Monday, October 11, 2010

Focus on Franchising

This posting was written by John W. Arden.

News and notes on franchising and distribution topics:

□ The New Brunswick Franchises Act will come into force on February 1, 2011, three-and-a-half years after receiving Royal Assent, according to Osler, Hoskin & Harcourt LLP. The statute (Bill 32) requires franchisors to make presale disclosures to prospective franchisees, imposes a duty of good faith and fair dealing on parties to franchise agreements, and guarantees franchisees the right of association. On June 10, 2010, New Brunswick published two franchise regulations. The first (Regulation 2010-92) established disclosure requirements similar to those of Ontario, Alberta, and Prince Edward Island, while the second (Regulation 2010-93) sets out a mediation procedure. Under the procedure, a party to a dispute may notify the other of the nature of the dispute and the desired outcome. The parties must attempt to resolve the dispute within 15 days. If it is not resolved, a notice to mediate may be delivered and the parties must then follow the mediation process set out in the regulation, which includes an option to decline by the party receiving the notice of mediation.

Tunisia has enacted two laws that form the framework of franchise regulation in that country, according to a Nixon Peabody Franchise Law Alert. Law No. 2009-69, enacted on August 12, 2009, defined a franchise agreement and franchise network and required a franchisor to provide a disclosure document to a prospective franchisee 20 days before an agreement is signed. Decree No. 2010-1501, enacted on June 21, 2010, lists the information that the disclosure document must contain, including the legal structure of the franchisor’s business, identity and address of the franchisor, history of the franchisor’s business, trademark registrations, a list of current and former franchisees in Tunisia, the nature and amount of investment required for the franchise business, and the franchisor’s financial statement. The Decree further requires franchise agreements to set out the rights and obligations of the franchisor and franchisee with respect to services provided by the franchisor, payments required of the franchisee, term of the franchise agreement, and conditions for renewal, termination provisions, and the geographical scope of the exclusive use of the trademarks. Further information can be found here in the September 29, 2010 Franchise Law Alert.

□ Although it seems hard to believe at times, some businesses have more than survived the Not-So-Great Recession. One of these success stories has been McDonald’s Corporation, which recently reported a 4.6% annual sales increase at stores open at least 13 months. According to an article posted on the Mintlife website (“How McDonald’s Thrived During the Recession,” September 21, 2010), the hamburger giant used the following strategies to prosper during the tough economic times:

Recession-friendly pricing. As early as November 2008, observers recognized the importance of McDonald’s “recession-friendly” Dollar Menu. “When recession strikes, cost becomes paramount.”

New Products for Different Markets. The introduction of new products-–from salads and premium coffee to fruit smoothies--gave more people a reason to visit the Golden Arches.

Reduced Advertising Costs. The franchisor took advantage of lower local television advertising rates to put on an all-out promotional blitz without having to substantially increase its advertising spend.

Improved Operations. Spurred on by President and CEO Ralph Alvarez, McDonald’s focused on improving operations and increasing efficiency throughout the company.

Rapid Price Adjustments. The fast food leader began using computer systems for in-store decision-making to rapidly adjust prices based on current customer demand.

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