What is a disadvantage of running a fast-food franchise?
According to data in Chapter 4 of Fast Food Nation, the International Franchise Association (IFA) has overstated the benefits of owning a franchise. A 1998 IFA survey reported that 92% of franchise owners said they were successful. However, this survey left out franchises that had gone bankrupt. Timothy Bates, an economics professor at Wayne State University, has found that 38.1% of new franchise businesses went under. Another study reported in Chapter 4 found that three-quarters of American companies that began to sell franchises in 1983 had gone out of business a decade later. These rates of failure are higher than those of independent businesses.
In addition, people who buy fast food franchises are coming into more frequent conflict with the fast food chains. Fast food restaurants are often located near each other, pitting one franchise against each other. Franchise owners are usually left to their own devices after opening their restaurants, so they have to put up with fast food chains placing competing restaurants next to theirs, a process called "encroachment." Fast food chains earn royalties from each restaurant, so they are eager to open as many restaurants as possible; they therefore encourage the process of encroachment. In addition, fast food chains require their franchise owners to waive their legal rights to lodge complaints against the chain. The franchise owners therefore have no legal recourse against policies of the chains that they do not like.
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