While minorities currently make up only a small percentage of
franchisees, many believe this underserved population represents
the future of franchising--and for good reason. U.S. Census data
indicates that minorities will account for nearly 90 percent of the
nation's total population growth between 1995 and 2050.
Already, the share of businesses owned by ethnic minorities
increased nearly 22 percent from 1997 to 2002, according to U.S.
Census data. That represents a 33 percent increase in the number of
ethnic minority-owned businesses.
As a result, independent organizations have formed to unite the
nation's franchises in a push toward diversity--the most recent
being the Diversity Institute formed earlier this year by the
International Franchise Association.
Serving as a member of the board of trustees for the IFA
Education Foundation is C. Everett Wallace, whose work as
co-founder of the National Minority Franchising Initiative helped bring
about the Diversity Institute. I recently spoke with Wallace about
the current state of minority franchising.
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Wilson: What are the main obstacles that prospective and
current minority franchisees are facing?
Wallace: The biggest obstacles can be summed up in three
very simple parts. I call them the "gaps." One is the
information gap. The minority community is not as well-informed
about franchising and its opportunities. The second one is a
relationship gap--because [minorities] are less informed and less
involved [in franchising], they have fewer [franchise]
relationships. [A white franchisee] may be able to find
someone--brother, sister, mother, father--who is either in
franchising or knows somebody who's in franchising. As an
African-American, I have a harder time doing that, because there
are fewer African-Americans in franchising. The third one, frankly,
is a capital gap. There have been some studies done on this, and
the majority of franchisees [obtain] funds through friends and
family. If you're African-American or Hispanic, and you start
off asset-poor to begin with, your family is asset-poor. I'm
not going to call my mother and say, "Can you give me $50,000
to start this franchise?" She's calling me up to see if I
can send her $100.
We're at, I think, a 70 percent to 72 percent home-ownership
rate for Caucasians in this country, and we're just basically
breaking 50 percent for African-Americans. A lot of the franchisees
who get started are able to do so by mortgaging the equity in their
houses, but that presumes you have a house. You can't be in a
horse race without a horse.
Do you think these challenges are
surmountable?
We have worked and continue to work to make sure we are creating
a greater awareness of the various programs out there to assist
minorities and others. There are two different kinds of programs.
Some of them are race-based--that is, they're doing something
to specifically help minorities. More often, the programs are
place-based. They are oriented toward helping lower-income,
disadvantaged communities, which, in many instances, often turn out
to be minority communities. You can get some consideration for
helping to improve or bring businesses to those communities. So
those represent opportunities for different minorities who would
want to open a Dunkin' Donuts [in the inner city].
So you believe the resources are out there--it's just
about closing that gap and helping minorities discover the
resources that are available to them?
Totally. In all three cases, it really is about coming up with
programs that are capable of closing that gap.
What might minority franchisees face once they start their
businesses?
I absolutely believe that prospective franchisees have to go in
with a certain level of awareness. That is, if you're buying a
franchise that has not historically been in the community
you're going into, you need to explore how likely it is that
the brand is going to be well-received. So you may have to work a
little more closely with franchisors, because they haven't
tested their brand [in that community] and they don't quite
know what people's expectations are for their brand. You have
to be aware of that, but that's really more of a business
issue. How aware or prepared are you to understand the business
nuances that you're getting yourself into?
Do you feel that franchising opportunities for minorities
exist only in the inner cities?
I think they exist all over the place. You have so many folks
who are, frankly, of color but don't necessarily have their
businesses in the minority community. So I don't think
that's a barrier--that if you're black, you have to sell
your goods in the black community. But I would like to see more of
those opportunities being created--that people who are of an ethnic
persuasion are able to bring to their community those branded
concepts--because there is a lot of advantage to using and having
those brands. Having those brands in the community says something
about the quality of the community. The presumption is that the
brand wouldn't be there if they did not perceive that the brand
was going to work in the community.
Do you have an estimate of what percentage of minorities
own franchises?
Our [organization] estimates that probably less than 8 percent
to 10 percent [of franchisees] are minorities. This country is
rapidly [approaching] 30 percent minority, so there's still a
long way to go.
With these figures in mind, what does the future look like
for minority franchising?
I think it looks very good. The increased emphasis that the IFA
is placing on minority franchising opens up opportunities for more
minorities to become involved in the future. If you look at
McDonald's, for example, it has a very good record. One of the
reasons, in my opinion, is that McDonald's accepted the notion
of market segmentation as a way of advertising their products. They
started--back in the '60s--understanding that it would be good
for them to have people of color representing those communities of
color that their brand was going to show up in. If you look around,
you'll find that there's kind of a [viral] thing going on,
because what a franchisee does is call up his brother-in-law and
say, "I'm making crazy money here. You should try to get
involved with it." That's truly how it's happened
[with] other brands.
That's why I go back to the relationship thing. You [say to]
people you know, "I've got a great opportunity; you should
try to get involved with it," and the next thing you know, I
have my cousin or brother or sister and it just turns out that
we're all Italian or we're all Irish. It wasn't because
we planned it that way. It's because those were the people I
knew best, so when I had an opportunity, those are the folks I
picked up the phone and called.
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