Maine Franchise Owners Group Raises More Questions than Answers

In “Support Maine franchise owners with these four basic protections,” (March 11), Ed Wolak states that Iowa outperformed adjacent states in terms of franchise business growth in the period from 2004 to 2007 after passage of an Iowa franchise law.

But the data used in this piece actually raises more questions than answers. To fabricate this ill-conceived theory and thereby justify unnecessary legislation that would actually hurt the franchise industry in Maine, Mr. Wolak is quoting from different reports, none of which compared the growth rate of franchise businesses in Iowa to adjacent states. The 2005 report was based on a member survey and other data sources, the 2007 report was the first comprehensive report based on the 2007 U.S. Economic Census data.  Comparing these two data sets inaccurately portrays a positive economic picture in Iowa versus adjacent states. This is like comparing apples to oranges or worse, comparing a Maine lobster roll to one from Connecticut.

In making these arguments, it is apparently lost that the Iowa law referred to was subsequently scaled back following a demonstrable negative economic impact in the state in the years after its passage. A closer look at the impact the Iowa law had on franchise development, conducted by independent franchise consulting firm Frandata, found that among  74 brands doing business in Iowa and adjacent states from 1992-1996, the compound annual growth rate of franchise units  was 68% greater in the nation and in the surrounding states compared to Iowa. Additionally, franchise growth in Iowa declined by 42 percent.

What happened in Iowa should be a lesson for Maine. Franchisors either stopped opening new franchises in Iowa or they opened corporate stores. A corporate-store model, such as Starbucks, versus a franchising model, like Dunkin’ Donuts, has one distinct difference. Starbucks is a fine company, but Starbucks doesn’t create any opportunities for Mainers to create wealth for themselves by owning a franchise small business. Both models create jobs and provide consumers with great coffee but Starbucks only makes money for Howard Schultz and his shareholders while franchising creates the opportunity for wealth creation through independent business ownership.

At this point, it comes as no surprise that the cleverly-titled and well-funded Maine Franchise Owners Association (MFOA) would base its justification for LD 1458 on misleading data. The MFOA and its Executive Director have a history of providing legislators false and misleading information to pass legislation. This group, which only launched last summer and is funded by only a handful of vocal individuals, is coordinated with the help of a Massachusetts lobbyist. Further, they have repeatedly been asked by both legislators and franchisees in Maine to produce a list of its members. Who are these franchisees calling for such a drastic change in franchise law? Where is the evidence of franchisees being unfairly treated by franchisors that would justify LD 1458, which goes far-beyond any franchise law ever enacted, or even considered in other states. They have never been able to produce this evidence.

Like any business, franchise companies will consider the regulatory environment when choosing where to invest.  States that pass legislation such as LD 1458 will make it extremely difficult to protect the brand, enforce contractual agreements, and maintain quality standards will be less attractive than states that respect these rights. Those are the real truths about this bill.

Franchises have added jobs faster than other businesses throughout the latest economic recovery. In Maine, the 3,500 franchise establishments in Maine generate nearly $3 billion in economic output and employ more than 38,000 workers. Maine should work to foster a business environment that helps franchises grow, and avoid policies like LD 1458 which have their roots in the Iowa Franchise Act. Perhaps that’s why every state that has considered franchise relationship legislation in the past two decades has rejected bills like LD 1458. These bills are simply a solution in search of a problem that doesn’t exist in franchising. When it comes to the future of franchise businesses in Maine, let’s stick to the facts and reject LD 1458 – which is bad for jobs, bad for business and bad for Maine’s economy.