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Innovators in waiting

It's high time wholesalers let loose the entrepreneurial spirit of their franchised grocers

Twenty-five years ago, I often recommended to young entrepreneurs and ex-store managers that they consider becoming a franchised grocer. At that time, it was an honourable and profitable business. Today, becoming a franchised grocer is just about the last thing I would suggest anyone do, based on a number of emails I have received recently from unhappy franchisees. And that unhappiness is spread pretty evenly, no matter which large grocery distributor is the franchise holder.

Don’t get me wrong. There are happy and satisfied franchisees. But the emails I have gotten say clearly that it’s no lotus land for a number of them. I hear two consistent complaints.

The first is the inability to make a profit of any sort because the wholesaler controls both the cost of product and the retail selling price. The margin that is left is insufficient for the franchisee to build any equity in his business. In fact, one of the franchisee grocers told me he couldn’t even pay the bills he already has, let alone make any profit.

The second complaint is about the control the wholesaler has over almost every aspect of the franchisee’s business. One franchisee expressed his frustration at the wholesaler’s cookie- cutter approach to all its stores. That left the franchisee unable to stock and sell the products his customers wanted.

In another email, a franchisee told me he had purchased the business from his father and was hoping to eventually pass it on to his children. “But that is now just a dream. We’re not making any money, and we can’t pay off our loans. About the only solution is to sell the business to the wholesaler for whatever price the wholesaler is willing to pay.”

These complaints are among the reasons Ontario IGA retailers sued Sobeys a number of years ago–and won. And they were among the reasons Price Chopper franchised retailers also sued. That latter suit ended with Sobeys buying out the retailers without any admission of wrongdoing.

Interestingly, sources have told me that among the results of the IGA suit is that the suing retailers who stayed in business after the verdict (even though their store banners were changed) continue to receive some kind of additional benefit that apparently keeps them happy. I keep trying to get third-party confirmation of that, but so far, all I have are hushed comments from a couple of sources.

Whether there are special concessions for some or not, several questions are calling out to be answered: why do wholesalers believe their franchisees will do well when they are basically being treated like corporate store managers? Why do wholesalers wish to stifle the entrepreneurial spirit of their independent franchised grocers?

Of course, the answers are in the name of profit for the wholesaler. But when I think about it, I believe a less bridled, freer independent franchisee would be able to outsell any carefully controlled chain or pseudo-chain.

If I’m right, then why would greater sales and happier franchisees not be a good thing for wholesalers? How greedy do wholesalers have to be to not keep shareholders happy? Must they up the wholesale cost of the goods they sell to the franchisees as well as charge them a royalty fee? That sounds like double-dipping to me. And how many other lawsuits will it take before shareholders question the policies of the wholesalers?

These, of course, are just a few rhetorical questions that come to mind. If the answers were easy, someone would have already come up with them. One suggestion is for another national wholesaler to appear that plays by different rules. That may work for some independents, but franchised retailers that have signed a head-lease agreement with their wholesaler (and most have) are apparently out of luck.

What we need is a court ruling that outlaws head-lease agreements. But that’s just a pipe dream. As one email to me read: “If you expect a change, you’re dreaming.”

Unfortunately, he’s likely right.

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