The Great Recession's Impact on Minority Franchising Initiatives

A mere five years ago, "minority" was the buzzword in the franchising industry. Held up as a radiant beacon of light, this demographic -- powerful in the sheer numbers they represented -- was illuminating the path to the future. Industry leaders couldn't tout minorities' potential enough; franchisors were enthusiastically becoming members of the International Franchise Association's newly created MinorityFran program and offering discounted franchise fees to minorities; and minority entrepreneurs were growing by leaps and bounds, more than twice the rate of all U.S. businesses, according to the latest findings from the U.S. Census Bureau.

Fast forward to 2011, and this promising demographic has nearly been forgotten. The guiding light, once so radiant, has lost its gleam, and minorities and franchising -- once a feel-good topic -- has become a hot potato. Talk has nearly ceased. And that alone speaks volumes. "It's pretty strange," says Joel Libava, a franchise consultant. "I can't remember the last time I saw the words 'minorities' and 'franchising' used together."

So what happened? The Great Recession happened -- and the near future looks bleak. For, while the recession has been a hardship suffered by all, minorities have been hit particularly hard. The Center for Responsible Lending reports that since the beginning of 2007, African-American and Latino borrowers are 76 percent and 71 percent, respectively, more likely than white borrowers to have lost their homes to foreclosure. And the tight credit market that has made securing funding difficult for the majority has made it virtually impossible for minority entrepreneurs -- a demographic that traditionally has already suffered from prejudicial lending practices. Last year, Federal Reserve Board Governor Elizabeth A. Duke said, "At our meetings, we heard a number of comments citing a comparative lack of capitalization, weaker collateral values, and lower credit scores for many minority small businesses, which leave these firms with less ability to absorb economic shocks."

Meanwhile, franchisors, once very proactive in recruiting minority franchisees, have shifted their focus away from minorities -- despite their long-term potential -- and are wooing the most qualified franchise candidates, which currently are veterans. "The reality now is that franchisors are focusing primarily on staying afloat and not losing franchisees, and the programs that they may have had in place to recruit minorities have gone by the wayside," says Robert Bond, cofounder of the National Minority Franchising Initiative, an organization established in 2000 to increase the number of minorities in franchising. Recognizing this shift, Bond himself has turned his attention away from his minority-focused website, instead focusing on building out his recently launched vet-focused site.

And as the money dries up and the economic opportunities dim, special programs geared toward helping minorities become entrepreneurs through franchising have either closed down or been forced to scale down the scope of their initiatives. "Over the years, there have been many announcements about franchising initiatives from different civil rights or social justice organizations, but to the best of our knowledge, none of them really bore any fruit," says Lloyd C. Grant, cofounder of the Big Apple Franchise Initiative, an organization that promotes franchising among minorities to increase business ownership and revitalize neighborhoods.

In 2009, the Big Apple Franchise Initiative was busy organizing its fourth annual Minority Franchise Buyers Conference, which aimed to bring minorities and key players in franchising together under one roof. However, with the credit market dried up and a loss of sponsorship from the franchising community, the BAFI has been forced to scale back, and the fourth annual conference turned out to be the last -- at least for the time being. Meanwhile, seminars and conferences aimed at educating minorities about franchising were canceled in 2010.

The short-term impact of all of this -- the struggle of minorities, the majority of franchisors being forced to turn their attention elsewhere, and minority franchise initiatives scaling back or shutting down altogether -- is great. Inner cities, once the hotbed of emerging minority-owned franchises, are bound to suffer the most from the ripple effect of the recession.

According to a 2008 white paper by the Initiative for a Competitive Inner City, new business formation is directly related to overall economic growth, and firms in growing economies will, on average, be more successful than those in declining regions. And as inner cities become even more discouraging places in which to do business, there are bound to be several aftershocks. William Julius Wilson, author of When Work Disappears, said that the high jobless rates created by the Great Recession will have profound effects on the social organization of inner city neighborhoods, and in many cases, we may see a relapse into the depths of decades past.

Yet despite the very difficult terrain, seeds continue to be sown and new buds sprout. In April, Ron Llewellyn, an African-American franchise consultant and founder of Beacon Business Advisors LLC, cosponsored a panel discussion on franchising for the Black Ivy Alumni League with the aim of making minority professionals aware of the opportunities within franchising, and the IFA continues to organize minority-focused seminars and presentations around the country.

Furthermore, President Obama announced the Startup America initiative, which includes a commitment from the Small Business Administration to direct $1 billion in existing guarantee authority over the next five years to match private sector investment funding for startups and small firms in underserved communities. And some highly proactive franchisors remain dedicated to their diversity efforts despite the economy, such as Domino's Pizza's Delivering the Dream program, which provides financial support and a financing partner to approved recipients.

No matter what's happening in the present, the fact remains that minorities will play a powerful role in the future. "Within the next twenty years, the term 'minority' will be a misnomer as the 'minority' population will become the 'majority,'" says Miriam Brewer, director of Education and Diversity at the International Franchise Association. "Whether we are talking about franchise ownership, employees, or consumers, we will no longer be able to conduct business as usual. That model will simply not work."