When this chapter opens, the author is riding with a pizza-delivery man through Pueblo, CO. Pueblo is a different sort of town than Colorado Springs; some people call it “the asshole of Colorado” However, the differences between Pueblo and Colorado Springs are starting to disappear as restaurant franchises and ranch homes are built there.
The Little Caesars that Schlosser visits is owned by Dave Feamster, former NHL player. Feamster opened the restaurant after he was hurt playing hockey. While he was being trained, he earned only $300.00 a week. To become a franchisee, he has to pay a $15,000.00 franchise fee. Franchising has been around since the 19th c, and was especially useful when fast-food chains emerged because banks were often unwilling to invest in this new industry. Ray Kroc began by selling restaurants to men in his country club. Later, he sought out individuals who would devote themselves to their restaurants; he would test their faith by offering them restaurants far away from their homes and forbade them from taking part in other businesses. Loyalty was extremely important to Kroc. In the 1960s and 1970s, McDonald’s produced scores of millionaires— including Kroc’s secretary, who had been paid in stock during the company’s rough period. The McDonald brothers only ended up with about a 1 million each; had they held on to their share of the company’s revenues, they would have made more than $180 million a year.
While the IFA (International Franchise Association) claims that franchised businesses are a safer investment
than independent business, economics professor Timothy Bates has conducted research that proves the
opposite. Bates found that the failure rate for independent businesses is actually 6.2 percent lower in the first
four to five years. Bates argues that franchises produce the greatest failures and the lowest profits.
In recent years, numerous conflicts have arisen between franchisors and franchisees. One such issue is encroachment. Franchisees get angry when new franchises move close by; while, franchisors do not care if the new franchise draws business away from the old franchise because its royalties are based on total sales. Thus, more restaurants equals more money. Another problem is that chains frequently require franchisees to wave their legal rights to file complaints. Still, fast food chains are sometimes sued by unhappy franchisees— and none more so than Subway in the 1990s, which has been called the worst franchise in America. Subway requires the smallest investment from its franchisees ($100, 000.00) but it makes among the highest profit from them (8%).
This chapter closes with a discussion of franchisees, returning to Dave Feamster. Feamster now owns five Little Caesars restaurants, grossing about $2.5 million a year. Though, the author cautions, his success is by no means secure as Little Caesars continues to dwindle in popularity.
Notes - In this chapter the author seems to develop a contrast between old franchisees and new franchisees. As was
typical in previous chapter, Schlosser seems to hail the old days as the golden days of franchising, when an
average guy could become a millionaire—and so could his secretary. However, in the 1990s, Schlosser seems
much more suspicious that franchisees can get rich quick. Part of the problem, Schlosser identifies, is unfair
business practices, which limit the rights and freedoms of the franchisees.
Still Schlosser balances this critique by beginning and ending the chapter with Dave Feamster. Though Feamster is certainly not as rich as the restaurant owners of the 1960s and 1970s, he does very well.
The reader should remain critical of Schlosser’s appraisal of Kroc, considering his sources as previously discussed. The reader should also be aware that Schlosser is constructing this chapter in an attempt to expose the limits of franchising. Note that Schlosser provides the testimony of an economist who argues that franchises are not safer investments then independent business. However, Schlosser does not critique or even explain this economist’s research methods, nor does he consult another economist who might argue differently.