IFA’s Cresanti on D.C. Chaos, Mega ‘Zees & More
As part of my week in New York for franchising’s biggest event—the International Franchise Expo—I sat down with IFA Chairman Robert Cresanti for a conversation about working through the current chaos in Washington, the impacts of ever-larger multi-unit franchise groups and where he sees the biggest growth opportunities in the industry’s future.
Here’s an excerpt of our conversation:
Franchise Times: What do you think are the impacts of this rise of massive, billion-dollar-plus multi-unit franchisees on this industry?
Robert Cresanti: It’s a trend we have to recognize and account for. We don’t know specifically what it means yet, what are the ramifications of it. I know all of those guys, nobody walked in the door and bought 50 franchised units. They walked in and bought maybe a 10-pack or a 5-pack when they started, especially in the fast-food space, and they grew, they learned and got really good at one brand, and another brand that was not competitive came to them and said ‘You know what? We’re wanting to do something else, what do you think about this?’ They get recruited into another brand as long as their agreements allow them to do those things, so I think those people started off in business for themselves but not by themselves, and now some of them have grown larger. We still have a decent pipeline of people who are new folks that are coming in. My concern is that some of the premium brands are drawn towards economies of scale.
FT: Is this something the IFA can or should do something about in the future?
RC: One of our key missions is educating people who have saved a lifetime and are interested in getting into business themselves … because these multi-unit, multi-concept franchisees are obviously dealing at a level that the single guy or gal can’t deal. It makes our educational function a lot more important than even in the past, and we’ve got to take a look at what the outflows are for that concentration.
For a lot of brands it’s a lot easier, and sometimes we’ve seen franchisees that are so big that they end up buying their own brand. These are, in some cases, very sophisticated business men and women and experienced business people in other areas that are really new to this area. What I love about it is, having a college education or no high school degree whatsoever doesn’t seem to have an impact on the ceiling of how you can grow and what you can do, so it still provides incredible opportunity.
FT: Is there a certain point where a franchisee group could become too big?
RC: We always talk about the amount of displacement that happens in the technology industry where they’re constantly reinvesting themselves. For a company that’s a high riser and high flyer one day that you think is insurmountable, unbeatable, think AOL … [which] ultimately ends up succumbing to other people who are outmaneuvering it, so yes there are economies of scale and benefits to doing business in this space for bigger players, but the competition is so tough even if it’s not from within the same brand, there are other brands that are looking to take market share and if you’re not doing the basics like friendly customer service, knowing your customer and understanding what their needs are and how they’ve changed, you’re going to be consumed by the market place and it can happen to the biggest brand names on the block.
FT: Is the current, chaotic environment in Washington making your job more difficult?
RC: Yeah. [He laughs.] It’s very challenged. We have one profound benefit at the moment, that there isn’t an aggressive predisposition to taking on this business model and crippling it from our perspective. This administration, for better or for worse—most of it for better—is trying to grow this economy. We’re a tool to utilize in that growth. I’ve said this before, these regulatory activities that we’re facing really lowered the ceiling for us and their removal leaves us a little like a compressed spring. I think we have a lot more ability to grow a lot more quickly than we have, and to provide opportunities for our broader base. Just looking around here [at] how many concepts there are, you have some wild-eyed concepts that no one would ever think, one, was a business and, two, [are] franchise-able. Those will inevitably fall by the wayside … but the market determines that, so that’s why in every business that you enter into, franchising is a part of it, buyer beware. You have to really get yourself educated and that is one of the functions that IFA does that I’m the most proud of. We have significant tools for people to help themselves and to become more informed.
FT: Do you worry about certain retail categories struggling with foot traffic declines?
RC: [Restaurants are] a little less than half of our overall membership in the association … still the single biggest group of companies. There are so many consultants and specialists that look at those numbers, that unless it becomes economically significant, we’re very comfortable and happy—and the consensus is there’s significant room to grow.
FT: As more cities vote to increase minimum wages, how is this impacting the industry?
RC: It is absolutely shocking. There is a cognitive dissonance that has developed, because people feel badly for employees or for people who are in the lower economic rungs, that they’ve decided to, in their magnanimous state, take money or benefits out of a business that’s [struggling] to get by and hand it over to the workers in many cases. What we’re seeing a lot is well-intended attempts to mandate by legislation what only economic growth can really only effectively bring about. A good friend of mine always said, and I agree with this, is we want to aspire to on the macroeconomic level, a society where employers are competing for great employees to take jobs, and not where you have a line of employees competing for a single job. Because of the growth we’ve been seeing and because of the noises I’m hearing in the field from franchisees, it’s increasingly difficult to attract good and competent ... employees. They don’t stay as long as they used to and my surmise is they don’t stay as long as they used to because they’re getting better job offers to go somewhere, which is a sign of health in the economy.
FT: I’m not done exploring New York, so I hope this show stays here for, at least, a few more years. What do you think?
RC: New York is a lynchpin for this show. It’s the biggest of the shows, I think there’s always opportunity to do a second show. One was in Denver last year, experimentally, and now it’s back in Los Angeles. Where there is demand, there’s an ability to do shows like this, and there are also other segments that have smaller brands that are doing little mini breakouts in different parts of the country but it’s not through MFV [Expositions]. I don’t know that it will be at the Javits Center [in perpetuity], but I can’t see that it wouldn’t be in New York.