Can Black-owned franchises narrow the wealth gap?

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 by Noel King
For New Pittsburgh Courier
(NNPA)—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.”

Ronald Smothers, who is African-American, was an early success, but by the turn of this century, the franchising industry realized that he was a rarity.
“[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.

Joseph McKenna was part of that shift. An African-American with experience in banking and real estate, McKenna bought a Quiznos franchise in 2006, in what he believed to be an inspired location—Midtown Manhattan’s business district.

“[It was] very close to a lot of the high-end investment banks and a lot of lawyers that did the mortgage-backed securities and, literally, two blocks from Bernie Madoff’s headquarters,” McKenna said. “Once Bear Stearns went out, who used to buy close to $2,000 worth of food from me a week, it’s like the whole thing seemed to just drop like a rock.”

Joseph McKenna was wiped out by a recession that was entirely colorblind, but hit minorities particularly hard. A recent Urban Institute report shows the racial wealth gap has widened since the recession. Prior to the downturn, White families had about four times as much wealth—in cash, real estate, retirement accounts—as non-White families. In 2010, Whites had about six times more.

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.

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