McDonald's recent decision to raise franchise royalty fees for the first time in decades highlights how the economics are changing for business owners who work with corporate brands.
Outside fast food, franchise royalty fees can be even higher, up to 12% or more based on the type of franchise business, according to the International Franchise Professionals Group, a membership-based organization.
"Franchisors compete against each other for quality franchisees," said Robert Branca Jr., who owns several Dunkin' franchises and serves on both the Coalition of Franchisee Associations and the International Franchise Association boards."Everybody knows who and what McDonald's is. They have the clout to get a higher royalty fee than a lesser brand.
Some costs simply have to increase, even mid-contract, Branca said."Things change and you need to stay relevant to your consumer if you want to stay in business." That may include an executive summary that more easily answers questions like: How much will it cost me and what other expenses can I expect that the FDD might not disclose?
"It's clear that, at least in some instances, the promise of franchise agreements as engines of economic mobility and gainful employment is not being fully realized," said Elizabeth Wilkins, Director of the FTC's Office of Policy Planning in the release.