The three gaps in minority franchisee recruitment: tackling the lack of information, relationship structure and capital to finance franchise growth presents opportunities as weil as challenges.
These obstacles have been characterized by one expert as gaps: An information gap, a relationship gap and a capital gap. These gaps apply to both franchisees and franchisors; and they are all interrelated. Below is a brief overview of the study's findings.
The Information Gap
Lack of awareness about franchising in minority communities was cited as one of the biggest obstacles to minority franchisee recruitment. This awareness gap takes many forms, including:
* Lack of knowledge about the opportunities in franchising,
* Lack of knowledge and misperceptions about how franchising works,
* Lack of knowledge and misperceptions about the cost of acquiring a franchise.
This lack of knowledge is the result of a lack of overall business ownership in some minority communities, as weil as a lack of ownership of franchises. This is the case in African-American and Latino communities. This lack of business ownership is changing according to U.S. Census data that shows that minority business ownership is growing at a faster rate than all U.S. businesses. Without more role models and mentors to see and learn from--neighbors, family members and friends--these minority communities do not have the same informal business "classrooms" that other communities typically have available to them. This critical void leads to misinformation and misperceptions that only further complicate and hinder franchise development growth in these communities.
Attacking a "Catch 22" challenge Of the franchisees interviewed for this study, 66 percent learned about franchising through personal experience-either from a friend or family member or they were already working for the franchise company before becoming franchisees. This is quite typical in franchising, where referrals are the number one way to get more franchisees in a system. Without more minorities as franchisees and working for franchise companies, this creates a "Catch 22" that perpetuates the problem.
One solution is to provide more franchise education to minority communities. Franchise education and awareness can be provided in many ways to so many different audiences, including schools and colleges; churches, civic groups and associations; radio, TV, magazines and newspapers; seminars, conferences and expos; networking, speaking, sponsoring and advertising. Most franchise companies have no idea where to begin and have even fewer resources, such as money and manpower, to devote to the effort.
More than one-half of the franchise companies interviewed have attempted to address the issue by advertising in minority (print) media, with mixed results. The advertising was seen as a way to build both awareness of the brand and the franchise opportunity and lead generation. While major national minority magazines were used, more consistent results were reported from local minority print media in targeted geographic locations where a company was seeking to locate a franchise.
All of the franchise companies interviewed have also participated in minority outreach events, both local and national, including conferences of civic and business associations, sororities and fraternities, and meetings and events of minority chambers of commerce, economic development corporations, churches, and the like. These activities are seen as critical for raising awareness, building the relationships and developing the trust needed to recruit franchisees in these communities.
"It's a lack of what I call the three Es.. education, experience and equity. Layer on the fact that historically franchisors have not aggressively recruited minority franchisees and you get the low percentages that we have today. A lot has changed. Franchisors are taking an active role in educating, training, and offering financial incentives to change the franchising landscape. The equity component presents the greatest challenge because without it, getting financing is almost impossible."
--Brian Parker, Choice Hotels International
The Relationship Gap
As mentioned earlier, some minority communities are under-represented in business ownership in general, and especially in franchising. As a result, there isn't a representative base of business know-how (or franchising know how) that these communities can draw from.
Minorities are not universally under represented in franchising. For instance, the Asian Indian community owns more than 40 percent of all budget and mid-priced hotels and motels and typically represent a good portion of many company's minority franchisee base. This is a direct result of familial relationships and informal business "classrooms" paying dividends. As one family showed that hotel ownership was possible, they encouraged others to follow in their footsteps and provided assistance for them to do so. No matter that hotels are among the most expensive investments in the franchising sector, the Asian Indian community has developed a model for acquiring and developing hotels and has built on that success.
Minority business ownership is growing at a faster rate than all U.S. businesses.
In addition, franchise systems owned by minorities or that appeal to a particular ethnic group, particularly food-based franchises, have a preponderance of minority franchisees. Again, investment cost was not a major factor. The same referral network kicks in and the franchise system ends up with a large number of minority franchisees.
For those franchise systems that don't already have a sizeable minority franchisee base on which to build, building relationships in minority communities is critical. But franchisors and franchisees alike stressed the importance of making a sustained, dedicated effort that is genuine and well-thought through based on a solid business case. Of utmost importance is the understanding that building these relationships takes time and dedicated resources. Comments included:
* Understand your target market and get involved; network, sponsor, speak and advertise;
* Employ franchise sales people that look like the people you want to recruit;
* Half-hearted efforts have all the potential for a serious backlash; and
* Your existing minority employees and franchisees are the best marketers for the business. Find ways to include them in your efforts.
"It's guerilla warfare and a lot of hard work. Simply placing ads in Black Enterprise magazine won't do it. I have spent lots of time with African-American groups (and I'm Latino), and have become part of those groups. This way you gain credibility, you get lots of exposure, and that yields business leads. You have to first gain their confidence. Once you get started and get those first one or two successful minority franchisees it becomes much easier after that. You have something you can point to."
--Jose Cormo, Polio Campero-ADIR Restaurant Corporation
"[We work], especially with church groups and community organizations. We seek out a number of groups that are made up of minorities, or have access to minorities through their circles of influence. One of the most effective types of groups that I've encountered for the purpose of lead generation and increasing awareness within the minority business community are the groups that combine social activities/causes with business imperatives. An example of this type of group might be an African American fraternity. Many of these fraternities' graduate members are well-educated, possess great business acumen and have a fairly significant net worth. Further, these fraternity members are often successful entrepreneurs actively looking for new businesses to grow or acquire."
--Hannibal Myers, Williams Fried Chicken
The Capital Gap
This is by far the most difficult gap to overcome, but it's not insurmountable. Many franchisees finance their franchise by mortgaging the equity in their homes or borrowing from friends and family or both. With lower levels of home ownership and net worth, this method is less effective in minority communities as a whole.
A number of franchisors have attempted to overcome this barrier by offering financial incentives and other assistance to help minority franchisees get into their franchise. Seventy percent of the franchisors interviewed for this study did not offer any incentives. Those that did offered initial fee reductions, extended initial fee payments, royalty fee discounts and other individually-tailored incentives such as loan guarantees.
"Yes, we have a very active program, but it is based in the individual need or situation rather than using a cookie-cutter approach, with each deal being unique. Some deals may need more money, others require less. Our various financial tools include reduced applications fees, or fees that are paid over time; flexibility on the royalty fees like increasing them gradually over time as the hotel becomes financially stable; and creative uses of 'key money' in closing deals. The latter is the funding it takes to actually open up the hotel. We also help work with various lenders and at times have guaranteed a portion of the capital loan for our partners. The specific or combination of, tools that we use varies from case to case. We revamped our financial incentive program last October and are making much more use of it than we have in the past."
--Norman Jenkins, Marriott International
Clearly there are candidates in all minority groups with the financial wherewithal and business acumen to acquire a franchise. With the growing numbers of minorities in the upper ranks of corporate America and the emphasis on business ownership in general, the pool of financially-qualified minorities will only increase. Franchisors just need to find them and convince them that franchising is the best use of their time and money.
The IFA's Role
The International Franchise Association recently launched a minority franchisee recruitment initiative to assist franchisors who are seeking to develop or increase their minority outreach efforts. Called MinorityFran, the initiative is designed to help IFA member companies recruit more minority franchisees. At press time, nearly 100 companies had signed up for the initiative.
MinorityFran provides one, convenient place where minority prospects can explore franchise offerings of companies actively looking to recruit minority franchisees on the IFA Web site. It builds on relationships forged with leading organizations through the IFA Diversity Institute, such as the National Urban League, Association of Small Business Development Centers, U.S. Pan Asian American Chamber of Commerce, and the Minority Business Development Agency. MinorityFran will serve as the flagship program promoted jointly by the IFA and these and other organizations to be highlighted at events, in internal and external media communications, and through other targeted efforts.
For more information or to sign up, visit the IFA Web site at Franchise.org, select Programs and Services and then Minorities in Franchising from the menu at left.
Sonya Brathwaite is director of diversity and emerging markets for the International Franchise Association. She can be reached at 202-662-0784 or email@example.com.