|RAM Pizza, Inc.
2087 Westminster Drive
Riverside, California 92506
April 22, 1997
RE: 16 CFR Part 436
Federal Trade Conunission
Dear Sir or Madam:
I understand that the FTC is proposing to revise its Franchise Rules, the provisions that protect the rights of those who have not yet purchased their franchises. I would like the FTC to consider protecting the rights of those who already are franchisees.
Franchises are expensive. The majoriy of people who buy franchises are risking a large part, if not all, of their net worth. They are willng to trade a sizable amount of cash and pay ongoing royalties for the dubious assurance that their prospective business will be successful.
I have been a franchisee for fifteen years and have spoken to several attomeys about franchising. All have told me that they would never recommend to anyone that he sign a franchise contract. The consensus is that franchise contracts are horribly one-sided documents. With a little more confidence, most people do not need a franchise. Again, people are willing to trade a lot of money for a little peace of mind. The details are frequently unimportant when you just need to make money.
Accepting that any franchise contract is bad going into the arrangement, they only get worse with each renewal. My current contract bears little resemblance to the one 15 years ago. I was powerless all along to prevent the disintegration of mv rights.
I have eight stores each with a different anniversary date. My contract says I can have no other outside business interests. (Isn't this illegal-?). If I want my income to grow, I must reinvest in Domino's Pizza. Each contract is worse than the preceding one. At renewal time, I have little choice but sign the then current contract. Or, I can walk away from one-eighth of my investment and open my area up to encroachment by other franchisees or corporate. Should I choose to walk away, I would have to accept the company's buv-out offer. The companv undervalues the stores by contract and by company policy. Walking away is an impractical solution in protest to a franchise contract.
A franchisor has the power to determine arbitrarily the value of your investment. Our franchisor limits the market for store sales by- first requiring that all franchisees be intemally grown. (ie: They must work in a store for a minimum of one vear). There are no outside investors who have controlling interest in a store. There are not many pizza store employees with the assets to purchase a business that on the open market would fetch up to five-times cash flow
Additionally, there is a company policy which states that all franchise owners must live within fifty-mile radius of their store. If vou want to sell vour store, you must first find someone with money. That person must also live within fifty miles or be willing to relocate.
April 28, 1997
Domino's maintains the right of first refusal on store sales. Should Domino's want your store and you happen to find a buyer willing to pay what Domino's would consider a high price, you could still have problems. The potential buyer must be approved by Domino's. Domino's has been known to withold such approval on very flimsy grounds. If you want out bad enough, you will take what Domino's wants to pay.
With potential buyers so scarce, our companv has developed a "formula price" to determine store value. It is an arcane formula that works out to about two-times cash flow, minus the "cost to bring the store to then current standards." With Domino's the only viable entity for buying or selling stores, the formula works out very well for them.
The bottom line is that contract provisions and company policies can appear harmless on the surface, but they can be intertwined into a deceptive web that can limit the value of a business for a franchise owner.
As a franchise owner I have taken the risk of operating a small business. I assume the responsibility for failure and bankruptcy. I reap the rewards of an above average income and cash flow. I do not, however, have equity in my business. Without equity, a potential franchisee does not purchase a business, although he assumes the responsibility thereof. He purchases a job.
Franchisors should not have the right to limit the sale or resale of stores to qualified inverstors. Placing unreasonable restrictions, designed to steal equity or to discriminate, should be expressly forbidden in the new Franchise Rules.