Can Black-Owned Franchises Help Narrow the Wealth Gap?

By Noel King Special from the NNPA Marketplace Wealth and Poverty Desk | 8/9/2013, 1:38 p.m.
Scholars who study the wealth gap say that efforts to bring minorities into franchising are well-intentioned, but fail to acknowledge a Catch-22: in order to create wealth, a person must already have some.

Growing up, all Ronald Smothers ever wanted was to own his own business. In the mid-’70s, armed with a degree from UCLA, he chose a career in franchise restaurants, opening a Burger King in Los Angeles’ Crenshaw neighborhood. He saw that times were changing and believed fast food was one way to fill a growing gap.

“At that time women really weren’t fully into the workforce like they are today, but they were starting to get in,” said Smothers. “And you could feel that once they got in, they weren’t going to be preparing those meals at home like I was accustomed to. They were going to come home tired as well.”

His instincts paid off and in 2006, Smothers added a Denny’s in Crenshaw to his holdings.

“I would have to say that it was a good trip,” Smothers said. “The money was pretty good.”

Early on, Smothers was an African-American success story; albeit a rarity in the franchising industry

“[The International Franchise Association] looked around and saw that really it was comprised of White males and they realized that was not mirroring the population of the United States,” said Miriam Brewer, senior director of education and diversity with the International Franchise Association.

In 2006, the IFA formed MinorityFran, an institute which sought to connect would-be minority entrepreneurs with businesses that were looking to recruit. The idea was that it would be good for everybody, offering businesses entry into new neighborhoods and minorities a way to build wealth steadily over time.

“We tend to support individuals or businesses that look like us,” Brewer said. “So why not have those business owners in their communities?”

Rob Bond co-founded the National Minority Franchising Initiative in 2001, with a similar goal. His experiences growing up in “a lily-White area of Louisville, Kentucky” and later, serving in the Navy, left him with the impression that businesses in the U.S. needed to help level the economic playing field. With the help of sponsors such as Meineke, Marriott and Papa John’s, which  paid about $5,000 a year to support the endeavor, the NMFI staged informational lectures for minorities across the country and maintained a website that was dedicated to minority franchising. By 2008, Bond’s outreach efforts were largely over.

“When the recession hit, everything changed,” he said. “All of the second-tier franchisors, I think their bottom lines were devastated. They went from a period of trying to aggressively recruit minorities to [trying to] stay afloat themselves.”

The years between 2002 and 2007 saw a slight — but advocates say, significant – jump in the number of minority owned franchises, from 19.3 percent of the total to 20.5 percent.

Scholars who study the wealth gap say that efforts to bring minorities into franchising are well-intentioned, but fail to acknowledge a Catch-22: in order to create wealth, a person must already have some.

“Existing racial differences in wealth go the full distance in explaining racial differences in self-employment,” says William Darity, a professor of African-American studies, public policy and economics at Duke University. “If we’re really concerned about the self-employment gap in the United States, or the franchise participation gap more narrowly, we have to address racial differences in wealth.”

For Karim Webb, who owns two Buffalo Wild Wings franchises in Los Angeles, wealth was never a problem. Webb’s parents and sister own 15 McDonald’s franchises and, after graduating from Morehouse, he saw no reason to bother with business school.

“You know, when your parents are entrepreneurs, you kind of grow up around the table, and that is your MBA,” he said.

He also thinks they face an additional hurdle – one that occurred to him while he was talking to a corporate counterpart at a Buffalo Wild Wings convention.

Webb says he had “an epiphany” as his colleague explained that he was having trouble finding African-American and Latino managers.

“I was flabbergasted,” Webb said, “because he didn’t realize those people already worked in his restaurant.”

That conversation inspired him to act and Webb now meets regularly with aspiring minority entrepreneurs who have seen his success and seek to emulate it.

“Hopefully in 10 years, I’ll be in a position to diversify my portfolio,” Webb says, “and I’ll be looking for a plethora of opportunities to park some money.”

To learn more, go to: http://www.marketplace.org/wealth-poverty.