Group Effort

Minorities in franchising: what works, what doesn't and what can be done about it
Magazine Contributor
7 min read

This story appears in the November 2000 issue of Entrepreneurs Start-Ups magazine. Subscribe »

There's an interesting dichotomy at work when it comes to minorities in franchising. In general, if you talk to minority franchisees, they're enthusiastic about the process. When you talk to franchisors and franchise organizations, they express an awareness of how valuable minority franchisees are to the bottom line. And according to the Milken Institute, minorities will become an even more significant percentage of the American landscape with their numbers expected to reach about 50 percent of the population by 2050.

Yet despite all the good vibrations, minority franchise numbers are still extremely low, and the franchise community says most sectors need to conduct outreach efforts to pull in more of this market.

So what's the problem? Lack of information, says Wendy Grant, newly appointed manager of the strategic diversity initiative at Choice Hotels-parent company of hotel brands Comfort, Quality and Sleep Inns; Main Stay Suites; Clarion; Econo Lodge; and Rodeway. "I've asked people who own McDonald's and other franchises whether they've ever thought about buying a hotel franchise. And they say no one has ever approached them," Grant explains.

Net worth requirements may be another perceived barrier, says Russell Smith, director of global franchise development for Athlete's Foot and chair of the minorities in franchising committee for the International Franchise Association (IFA). The price of certain franchises, or at least the perception that prices are high, can be a problem.

GNC franchisee Joyce Smith Patterson points out another factor: "[More and more] minorities are [finally] in jobs that pay very well, and they're afraid to make that step. They think, 'Suppose I do and I'm not successful, and I've left a $100,000 job trying to double my income.' It's just fear."

Patterson, 47, became GNC's first minority franchisee 11 years ago, wiping out her personal savings to come up with the initial investment of about $45,000. Her first location in a Greenwood, Indiana, mall was financed by the franchisor. She purchased her second store in 1994 with a bank loan and bought the third store a little more than one year ago with money from the proceeds of her first two GNC locations.

Minorities haven't always been able to achieve this level of success in franchising, according to Jesse Chalua, 42, owner of two Chick-fil-A franchises in Houston. "[Franchises] are making it easier to get on board," says Chalua, who initially bought an urban Chick-fil-A with a $5,000 investment in 1987 and then traded up to a larger store in a different area after proving himself. "Now, when you sit down and talk with [franchisors], you realize they'll work with you. But that hasn't always been the attitude. That's only happened in the last five or six years."

These days, a number of franchise systems, such as Choice Hotels and FASTSIGNS International, are spending more time recruiting minorities. "Our focus on minorities has begun this year, [primarily because] they represent a lot of potential [as franchisees]," says Larry Lane, FASTSIGNS' vice president of franchise development. FASTSIGNS has 20 minority-owned franchise units in the United States out of a worldwide total of 438 stores. "A number of minorities have resources, but they just haven't seen the franchise opportunities that fit with their background," says Lane.

FASTSIGNS didn't have to go looking for Wendell Haynes, 57, who started a FASTSIGNS franchise in New York City in April 1998. "I was the one reaching out for information, direction and assistance," says Haynes. "I didn't get the feeling that franchise organizations were actively recruiting or not actively recruiting minorities."

Asians Dominate the Hotel Industry

While minorities overall have low participation rates in franchising, there is one exception to the rule: Asians are doing so well in the hotel sector that they're no longer considered minorities for purposes of recruitment.

"Our members own 35 to 40 percent of all lodging in the United States, and when you get into the mid-market to budget range, it's more like 55 to 60 percent of the market," says Bakulesh Patel, chair of the Asian American Hotel Owners Association (AAHOA).

In contrast, Grant of Choice Hotels estimates that only 35 to 40 percent of their hotel owners in the United States are minorities.

According to Patel, the lodging industry offers Asian immigrants a unique entrepreneurial opportunity-they often buy smaller locations where they can develop their skills and acquire capital, then sell the locations to other immigrants and trade up to franchise units. AAHOA has 7,000 members who own 17,000 hotels and employ 800,000 people.

While Asians dominate much of this industry, they haven't been immune to discrimination, says Patel, who points out, "In the beginning, we were stereotyped as bad operators, it was hard to get insurance for properties, and we faced discrimination from suppliers." AAHOA was formed to help combat these problems, offer training to its members and serve as an advocacy organization.

Minorities and McDonald's

A number of other minority franchisee groups are also working to ensure members are accorded fair treatment. Two of the most prominent are the National Black McDonald's Owners Association (NBMOA) and the McDonald's Hispanic Owner Operators Association (MHOOA).

NBMOA was founded in 1972 as a self-help group, in part to deal with some of the unique differences of doing business in urban inner city areas. "Back then, there were very few African American operators. So six or seven from across the country formed an organization to help each other," says Craig Welburn, NMBOA chair and CEO. "They shared information on operations, personnel issues and purchasing of new restaurants."

The MHOA followed a similar route. It was founded as a self-help group in 1977 and has evolved into an organization working collaboratively with the McDonald's corporate office to ensure that advertising, hiring, marketing and products include a reflection of Hispanic culture.

Bridging the gap between the perception and the reality of franchising will take a concerted campaign by minority organizations and franchisors. And, if the effort is successful, the bottom line will be that much better for everyone involved.

Start You Up

Fortunately, organizations are creating a number of initiatives to spread the word that franchising is affordable and accessible to minorities. These initiatives include:

  • the International Franchise Association's (IFA) Emerging Markets program, in which franchise delegations visit cities nationwide to offer seminars explaining the pros and cons of franchising, and available financing and business-development assistance.
  • the National Minority Franchise Initiative's Web site, which features a database of franchisors interested in minority franchisees. The site also has details on a series of full-day "Invest In Your Future" seminars held nationwide, and access to Bond's Minority Franchise Guide, a book with detailed profiles of more than 400 franchisors promoting to minorities.
  • the Minority Business Development Agency's Web site, which offers a section on franchising.
  • the Pepsico Foundation's Franchising Entrepreneurship program, created in conjunction with the IFA to introduce the idea of franchising to low-income and minority high school and college students.

Signs of Progress

Finding a franchisor who's truly interested in working with minorities takes a little legwork. Marcel Portmann of the International Franchising Association's Emerging Markets program suggests you find out whether a franchise:

  • has a diversity office or section (a growing number of companies are creating these).
  • offers any special financing programs, incentives or rebates on franchising fees to make it easier on prospective franchisees.
  • is part of the SBA franchise registry.
  • includes any associations or minority advisory councils within its system. This is common with larger companies.

In addition, Jim Olson and Adela Ortega of Novus Franchising Windshield Repair suggest that you talk to as many other minority franchisees as possible. But be aware that asking the franchisor for a minority franchisee to talk to can be a delicate issue; instead, ask whether they have a diversity program, then ask that department for the referral.

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