Are Inner City Franchise Programs Working? The opportunities and investors are out there, but they're having problems finding each other.
By Devlin Smith
Opinions expressed by Entrepreneur contributors are their own.
After two years, the Latino Franchise Project, an organization that provides funding to help Hispanic entrepreneurs open franchises, was reported as helping open only two franchises.
What's the problem? While franchising has grown in popularity in the business world, it's had trouble finding interested entrepreneurs in minority communities. Franchise Zone spoke with C. Everett Wallace, vice chairman of the International Franchise Association's Minorities in Franchising Committee, about minority franchising programs and what franchisors, franchisees and community leaders can do to get more minorities into inner city franchising.
What are the goals of minority franchising programs?
In some instances, it's to increase the number of minority-owned franchises within a franchisor's portfolio. In other instances, it's to expand the franchise presence in minority communities.
Do franchisors share these goals?
For the franchisor, the goal is most often the classic: expanding their brand. Community development groups, city, states, even some of the federal government's programs are usually oriented a lot more toward franchising as a tool for economic development or for expanding business opportunities for the minority communities.
Are these goals being met by these programs and by the franchises?
They're being underutilized by both the franchisors and, to some extent, the people in charge of running the government programs. Franchising has proven its strength as a business concept, but because local agencies or groups may not know how to start a relationship with a franchisor, they'll often opt for doing something that's local and familiar, as opposed to partnering with a national franchise with a name brand and a proven business system behind it. So the answer in short order is, no, they are not being adequately utilized by either party.
Why do you think that is?
Some of it's educational. There really hasn't been much of an effort to bring parties together and define where their mutual benefits lie. If there are 18 ways to expand your business, you tend to go with what's familiar to you. A lot of franchisors have sought to expand their brands in foreign markets and haven't necessarily fully explored all the opportunities that exist in the domestic market.
Who should take responsibility for improving this: the franchisors, community leaders or franchisees?
All of the above. The IFA has been helping educate the franchisors as to the opportunities that exist in these minority communities. There's also a need for individuals in the minority communities attempting to rebuild commercial strips and things of that sort to really reach out and build relationships with franchisors who have brands or products that would be highly acceptable within those communities. The problem is that often when you say "franchising," people immediately equate that to fast food and don't recognize all the things that come to them through this methodology. A franchise can provide almost everything a community needs.
Why do you think the Latino Franchise Project in Chicago, and programs like it, have had trouble attracting franchisees?
This program was the outgrowth of a program called Community Connections, run by David Chandler of the Center for Neighborhood Technology, whom I assisted while I was living in Chicago.
Both David's program and the Latino program have had trouble in a number of areas. The original concept was to match interested franchisors with eager franchisees, and the result would be a win-win. On the surface this is true, but to be truly successful the program requires a greater level of connectivity with individuals from these communities who have or are likely to have the resources and skills to succeed in the identified franchise businesses.
This means there must be a great emphasis placed on securing franchises that appeal to the potential franchisee and their communities. In addition, the programs need to develop better relationships with other organizations that have the qualifications and resources to help franchisees succeed. Identifying associations of professionals like CPAs, MBAs, lawyers, etc., would render a higher level of success. Also, recruiting minorities with management experience who work for similar, nonfranchise businesses would enhance the positive outcome of this win-win equation.
Finally, there must be an expanded training program created for those individuals who do choose to enter these programs without a significant business background. Unfortunately, many franchise-training programs aren't designed to provide sufficient instructions [on] the fundamentals of owning and operating a business, something many of the current prospects in these communities lack. This can prove to be a tremendous barrier to signing up potential franchisees.
Are there any issues like hiring or safety that might be keeping franchisors out of these communities?
On the personnel side, the franchisors, quite frankly, need to expand their outlook. Their staff should reflect the entirety of the American population. A lot of times you go into someone's operation and all the employees look like the owner. So there absolutely should be more diversity inside these companies.
Franchisors also need to become more familiar with these communities, because the numbers are overwhelming. The empirical studies show the phenomenal amount of money available to these franchisors if their products are sold in these communities. A lot of the fast-food franchises that have already penetrated that market do very, very well due to the simple matter of density-so many people living in urban markets are minorities, but they don't have access to a wide array [of businesses to patronize]. These are markets where people have disposable income, but aren't able to buy the goods in their own community because the franchisor isn't selling them there.
Franchisors have to step forward proactively and reach out to these [inner city] communities. Now, more than ever before, when we are not necessarily, as a country, being well received in a lot of places, it's caused a lot of folks to go back and say, "Where else can we sell our product?" They have to start looking at the urban market as a place where they can expand, because the opportunities are tremendous.
Is it better for people who live within the community to become franchisees and develop the franchise themselves or to bring in a master franchisee from another area to develop it?
I'm a big advocate for having franchisees who are from those communities, because it enhances the likelihood of success. Someone from that community is probably more familiar with the habits there, how to publicize, things of that sort.
Often a franchisor does seek someone who has a special relationship within that marketplace to be the principle franchisee in the market. That works, whether it's a minority market or majority market.
Do some of these franchises feel they're doing community service by going in to these markets, that it's something they owe the community?
There are some franchisors who feel that way. Most of them are still driven by the bottom line. They don't say, "I want to go into that community and lose money."
I'm pleasantly surprised at the number of franchisors who have clearly told me they want to see their brands in every community possible. They don't have a resistance to seeing their brand located in an African American community or a Hispanic community. Often they simply don't know how to get that process started.
How can these franchises begin to move into these communities? Where should they start?
They have to start by assessing their brand to make sure it would be well received in that community. I've so often heard from people, "African Americans don't eat a lot of cold cuts, so I don't know if a Blimpie or a Subway would do very well." I can tell you that they are doing gangbusters. In Nashville, down the street from a historically black college, there's a Subway shop where you can't get in the door. You can't tell me we don't eat it; maybe you just haven't brought it to us, but if you do you will discover that I've been eating cold cuts my whole life. It's a choice I want available to me, too.
The second area franchises have to look at is what, if any, are the barriers, real or perceived, keeping people from wanting your product in their community. The community hasn't seen [a lot of this kind of investment] before, so they may have a level of skepticism as to whether or not there's a real interest in being in their community.
Right now we have an oversaturation of a lot of these brands in suburban communities, while these territories five miles away have a tremendous amount of selling power and consumers who would rapidly accept a lot of these brands if folks were willing to bring them to the neighborhood.
Are there any kinds of businesses that wouldn't work?
If I had a high-end product and I was going into a lower income community, there's a real possibility that that product might not sell just because people don't have the disposable income. That is purely economic, not racial.
If I had a product that was oriented toward, for example, a certain ethnic taste, I may not be able to go in a given market. If I was selling pierogis [Polish dumplings filled with meat, cheese or vegetables], I have to test-market to see whether, say, a Hispanic community would buy pierogis. The fact I've done well on the north side of Chicago, where there's a huge Polish and Slavic community, doesn't mean it's going to translate well on the west side of Chicago where I've got an African American, Southern-based community.
Are any franchises already doing a good job of this? Which companies are the role models?
Some folks have in fact done a good job in terms of creating programs specifically designed to help bring minorities into their brands or to bring their brands into the presence of these communities, and they are to be applauded.
I always use McDonald's as my example. I don't care where you go, rural, urban, black, white, green, purple-there's a McDonald's on the corner. They have been equal opportunity folks for a long time and the strength of their corporation has reflected that. That is the way you've got to do this-you have to be able to go into every market if you want to be the dominant player in your category. Realistically, we need more franchisors who truly desire to bring their brands to these revitalized communities.
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