A12| Tuesday, December 1, 2020 THE WALL STREET JOURNAL.
Cafe and coin-laundry at Freddy Leck sein Waschsalon in Tokyo.SURYATAPA BHATTACHARYA/THE WALL STREET JOURNALFranchisees run 55% of
American hotels, according to
industry tracker STR. They op-
erated 84% of U.S. chain res-
taurants last year, according
to data from restaurant strat-
egy firm Aaron Allen & Associ-
ates. The roughly 774,
franchised establishments in
the U.S. employed about 8.
million people last year, ac-
cording to the International
Franchise Association, a trade
group.
Interest in franchising has
been rising and looks set to
grow further as some people
who have lost jobs in the pan-
demic strike out on their own.
One franchise-led chain at-
tributed the tensions partly to
the pandemic, which has led to
the temporary or permanent
closing of about 33,000 fran-
chise outlets, according to the
trade association. “Franchisee
relations are 100% correlated
with how things are going,”
said Chief Executive Steve
Joyce of Dine Brands Global
Inc., owner of the Applebee’s
and IHOP restaurant brands.
Many franchisees are small
businesses and received fed-
eral support during the pan-
demic. A May survey by the
trade association found that
96% of 190 franchise owners
polled had received federal aid
under the Paycheck Protection
Program passed by Congress.
Modern franchising dates
to the use of outside sellers in
the late 19th century by the
company then behind Singer
sewing machines. The contem-
porary model—in which head
offices grant the right to sell,
using brand-specific methods,
under a company name in ex-
change for royalties or other
revenue—took off after World
War II, said Marko Grünhagen,
a professor of marketing at
Eastern Illinois University.
Franchisees pay brand own-
ers tens of thousands of dol-
lars, and spend significant ad-
ditional amounts in some
cases, for the right to open a
franchised business. They sign
multiyear contracts that spell
out royalties or other money
owed to the franchiser, such as
a percentage of gross revenue,
and agree to maintain the
brand’s standards. Franchisees
also agree to pay various fees
and typically contribute to
marketing funds the brand
uses to buy national ads.In Japan,
Laundries
Go Upscale
FROM PAGE ONE
In return, franchisees gain
access to customers who trust
the brand, plus training in
how to operate profitably. The
brand owner often sells fran-
chisees supplies and services
at prices it sets.
Sam Meineke, the 89-year-
old founder of his namesake
car-repair chain, was part of a
generation who helped trans-
form the U.S. economy
through legions of franchisees.
He and peers such as Ray Kroc
at McDonald’s and Col. Har-
land Sanders at Kentucky
Fried Chicken opened oppor-
tunities for middle-class shop
owners, generating devotion.
“If you don’t successfully
put him in business, such that
he can make it, that’s like
stealing from him,” Mr.
Meineke said in a September
interview, describing his ap-
proach to the franchisee.
Janet Cummings’s family
opened the first muffler shop
Mr. Meineke franchised, in
Houston in 1972. As her fam-
ily’s Meineke outlets grew, to
18, so did her connection to
the founder, who she said sent
her a wedding gift and at-
tended her parents’ funerals.
“It was really like family,”
she said.
Mr. Meineke sold the busi-
ness in 1983. A private-equity
firm that became its owner
stopped sending franchisees
reminder notices when it was
time to renew contracts, Ms.
Cummings said. That was a
disadvantage because renew-
ing early allowed owners toroll over contracts, on terms
that might be better than
those available if they had to
negotiate a fresh one.
“The further the owners are
from the franchisees, the
harder it is for them to under-
stand what is good for the
franchisee is good for the
franchiser in the long run,”
Ms. Cummings said.
A different private-equity
firm, Roark Capital Group,
now controls Meineke,
through a Roark-owned firm
called Driven Brands. Ms.
Cummings said she wasn’tsent a renewal reminder for a
long-held Meineke location.
In this case, she wasn’t
planning to renew anyway, be-
cause she is winding up her
business after four decades.
“If it was still more of a family
thing, we might stick it out a
little while longer,” she said.
Neither Driven Brands nor
Roark Capital responded to re-
quests for comment.
Franchisees who have
formed organizations in recent
years to increase their lever-
age include lodging operators,
owners of McDonald’s restau-
rants, operators of MassageEnvy studios and franchisees
of Edible Arrangements LLC
fruit-basket and flower shops.
Rich Gandhi’s Quality Inn
outlet in Middletown, N.J.,
owes franchiser Choice Hotels
fees totaling 7.75% of gross
revenue, according to a recent
monthly billing statement. The
statement also shows Mr. Gan-
dhi owed $92 for a fee tied to
customers who book through
outside sites, $63.98 for digi-
tal security and $586.44 for
property-management tech-
nology. The total fee rate has
roughly doubled in a decade,
according to Mr. Gandhi.
He is among the hotel fran-
chisees suing Choice Hotels in
federal court in Eastern Penn-
sylvania, partly over costs.
The suit alleges Choice Hotels
requires Quality Inn franchi-
sees and operators of other
brands to pay multiple fees for
the same services and has as-
sessed fees for products that
are of inferior quality.
Besides calling the suit’s
allegations unfounded, Choice
Hotels said it constantly re-
views its fees and compares
them to competitors’. Tim
Shuy, vice president of owner
and portfolio strategy, denied
that fees have roughly doubled
over a decade but said some
properties might see bigger
increases over time as they
get established in the system.
Fees added recently help oper-
ators run businesses or attract
customers, Mr. Shuy said.
“The vast majority of our
franchisees are small-businessEating and Sleeping
Franchisingisspreadingtoevermorerestaurantsandhotels.
Percentage of restaurants* that are franchised*Data for the restaurant categories, except fast casual and family dining, refer to locations of fast-food chains. †Data are of October of each year and
may not add to 100% due to rounding.
Sources: Aaron Allen & Associates (restaurants); STR (hotels)Percentage of hotels by
management type†0 25 50 75 100%SubsBurgersChickenPizzaCoffee&bakeryFamilydiningFastcasualOtherfast-food2009(^2019)
%
’ ’
Franchise-run
Independent
Chain
management
Franchisees have
formed associations
to press their case
with brand owners.
Meineke franchisee Janet Cummings, with son Matt Cummings, right, said relations with brand executives once were more personal.
BRANDON THIBODEAUX FOR THE WALL STREET JOURNAL
more combative model in
which store owners increas-
ingly fight corporate decisions
they deem unfair.
Franchisees “feel they have
no choice but to accept coer-
cive contract terms and red
tape,” said Rohit Chopra, a
member of the Federal Trade
Commission, which recently
held a hearing on the franchis-
ing business focused on what
operators need to know when
they’re thinking about getting
in. Executives overseeing
brands said franchisees often
have a more narrow and
short-term perspective.
Many of the franchisees’
complaints are granular and
might seem minor. Operators
say they add up over time and
can drag down profits, leaving
franchisees feeling companies
are trying to take advantage of
them, which brands deny.
A group of Econo Lodge
franchisees and operators of
other lodging brands owned
by Choice Hotels International
Inc. said they were forced to
pay $34.50 for 10 pounds of
frozen sausage links that cost
$22.37 elsewhere. In a suit in
federal court in the Eastern
District of Pennsylvania, they
allege this was part of a “pay-
to-play” supplier program that
requires vendors to make pay-
ments to Choice Hotels, the
cost of which is passed on to
franchisees.
Some U.S. Tim Hortons
franchisees, meanwhile, said
they were charged $104.
more for a case of Applewood
bacon than Wendy’s Co. opera-
tors paid, and $11.92 extra for
a case of plastic straws.
And some franchisees of
McDonald’s Corp. said that it
didn’t do as much to defer
rent and make other conces-
sions early in the pandemic as
Dunkin’ Brands Group Inc. did,
and that McDonald’s has taken
too long to develop a new
spicy chicken sandwich.
Choice Hotels denied the al-
legations in Econo Lodge oper-
ators’ suit and said it has
worked closely with franchi-
sees to provide aid during the
pandemic. Tim Hortons parent
Restaurant Brands Interna-
tional Inc. said it has made
great strides in working with
franchisees and called their al-
legations about costs un-
founded. McDonald’s said it
has taken “unprecedented ac-
tions” to help franchisees, in-
cluding spending $100 million
on marketing.
Economic impact
In recent years, franchisees
have formed organizations to
more forcefully press their
case with management teams,
raising the possibility that is-
sues that would have been
ironed out privately in the
past will spill into public view.
Rising tensions at fran-
chised companies have impli-
cations for a part of the econ-
omy that has grown rapidly in
recent years, generating jobs
and investment in businesses
ranging from hairstyling shops
to tax-preparation outlets.
Continued from Page One
derly, not just single men, said
Koji Nakazawa, editor in chief
of Laundry Business Magazine.
That is more than twice as
many laundromats per capita
as the U.S., where the number
has been falling as more urban
apartments add washing ma-
chines.
Traditionally, people in
Japan would hang laundry
outside to dry. That practice
has run into concerns about
allergies caused by cedar pol-
len in the air.
Owners have also added
services tailored to Japanese
customs such as sleeping on a
futon. Higher-end laundromats
have machines big enough for
some types of futon mat-
tresses, typically costing $
to $20 for a wash and dry.
Washing shoes is popular,
since schools and day-care
centers in Japan expect chil-
dren to have two clean pairs
of shoes, one for indoor activi-
Continued from Page One
ties and the other for outside.
On a recent weekend, Mitsue
Ando, a 34-year-old working
mother brought three pairs of
her children’s shoes to a laun-
dromat in central Tokyo and
waited 20 minutes for the
sneaker washer to open up.
“It’s just bothersome to have
to wash them by hand every
week,” Ms. Ando said.
Miyuki Shibuya, a 42-year-
old social worker in central
Japan’s Aichi prefecture, got
sick of drying her clothes on
her balcony in the winter and
headed to her neighborhood
laundry, which cured the prob-
lem with a dryer that pro-
duced warm, fluffy clothes.
The encounter led Ms.
Shibuya to start a blog, “Coin
Laundry Girls.” She travels
around the country chronicling
laundromat cafe cuisine and,
more recently, coronavirus pre-
vention measures.
On a visit to the Hull Laun-
dry in the city of Takasago
last year, Ms. Shibuya got her
hair cut at the laundry’s ad-
joining beauty salon and fell
into conversation with the
owner. They hatched the idea
of an art exhibit at the laun-
dromat. It took place in
March, with the top prize
among the 33 works of art
awarded to a calligrapher who
displayed a piece of wrinkled
paper after it had been put
through a washing machine.
Ms. Shibuya’s favorite art-
work was a resin necklace
made to resemble an angel.
“To me, it looked like an angel
that would appear in a laun-
dromat,” she said.
Perhaps the quintessence of
luxury laundering can be found
at Freddy Leck sein Waschsalon
in Tokyo, a cousin of the origi-
nal in Berlin. It is the place
with the wash-and-dry CD.
Freddy’s has collaborated with
L.L. Bean on a limited-edition
tote bag ($138), and puts its
logo on a white staff coat that
resembles a doctor’s lab coat
($157). The cafe serves an or-
ganic elderflower cordial and
German wheat beer.
Masato Nishikawa, 29, is
one of the certified cleaning
masters at Freddy’s after he
passed a national exam in
Japan. The exam requires ap-
plicants to memorize charac-
teristics of various textiles and
puts them on the spot by mak-
ing them distinguish the type
of a particular stain and which
chemical would dissolve it. “I
was always good at removing
stains,” Mr. Nishikawa said.
Freddy’s is a past grand
prize winner in a Japanese in-
dustry group’s annual compe-
tition, started in 2016, which
draws the chicest and sleekest
laundromats on a trophy
quest. Daisuke Fujita opened
the California Laundry Café in
Kyoto in 2017, serving smooth-
ies and parfaits topped with
seasonal fruit in homage to
the Golden State. Along with
the wooden floors and airy de-
sign, it was enough to win Mr.
Fujita, 40, the Best Store De-
sign accolade in 2018.
The committee said Mr. Fu-
jita’s design “makes you feel
like you’re in California,” al-
though Mr. Fujita admits he has
never been to the state.
This year’s gala awards cere-
mony for competition winners
was canceled. The grand prize
winner, Jabba Ring laundry in
the northern city of Sapporo,
held its own small celebration,
with seven people, mostly staff.
Jabba Ring, which takes in cus-
tomers’ clothes for cleaning as
well as offering self-service ma-
chines, gathered staff in its
laundry factory for a six-course
French dinner. A chef served
the meal on a work table nor-
mally used for folding towels.
The menu included pork
liver pâté, Wagyu beef and
poached salmon with saffron.
Owner Yasushi Takeuchi
said he picked the spacious lo-
cation because it allowed for
more social distancing, and a
pandemic wasn’t about to stop
him from celebrating.
The award “recognized us
as No. 1 in Japan,” he said.
“I’m so happy.”
owners who benefit from par-
ticipating in programs that
give them great purchasing
power, that help them network
and reduce costs,” he said.
Some executives say fran-
chisee complaints are short-
sighted. Operators shouldn’t
expect business to improve
just because they joined a
franchised system, said Rajiv
Trivedi, a former La Quinta ex-
ecutive who in the early 2000s
developed a franchising pro-
gram for that hotel brand, now
part of Wyndham Hotels & Re-
sorts Inc. “Many times, fran-
chisees’ expectations are un-
reasonable,” Mr. Trivedi said.
Franchisees have helped to
secure change at a few compa-
nies. Yum Brands Inc. ap-
pointed an interim U.S. presi-
dent at its Pizza Hut division
in February after franchisees
complained that company pro-
motions had eroded profits.
“We have to build back our
relationship with our franchi-
sees, so we are partners in
this,” said the interim U.S.
president, Kevin Hochman. A
number of franchisees said
they were happier under the
new boss.
The biggest Pizza Hut fran-
chisee in the U.S., NPC Inter-
national Inc., filed for chapter
11 bankruptcy in July. Yum al-
lowed NPC to close 300 res-
taurants.
Yum chief executive David
Gibbs said the company com-
municates regularly with res-
taurant operators about their
needs. “The well-capitalized
are committed to the business
and they are coming out of
this stronger,” he said.
Ben Hiner owns three Ken-
tucky franchises of Edible Ar-
rangements. There was a time
when the parent company
would fly franchisees to “fruit
summits” at its then-head-
quarters in Connecticut, he re-
called. Staff members distrib-
uted collared shirts for
attendees to wear at summit
events, in which people talked
strategy and swapped opera-
tional tips. “I left those meet-
ings gung-ho and ready to go,”
Mr. Hiner said.
Higher fees
Now he leads a franchisee
association that recently sued
Edible Arrangements. The suit
alleged that an affiliate that
handles online orders raised
fees for operators to 10% per
order from 2.5% last year and
in 2018. Filed in Superior
Court of Fulton County, Ga.,
the suit also alleged that fran-
chisees were left with unex-
pected expenses when Edible
Arrangements shipped them
chocolates from a company
where its founder, Tariq Farid,
sat on the board.
A judge dismissed the case,
pointing to a contract clause
calling for arbitration. Plain-
tiffs will pursue their case in
that avenue, said their attor-
ney, Robert Zarco.
Mr. Farid said Edible Ar-
rangements has shipped items
to store operators to ensure
consistent selection for cus-
tomers. He said his relation-
ship with the chocolate sup-
plier didn’t cross any lines.
He said the fee increases
were contractually permitted
and pay for e-commerce oper-
ations that have grown during
the pandemic.
“Wehavetoevolve.We’ve
been around for 20 years,” Mr.
Farid said.
Spats Beset
Franchising
Operations