Franchising in Canada: A Growing Industry Facing Regulatory Headwinds

The Canadian franchise industry has continued to grow at a rate of 7% per year, despite recessionary periods, and has become a significant driver of job creation. However, the industry has been plagued by high-profile disputes between franchisors and franchisees, leading to calls for increased regulation and scrutiny. The Canadian Franchise Association (CFA) has expressed concerns that cumbersome disclosure laws, similar to those in place in Alberta, could stifle industry growth and deter new entrants.

Key Takeaways:

• The Canadian franchise industry has continued to grow at a rate of 7% per year, despite recessionary periods.
• The industry has become a significant driver of job creation, with 90% of retail stores operating under a franchise system succeeding, compared to 50-60% of Ma and Pa's starting up on their own.
• The CFA has expressed concerns that high-profile disputes between franchisors and franchisees could prompt politicians to intervene with cumbersome disclosure laws.
• A poll of CFA members shows 47% claiming they have chosen not to sell into Alberta or various U.S. states with similar regulations due to the complexity and cost of compliance.
• The CFA is working with Alberta to revise the province's "onerous" legislation, and provincial consumer and commercial relations officials are developing regulations that would allow for self-policing by the franchising industry.
• A very public row between Pizza Pizza Ltd. and 48 of its Southern Ontario franchisees has led to the CFA expelling the company from its ranks.
• CFA membership provides a clear financial advantage, with 10% of applicant members being declined, a unique rate for a trade association.
• Franchisees who have had bad experiences complain that the CFA lacks teeth when dealing with bad apples.

Statistics:

• 7%: annual growth rate of Canadian franchise industry
• $90 billion: total spent by Canadians at franchised outlets in 1993
• 8 million: number of people employed in U.S. franchises
• $800 billion: sales totals for U.S. franchises
• 90%: success rate of retail stores operating under a franchise system
• 50-60%: failure rate of Ma and Pa's starting up on their own
• 47%: number of CFA members who claim they have chosen not to sell into Alberta or various U.S. states due to regulatory complexity and cost
• $25,000-$40,000: cost to would-be registrants in Alberta for lawyers' fees

Sources:

• CAREY FRENCH, "Franchise industry faces backlash over controversies", Special to The Globe and Mail
• Canadian Franchise Association, "Franchises 1994"