The Impact of The Iowa Franchise Law on Restaurant Franchisor Expansion Strategy: An Exploratory Study

Abstract

The enormous success of franchising as an expansion instrument has resulted in a franchising boom over the past few decades. In response to the success of franchising as a business expansion method and the subsequent complaints by unsuccessful or defrauded franchisees, legislation was enacted at the federal and state level to attempt to prevent franchisor abuses. The 1992 Iowa Franchise Law has been called the most controversial and restrictive pieces of franchise legislation in recent memory. The purpose of this research project was to determine the impacts of the 1992 Iowa Franchise Law and its 1995 Amendments on restaurant franchisor expansion strategy, litigation with franchisees, and operational changes.

The study sought information from US restaurant franchisors who may have been impacted by the law. The research instrument consisted of a self-administered questionnaire, which was sent to 203 restaurant franchisors. A total of 36 companies responded and participated in the study. The results indicated that the law had an impact on expansion strategy of those who responded, specifically in the area of granting new franchised units. The results are representative of smaller businesses with less than 500 units.