2004 was a big year of change in franchising.
Even the FTC thought so -- when it issued its proposed changes to the FTC Rule and requested comments. The franchise community responded provided dozens of comment letters to the agency, both applauding and questioning certain new requirements. The changes to the FTC rule have not yet been promulgated, but the comment period is now closed. To view the proposed changes and the comments, click here.
Bread is back on the menu -- After a difficult spike in low-carb eating, some carb-dependent concepts - like pizza, bagels and ice cream -- are breathing a sigh of relief as life appears to be returning to normal and people returning to carbohydrate-rich diets. Some time in mid-year, the low-carb craze plateaued and people began visiting their local pizzerias again. Time will tell how this change will affect the success of concepts based on low-carb products.
In Memoriam -- The franchising community was shocked this year by the sudden passing of James Cantalupo, McDonald's CEO, in April at a franchise conference in Florida. After Mr. Cantalupo's death, Charlie Bell was named McDonald's CEO, but recently resigned his post to focus on his battle with colorectal cancer. Jim Skinner is now the CEO for McDonald's.
Krispy Kreme falters, then plummets -- In 2003, Krispy Kreme, the Wall Street darling praised for its near-perfect U.S. expansion, hit a high in its stock price at nearly $50 per share. After riding a three year wave of media love, the company hit a wall in 2004 (I like a mixed metaphor once in a while). This February, the company announced that it would buy back four large franchise territories, a move that had some market analysts scratching their heads. In April, analysts began to criticize the company's strategy and the stock price started to come down. In May, shareholders filed suit against the company and in July, the SEC announced an informal probe that became a formal investigation into the company's accounting practices in October. By November, when the company announced a $3 million loss for the third quarter, the company's stock had dropped more than 75% to $9.30 per share.
FLSA Class Actions -- In other class action news, several franchise chain operators have been caught in class actions over claims that they violated the Fair Labor Standards Act in the operation of corporate restaurants. According to the lawsuits, some companies do not pay managers overtime because they believe them to be exempt employees under the FLSA. Class action lawyers read the law differently, claiming that if the managers are performing non-managerial duties 90% of the time, they deserve overtime pay. CKE paid $9 million in an FLSA class action settlement, and similar cases were filed against Pizza Hut, Ryan's Family Steak Houses and Claim Jumper Restaurants.
Posted by franchiselawblog at December 28, 2004 06:45 PM