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Exciting week for the franchise world

7 May 2017

Exciting week for the franchise world

On 11th May the European Parliament Internal Market Committee will vote on my report on abuses in the world of the franchised retail outlet and how to tackle them. It seems that only in the Netherlands does the organisation of independent retailers, which includes many franchisees, have a voice. MEPs from other member states vigorously deny that anything’s wrong in the sector. This is very often the case when it comes to disputes between small and big firms. They remain unnoticed for many years, with small operators staying silent because of their dependence on those granting franchises. So in the world of the small firm as much as elsewhere, the truth is that only by getting organised collectively can you put an end to abuses.

In 2014 it was reported in the media that Dutch supermarket chain Albert Heijn was charging franchisees for inventory management, which the franchisees argued had already been discounted in the suppliers’ credit. They would be paying double. Suddenly it became clear to many people that not every branch of this mega-grocer is the same, that in fact more than 600 establishments operate with a branch manager and form part of the broader concern, while around 280 are independent franchise-holders, themselves carrying the risk of loss, in contrast to the branch managers. In the end the conflict over costs was resolved following the franchisees resorting to a payments strike. Striking entrepreneurs are something you don’t come across every day.

In itself there’s nothing wrong with the franchise system. You receive from the parent concern know-how as to how to run an establishment of that brand, and you purchase products from them, making things much easier than they are if you have to think of everything and do everything yourself. In general, also, you can put your own stamp on your business, for example by selling products in addition to those supplied by the parent concern, and to some extent adjusting the decor. It’s here, however, that the formula is beginning to fall apart as those granting the franchises sharpen their demands in pursuit of ever greater uniformity. Internet purchases are also putting franchisees under pressure. If you buy from a company’s website, even if you live in an area served by a franchisee, the profits will in general go to the central office and not to your local retailer. That retailer will be given the role of a pick-up point, where the customer can collect his or her order. It’s hard to see how this amounts to fair treatment.

In the Netherlands there’s a new code of conduct for the franchise world and every likelihood that this will be backed up fresh legislation. With my report I hope that we can tighten up the European code of conduct and that the European Commission will be required to draw up a list of unfair or dishonest trade practices in this sector, as well as guidelines for best practices. But perhaps the most important aspect is the demand that the Commission help franchisees to organise throughout the EU. Just as the Dutch ‘Vakcentrum’ – the professional body - represents the interests of the independent retailer in the Netherlands, so there should be, everywhere in the EU, organisations aiding franchise-holders in their attempts to tackle abuses. After all, the franchise world doesn’t stop at the Netherlands’ borders.

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