Re-Setting the Restaurant-Franchise Model

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By Brandon Poole
He is managing director and Restaurant/Foodservice lead with Cult Collective Toronto.
He can be reached at atbrandon@cultideas.com

The restaurant franchise model needs a fix. At least that’s my perspective from 20 years of working with franchisees. Don’t get me wrong, I’ve made amazing memories and even more great friends in franchising, but have also seen far too many stories end in unnecessary contention, heartache and disappointment.

The most time-consuming and emotionally draining issues I’ve experienced working with franchisees can be boiled down to one endemic problem — a complete lack of alignment on expectations.

The relationship between franchisor and franchisee almost always starts in a very open and transparent place with both sides working through a fair and open exploratory screening and fact-finding process. The franchisor is keen to grow with good, well-leveraged franchise prospects and franchisees have almost unlimited access to facts and figures through a tight and thorough disclosure process. By the time the franchisee is approved and satisfied with the franchise business model in front of them, this exhaustive process has left little to the imagination.

The problem is that somewhere along the way, the franchisor/franchisee relationship breaks down into a purely incremental endeavour, where the conversation shifts from shared success to individual prosperity. Despite the reality that both of these measures together define the most basic purpose of a franchised business, the foundation of this partnership inevitably begins to crack.

Franchisors looking to grow the brand, protect the viability of the business model and deliver on the “greater good” face increasing pressure from franchisees who begin to feel the stress of owning their own business and begin to question the decisions and intentions of the franchisor as it pertains to their own perceptions of success.

This is inherently problematic. No matter what franchisors say, it’s virtually impossible (and completely unlawful) to forecast and control the amount of money a franchisee makes. Disclosure laws are intended to create alignment and protect against projections of revenue and profitability, but somehow franchisors eventually find themselves grappling with the same questions of “Why am I not making money?” and “What are you going to do about it?”

The truth is that so many moving — and often invisible — factors influence success, sales and profitability and this often creates further contention. This includes how a franchisee chooses to manage their business, how macro-economic and internal factors often cause fluctuations and disruptions in the marketplace and business model and, yes, how an imperfect franchisor manages or mismanages the brand as a result. The franchisee and franchisor should have this ambiguity built into a much more systematic relationship from the outset, but the resulting gap in expectations is almost always the source of antagonism, leading, sometimes, to a messy and heartbreaking divorce.

So, how did we get here? How can this relationship begin in such good faith, continue to be nurtured through months of openness and transparency and yet result, often, in such a complete disconnect around expectations?

I have recruited, onboarded, trained and counselled hundreds of franchisees, worked with three of the biggest franchised food-industry brands in Canada and built a network of hundreds of franchise stakeholders.

Here is what I believe: The “franchisee-is-our-customer” trope is outdated, inaccurate and adversarial. This has never made sense to me. The franchisee/franchisor relationship is built from a shared contractual obligation that mandates a set of behaviours and accountabilities to achieve a common goal — build a business on selling a shared product or service to a common end user — the consumer.

The only way for this enterprise to be successful is to fully and collectively focus on the consumer, but the franchisor must instead divide their focus on “selling” to franchisees as well. This means dividing resources into two separate, sometimes competing, on-demand marketing and support networks to influence, persuade and engage “customers,” — the consumer and the franchisee, an already-contractually-bound partner in the franchise agreement.

Herein lies the problem. Franchise brands often adopt and live by the noble cause of protecting and elevating the success of franchisees as a core value but do not equally elevate the importance of the consumer to their shared success. The pandemic shutdown has taught us that marketplace disruption and destabilization forces brands to pivot quickly towards innovation and re-invention. Franchised brands are the least prepared to manage this transformation because of the de-centralization of decision-making and all-too-often lack of focus on brand and business uniformity.In other words, franchised restaurant models are falling behind.

Our preoccupation with perfecting a regular franchisee dialogue, constantly evolving resource-strapped support structures and building some form of ill-defined consensus has opened the restaurant and foodservice marketplace to outside innovators and disruptors who are carving into our customer counts by addressing gaps in our business models.

Old-school franchisee advisory councils limit the size and frequency of communication channels to a small group of franchisees when we’re on the cusp of a remote-communication revolution that could quickly consolidate broader franchisee feedback and insights into actionable data.

Franchise legislation, in its current form, has become outdated and blinded us from the true spirit of the franchise relationship by creating a complicated, often antagonistic, legal backdrop and stifled a healthy and progressive evolution of the business model.

This evolution is really all about getting back to what gave franchising a competitive advantage and differentiation in the first place — back to when both partners were motivated, aligned and inspired by the future of the partnership and the bedrock of the relationship was the shared success of the brand, the franchisee and the full expression of the brand promise.

This was not the beginning of an “incrementalized” monetary arrangement. This was the beginning of a brand partnership. And this is how we will save the franchise model.

Looking Forward
Franchise models must be re-vamped and re-enforced by shifting from contractually obligated and legally bound operational structures to formal franchise brand coalitions that bring the voices of the franchisor, franchisee and customer to the table while setting and institutionalizing clear expectations on roles, responsibilities and decision-making.

Franchise brand coalition models of the future should focus less on compliance and enforcement and more on brand building. By more formally embracing and leveraging actionable customer data and CX metrics, and empowering franchisees to represent and reinforce their brand inside of stores and communities, the brand will always be well informed and poised for growth.

Franchise brand coalitions must be formally built into franchise agreements. Franchisee and franchisor should sign off on an expressed brand promise from which all actions and decisions derive. This formalizes a more systematic stakeholder structure where both franchisees and customers have more-defined roles in influencing business and brand strategy, while franchisors retain a more informed and transparent decision-making responsibility Ongoing discussions and debates can then avoid roadblocks and ambiguity because they’re governed by the expressed and agreed-upon brand-driven model as set forth in the franchise brand coalition agreement.

Franchise stakeholders, governments and small-business advocates must recognize that COVID-19 has further de-stabilized the franchised restaurant business model and may not be able to withstand another socio-economic disruption. Innovation and re-invention should force us to re-think the very core of what we are and embrace what we can be.

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