Proceed with Caution: What to consider when implementing a commercial franchising system

The franchising of commercial waste collection zones to select haulers has been a common practice in the U.S. since the 1990s. However, the debate on its merits has heated up over the past year thanks to the tumultuous rollout of a franchising system in Los Angeles and the pushback over the Department of Sanitation’s plans to implement a similar system in New York City.

Proponents of franchising claim that it is a good way to cut down on the number of trucks on the road, fine-tune recycling practices and provide more consistent service to businesses. Detractors say that it encourages lackluster collection efforts and leads to elevated costs.

To get to the bottom of the issue, Waste Today talked with individuals across the waste industry to get their perspective on the pros and cons of franchising and see what it takes to implement a system that truly works.

The benefits of franchising

Franchising pares down the number of commercial waste collectors operating in a given city. Fewer drivers on the road means more potential for overseeing a plan’s implementation. According to Jennifer Porter, senior project manager at McLean, Virginia-based Gershman, Brickner & Bratton Inc. (GBB), this can give municipalities a greater handle on their waste collection procedures.

“Franchising limits the number of haulers operating on any given zone and allows a municipality to have more control over how collection is accomplished,” Porter says. “Some of the key benefits of this for municipalities are that it can standardize and improve the operating standards for haulers and increase recycling through stipulating diversion mandates for businesses.”

The greater control afforded under the franchising system means that it may be easier in some scenarios to measure progress. Both municipalities and vendors can find it easier to track and collect data, which can then be analyzed to further improve collection processes. This can result in more robust services and flexibility, industry sources say.

“Franchising allows performance-based metrics to be used that can benefit the larger community,” Jim Frey, CEO of Resource Recycling Systems (RRS), Ann Arbor, Michigan, says. This can lead to better waste diversion, litter control, messaging, visual aesthetics, time of day service, etc.”

Frey also notes that franchising can be positive from a cost perspective. Long-term contracts can embolden haulers to make the necessary investments in equipment needed to bring about economic benefits for businesses.

“There is no question that from a cost point of view, franchising can be a way to capture economies of scale when you factor in the layout of equipment and layout of the service itself, which then can allow you to capture economies of scale in regards to pricing,” he says.

A reduction in the number of trucks on the road made possible by franchising is often touted by commercial zoning proponents. This reduction cuts down on city congestion and diminishes greenhouse gas emissions. Franchising is also often billed as a way to help improve diversion and promote zero waste initiatives.

“One of the benefits of franchising is you get consistency, continuity and sustainability with your diversion systems. You can have a better infrastructure for diversion and more recycling carts and recycling containers on the street,” Frey says.

The potential downside of franchising

Changing the way waste is collected in a municipality has far-reaching implications. Not only does this affect the city, its businesses and the selected vendors, it has impacts on the haulers who lose out on jobs. According to Porter, careful consideration must be taken to prevent major market disruptions.

“Drawbacks to commercial waste franchising are that making this change can be complex and potentially have a negative impact on the businesses of existing small haulers if not done with care,” Porter says. “Fairness relies on understanding the current system before changing it. How much recycling is taking place? What are the diversion goals? How many haulers are operating? What is the business density? And what are the current issues being faced?”

The reduction in haulers can also make it more difficult for waste companies to account for the personalized needs of some business owners. This can complicate collection efforts.

“On the residential side, you have a more homogeneous generation of material and you can schedule when those collections need to be picked up and route trucks accordingly,” Kerry Getter, CEO of Balcones Resources, Austin, Texas, says. “On the commercial side, one size does not fit all, and people are in different businesses, they generate different waste streams, different velocities and volumes, and you need to have something that’s very specific to accommodate these variables. When you start franchising, it strikes me that you’re somewhat limiting those opportunities for special handling needs and thereby limiting competition and creativity.”

While Getter acknowledges that franchising often comes at a lower cost initially, he argues that things can change over time.

“I’d be very cautious about automatic price increases and contracts that have a CPI (consumer price index) accelerator. That needs to be monitored very closely,” Getter says. “Let’s say that I want to pick up your garbage, and for five years I’m doing it for a certain fee, but I don’t own a landfill. And on year six, whoever owns the landfill increases their fees, there needs to be a mechanism for price increases. And some unknowns like this can create a bait-and-switch type situation. Additionally, on the service side of things, there could be truck drivers who go on strike and their wages could go up, things of that nature, and there needs to be allowances between the service provider and the customer on how those things are going to be handled. My perception from afar is that sometimes these things can be neglected or glossed over when a system is implemented.”

To avoid these types of problems, Getter suggests looking at the track record of vendors who have previously participated in franchise agreements. He notes that the promises made at the launch of a franchise rollout can differ when new market realities come into play.

“Anybody who is promoting a franchising situation will be able to make a pretty good argument for it,” Getter says. “They’re going to talk about being able to reduce cost, and certainly that is very attractive to people. They’re going to talk about consistent service and things of that nature, but I would check to see what other municipalities’ experiences have been with those vendors in a franchising situation. I’d examine what the reality has been three, four or five years after implementation and see if that matches up with the story that gets sold on the front end.”

“One of the benefits of franchising is you get consistency, continuity and sustainability with your diversion systems.” – Jim Frey, CEO, Resource Recycling Systems

Considerations for implementing a franchise

Municipalities thinking about adopting a franchise system must be steadfast in their approach in order to lay the groundwork for a program’s success.

“To avoid complications when implementing a franchise system, the first step is to ascertain that there is a strong commitment on the part of department leaders and elected officials to change the system,” Porter says. “This is important because communities must balance hauler, processing and customer needs simultaneously, and officials must remain true to the process because opposition is likely to come from many directions. Because of this, engaging stakeholders is paramount. A solid waste advisory committee or stakeholder review committee can be convened for this purpose. When groups like this are given a clear goal and a timeline, GBB has seen these groups be very effective at reaching consensus for a desired path forward.”

A waste program that works in one city might not make sense for another. Differences in infrastructure, collection capacity and the ability to monitor a program’s implementation are all things that should be considered when debating the merits of adopting the franchising model.

According to Frey, municipalities can help themselves find the right fit by clearly outlining their commercial waste goals at the outset of planning.

“The first thing a community has to do when thinking about franchising is clearly articulate the goals it wants to achieve. Then they have to decide whether they have the appropriate metrics to gauge what is successful,” Frey says. “After that, you have to determine whether the community has the management capacity to back up a franchise system. You have to analyze the city’s infrastructure and the collection services that the community wants.”

More time dedicated to due diligence upfront can help a program avoid early growing pains. For instance, one of the major problems with the rollout of Los Angeles’ franchise system is that everything happened instantaneously. The city’s new commercial haulers have since said that they were unprepared to service their contracts at the program’s outset. Phasing in these systems could help prevent some of the initial conflict.

“One of the ways you can prevent having problems with rolling out a franchising system is phasing and incremental implementation,” Frey says. “Also, engaging with the system design and specification and involving property managers in the process can be helpful. You should also be able to spell out the goals and aspirations that the franchise system is supposed to achieve, and some cities don’t do that well.”

Once a program is launched, it is up to the municipality to ensure that the vendors are providing adequate service. To do this, haulers have to be held accountable.

“The rollout of the selective vendors must be exceptional, and the franchising authority is required to be on top of monitoring, tracking, rollout, compliance and enforcement,” Frey says. “There should be penalties for issues like failure to pick up waste, damaged equipment and damaged property.”

Once a program is launched, it is up to the municipality to ensure that the vendors are providing adequate service.

Proceed with caution

There is no one-size-fits-all waste solution that will work for every community. However, there are certain factors that lend themselves to a more seamless transition to a franchise system.

Below are the eight factors that Porter says GBB has found contribute to a community’s ease of transition from an open collection to a franchise system:

• has a high degree of desire to change its system;
• sets specific goals to be met by the change;
• has active stakeholder involvement in the decision-making process;
• establishes the franchise system considering collection, processing and disposal;
• includes recycling in the commercial rates that are set;
• includes revenue sharing for commercial recycling;
• includes multifamily recycling services; and
• includes construction and demolition debris services.

The burden of ensuring that a commercial collection plan is implemented correctly lies on each individual city. If the research into the merits of franchising point to potential complications down the road, municipalities must have the discipline to walk away from a deal.

“In the end, you have to make a business case that the franchise is going to do better than your current model, or else you shouldn’t have a franchise,” Frey says.

The author is editor of Waste Today and can be reached at aredling@gie.net.