• 24
  • October
    2011

A franchise can be a great model for certain types of businesses. The franchisor is able to expand the scope of her business far beyond what any individual owner would be able to accomplish on their own. Franchisees are able to benefit from an established business model and product. But Franchises can pose unique challenges as well.

Not long ago the Atlanta Bread company was one of the fastest growing and successful franchises. In 2004, the company had 164 stores across the country. But competition, the economic downturn and franchise litigation, all created substantial obstacles since then.

Now the Atlanta Bread Company has scaled back to 74 locations in 20 states. Dozens of Small Business Administration loans to Atlanta read Company franchisees have failed. Although according to the owners of the franchise, this strategic restructuring was a necessary part of a growth process and they see themselves on the rebound. The two brothers that own the franchise say that they are hiring and are once again profitable.

One of the major hurdles that may have, at least temporarily, tripped up the franchise was a 2006 lawsuit. In that case the franchisors had terminated one franchisee's ownership of five locations. The franchisor's claimed that the franchisee had violated their agreement by opening a competing business. The franchisor filed a lawsuit that eventually made its way to the Georgia Supreme Court. In 2009 the Court ruled that the franchise's non-compete clauses were unenforceable as being too broad.

Later this week, we will look at some of the other challenges that both franchisors and franchisees face, and how these continue to play out for the Atlanta Bread Company.

Source: The Atlanta Journal Constitution "ATL restaurant franchises cost taxpayers millions," Russell Grantham, Oct. 24, 2011