Burger, Fries and a Stoli No Longer

French spirits company Pernod Ricard, which has just offered $14.2 billion (US) to acquire Allied Domecq in concert with Fortune Brands of the United States, appears to be in a hurry to cut loose Allied Domecq's franchise operations.

Allied Domecq, which is a leading international distiller (its portfolio of brands includes a few of my favourites:  Laphroaig and Ballantines Scotch, as well as Stolichnya Vodka, Kahlua and Canadian Club) currently owns and operates the Dunkin' Donuts, Togos and Baskin-Robbins franchise systems. 

Emmanuel Babeau, the Finance Director of Pernod Ricard, notes in this Reuters article that Pernod Ricard expects lots of interest from American companies in the franchise systems.

Quite an Appetite

Just in case there was any doubt left in anyone's mind as to the economic impact that China is having on the world's economy, we have this article which was issued a few days ago by Xinhua, China's official news agency (I suspect there are few if any unofficial news agencies in China).

The article notes that China now has more franchises than any other country in the world (some 120,000 plus of them).  That's a pretty impressive number for a country that has really only opened itself up to the kind of investment required to establish international franchises a decade or so ago.

We've all been reading about and seeing evidence of Chinese economy's voracious appetite for steel, concrete, electronics and cars.  It looks as though the appetite of the Chinese people for fried chicken, hamburgers, and cleaning services is just as voracious.

A Little Light Reading

If you're having trouble getting to sleep at night, you may want to heft the 423 page report released in August of 2004 by the Federal Trade Commission (FTC) of the United States on its proposed changes to the the FTC Rule on Franchising into bed with you.

The Rule on Franchising, which was issued in 1978, forms the basis for the requirement that Franchisors in the United States provide disclosure, through the Uniform Franchise Offering Circular, to prospective Franchisees.

The report contains a number of suggested changes (although at 423 pages, there should be a number of suggested changes).  Among them, recommendations that:

1.  Franchisors be required to disclose when the franchise doesn't include an exclusive market;

2.  Franchisors be required to provide additional information on competition which Franchisees may face from alternative distriubution channels (see my "I Scream You Scream" post for more on this);

3.  Franchisors be required to disclose the existence of independent Franchisee associations for there Franchise Systems; and

4.  Disclosure through electronic means be specifically provided for.

The International Franchise Association has lauded the work done by the FTC in its report, so not surprisingly, many Franchisee organizations are less impressed by its recommendations.  You can read the report for yourself here.  Comments were accepted by the FTC until November, 2004, but given the glacial speed that this process has moved at thus far (the report was started in 1995), it's difficult to say when and what changes to the Rule on Franchising will come into effect.

I Scream, You Scream...

So the law of tortious interference in business relations (our equivalent would be intentional interference with economic relations) just got a little narrower in the state of New York, as a result of a decision from the New York Court of Appeals in Carvel Corp. v. Noonan.

The quick overview of the case is as follows:  Until the early 1990's, Carvel only distributed its (rather tasty) ice cream through franchised locations.  After some rough economic times, Carvel decided to develop an alternate distribution stream... through supermarkets.  Franchisees were invited to participate in this new distribution stream, but participation required additional license fees and store upgrades, so few franchisees jumped on the bandwagon.

After some time, it became apparent to the franchisees that the supermarket program was thriving, while the franchises were... not.

The problem for Carvel was that at least some of its franchise agreements contained a restrictive covenant that prevented Carvel from competing within a particular territory (others didn't contain territorial restrictions and in fact specifically gave Carvel discretion to develop alternate methods of distribution and the right to itself operate or to license others to operate competing outlets).

A group of franchisees sued Carvel for tortious interference with business relations, and at trial, received a favourable verdict.  That verdict was overturned on appeal, and the Court of Appeals in doing so based its decision on the question of whether the means employed by Carvel in competing with the franchisees were "wrongful" or "culpable" (that is; essentially whether the acts would be criminal or independently tortious).  The Court of Appeals determined that they were not.

Interestingly, the Court of Appeals also noted in its decision that in choosing an alternate method of distribution, Carvel was doing what it had to to ensure economic survival, and was justified in doing so.

The result of this case may very well be that franchisees (and others) who wish to argue tortious interference with business relations are going to find it much more difficult making their case in the state of New York.

Going Retro

Okay, I'll admit it.  I like hamburgers.  Alot.  Fries too.  Anyway, articles on franchise systems which serve hamburgers usually catch my attention, and this article on the success of Sonic Drive-Ins intrigued me because (I'm hoping) it might signal a bit of a change in the way the hamburger has been so publicly maligned recently. 

Actually, maybe the correct description is "publicly maligned and privately consumed".  "Super-Size Me" or not, somebody's eating those hamburgers; whether they're willing to admit it or not is another story.

In any event, at a time when the low carb frenzy has taken a bit of a bite out of the profits of some of the larger burger franchise systems, Sonic Drive-Ins (I don't own their stock or do work for them... at least not yet, anyway) seems to have developed a profitable combination (yes, I could have said "served up the right recipe, but that would have been a little sad, dont' you think?) of retro styling, good service and of course good burgers.  And fries.