advertising budget.
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The North American Association of Subway Franchisees (NAASF) in Coral Gables, Florida, accused Doctor's Associates Inc. (DAI), the franchiser of the privately held sandwich chain, of pushing a new franchise agreement giving Subway complete control of money that franchise operators paid into an advertising trust fund.

Subway franchisees pay 4.5 percent of their weekly sales to the fund, which is valued at approximately $400 million.

Subway receives an 8 percent royalty off of each franchisee's top-line sales, whether the franchisee is making a profit or not, Jim Hansen, CEO of NAASF, explained. Franchisees fear that, under the new structure, the ad dollars will be put toward campaigns that drive up sales, such as two-for-one sandwich specials, at the expense of profits.