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5 Comments

Franchisor "control over franchisee's business" and SBA lending

OK attorneys here is one for you: if the "franchisor may set retail price ceilings that require franchisees to sell certain items below cost, and require franchisees to comply with operational changes that benefit the franchisor at the expense of the franchisee", how close is this to the franchisor having too much control over the business of the franchisee?

Why does this matter? For a franchise to be eligible for SBA loans they must prove that the franchisor does not have direct control over the franchisee's business. But if I can be forced to sell items at a loss and be forced into operational changes that take money out of my pocket for the benefit of the franchisor, well doesn't this "franchisor oversight creap" get to a point where one could argue to the SBA that the franchisor is in violation (and therefore force the franchisor to lay off or risk not being able to sell more franchises thru SBA funding)?

frozen donuts

Dunkin doesn't sell "warm" donuts. They do sell "fresh baked" donuts in most markets. Like Tim Horton's, Dunkin has been promoting a frozen donuts. The supplier Dunkin Brands contracted with provides a rebate to the franchisor for frozen donut sales under their agreement. The new NDCP agreement doesn't allow franchisees to change the vendor of the frozen donuts until certain targets are met. However, franchisees manage the supply chain vendor relationships for the recipe items to make and finish "fresh baked" donuts.

How can they make them sell

How can they make them sell frozen donuts from another suplier ? The main reason to going there was to get fresh baked warm donuts. If I wanted frozen 3 week old donuts I could just go to wallmart!  

Loss Leader Protection Window?

Dunkin' franchisees are in sweet spot with control of the supply chain. Given its 5 year term, how does the option to extend the supply chain contract work? And, what are the performance benchmark incentives for both the franchisor and the NDCP?

Dunkin Donuts franchisees are insulated from this now

Well, well. it looks like the new supply chain and procurement contract between Dunkin franchisees and the Dunkin Brands franchisor is already paying off.

The contract specifically prohibits this sort of money grab from the bottom line, and it overrides the franchise agreement, which, of course, provides that the franchisor can do exactly this.