ROBSWF said:
I would like to point out to those of you considering hooking up with them to take a look at what happened to an entire chain of stores in California that at one time seemed happy being related. Conroy’s. I do not know all the specifics, Cathy may be able to help with this one more than me.
It's been quite a while since I worked for the company but from anecdotal accounts over the years via friends on the inside, conditions have worsened.
Back when I worked there, the corporation was owned by Chris Conroy (and a few of his ex-wives IIRC) who was as ruthless as he was charismatic. There wasn't much love lost between the franchisees and the corporate office and being a field rep for the company has it's moments (daily). I recall at least one franchisee having a restraining order against anyone from home office enter the store.
The original franchise agreements called for 10.5% (of gross sales) in royalties including franchise, accounting and advertising fees. Wire-ins, wire-outs and delivery charges were exempt from the calculations since they were considered as less-than-profitable service components. Agreements were for 20 years with 2 5-year options. The franchisees owned the buidings but not the land so they paid ground-lease rent in addition to the depreciation of the physical buidling. With most located at high-traffic intersections, land leases alone could/can run above $10,000K per month.
My understanding of the 1-800-flowers era is that the renewal agreements now call for 11.5% or so in fees and include wire ins, outs and delivery charges in the calculations. Some of the original franchisees are still hanging in there while others have just walked away. (A rep I worked with purchased a franchise in a community near ours. After attempting to sell the store for several years, he decided to just fold.)
The industry has changed a lot since the Conroy's heyday. Their original bucket store model has been usurped by mass marketers who offer the convenience at much lower prices. Most franchises (not all) have experienced substantial slides in gross sales and can ill-afford to hire quality full-time staff members, relying heavily on part-time, inexperienced employees. (This includes some of the company-owned stores.)
How much
direct business do you believe the association with 1-800-flowers brings those franchises?
Exactly.
One franchisee chose to fight -
http://www.global-competition.com/global_b/frnchise.htm - and lost.
In Hale v Conroy's Inc, a franchisee claimed that its franchisor breached their franchise agreement and violated the covenant of good faith and fair dealing by competing with the franchisee through its e-commerce and telephone marketing activities. The franchisor, Conroy's, franchised flower shops and was a subsidiary of 1-800-Flowers.com. Conroy's and 1-800-Flowers.com used three channels of distribution: the Internet, telephone sales, and retail stores. The franchisee joined the Conroy's franchise system in 1992, and in 1995 it agreed to co-brand with 1-800-Flowers, which at that time primarily was a toll-free telephone ordering system. Since then, 1-800-Flowers has shifted its focus toward Internet sales, and orders placed through 1-800-Flowers may be filled by non-franchisees that operate within the exclusive territories of franchisees. The franchisee claimed that Conroy's breached their franchise agreement and acted in bad faith by disregarding the franchise channel in favour of the Internet channel. However, an arbitrator concluded that, even though orders placed via the Internet often were filled by non-franchisees, this practice neither breached the franchise agreement nor violated an obligation of good faith and fair dealing.
So the franchisees financially support the brand while having to compete against it.
Florists considering any long-term partnership (via co-branding, franchising or even a POS system purchase) should perform due diligence to explore the possible ramifications (and costs) of those relationships.
