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09/28/2021

National Coalition of 7-Eleven Franchisees Petitions FTC to Investigate Franchise Industry

The request argues that current business conditions, exacerbated by the pandemic, further highlight the need for closer examination.

SAN ANTONIO, Texas — In cooperation with Keith Miller of Franchisee Advocacy Consulting, the National Coalition of Associations of 7-Eleven Franchisees (NCASEF) filed a petition with the U.S. Federal Trade Commission (FTC) requesting an investigation of the franchise industry.

The petition — which has the endorsement of 11 independent franchisee associations — asks the FTC to compel nine major franchise chains to respond to 115 requests for information in 14 categories. Among them are supply chain, advertising funds and financial performance representations.

The petition recommends the FTC send requests for information to 7-Eleven Inc., Subway, The UPS Store Inc., IHG Hotels and Resorts, Choice Hotels, Experimax/Experimac, Supercuts, Massage Envy, and Dickey's Barbecue Pit.

Petitioners are hoping the investigation will prompt the FTC to extend federal regulation of the industry beyond the presale financial disclosures franchise companies are already required to make, according to a press release.

"This petition provides the opportunity for the FTC to take a proactive role in assessing the franchise industry," said Miller. "We are requesting the FTC look broadly at the imbalance of power in our industry today."

In April, Nevada Senator Catherine Cortez Masto released a comprehensive report on franchising, which highlighted problematic areas in the industry and asked for increased oversight from the FTC. In June, Illinois Rep. Jan Schakowsky sent a letter to the Government Accountability Office (GAO) requesting a study of inadequacies in the current FTC's Franchise Rule.

"Franchisors often engage in predatory behavior after franchisees sign their contracts, but the FTC rarely investigates post-sale activities when franchisees are more vulnerable and captive to their franchisors," said Thomas Ayres, a senior attorney with NCASEF law firm Witmer Karp Warner & Ryan, and co-writer of the FTC petition.

The FTC recently launched antitrust investigations of the technology and pharmaceutical sectors. According to FTC Commissioner Rohit Chopra, there is a need to "stop unfair, deceptive and discriminatory practices that target franchisees and their employees."

"We ultimately want to make sure there is a fair playing field for both the franchisor and the franchisee," she told CNBC.

A 2019 report by the Australia Parliamentary Joint Committee on Corporations and Financial Services detailed abuse by several franchisors, including 7-Eleven. "An important takeaway from the Australian report is that presale disclosure is an insufficient regulatory response to power imbalances, because it does not curb opportunistic and exploitative practices by some franchisors," said Eric H. Karp, partner of Witmer Karp Warner & Ryan and former chair of the American Bar Association Forum on Franchising.

In response to the petition, 7-Eleven Inc. said it remains committed to supporting franchisees.

"Since the start of the COVID-19 pandemic, we have provided more than $185M in incremental support for franchisees as they operate as essential businesses. The commitment by 7-Eleven franchisees to serve their customers and communities during this challenging time is heroic," the company said in a statement. "That commitment is paying off. Franchisees are experiencing the strongest increases in sales, margin and gross profit performance in over four years. In fact, less than 5 percent of stores turned over in 2020, which is consistent with our standard turnover rate for the past 10 years."

According to Ayres, current business conditions, exacerbated by the global pandemic, further highlight the need for closer examination of franchising. "The additional strains the pandemic has put on franchisees across all industries has brought into sharper focus the need for further investigation and action," he said.

A copy of the Petition is available here.

San Antonio-based NCASEF was founded in 1973 and is comprised of 41 Franchise Association members who represent more than 4,400 7-Eleven stores in the U.S.

Headquartered in Irving, Texas, 7-Eleven operates, franchises and/or licenses more than 77,000 stores in 17 countries and regions, including 16,000 in North America.