Legal Solutions to Franchisee for facing Lack of Ongoing Support & Quality Management from the Franchisor: Lawyers Advice
In any business a company may have an objective of increasing profit margin by engaging in activity which would reduce the expenditure or increase the revenue. Due to the company’s goal sometimes franchisees suffer a great deal by not getting adequate support from the franchisor’s end. Many franchise agreements are made a certain way which is silent or contains fewer provisions about franchisor’s obligations but many obligations on the franchisees. This makes it tough for the franchisee to prove that there had been lack of support by the franchisor which violates the rights of the franchisee. It becomes difficult for the franchisee to sue the franchisor for breach of the franchise agreement or to lawfully
Kinds of Support identified by the franchisees:
• Financial support: Some franchisors aid the franchisees in the initial stage of business.
• Location: Some franchisors will help franchisees select a location for their franchise or may select the location, not allowing the franchisee to choose at all
• Training/operations manual: Franchisor provides a meticulous operation manual that includes instructions for carrying out their operating system.
• Advertising. Most franchisors initiate advertising work. Some franchisors require franchisees to pay into a fund to cover these costs or will offer a co-op agreement where the costs are divided.
• Administrative Support. Most franchisors offer support such as providing human resources or technical support. Franchisors can advise on employee issues, insurance requirements and other matters relating to the operations of a franchise.
How Franchisee can deal with lack of Support and quality management by the franchisors?
There are various issues that a franchisee has to face, if the franchisor is adamant on not providing enough support. Major issues are mentioned below along with how to tackle these problems:
Lack of Communication: It can be difficult to establish and maintain a proper communication between with the franchisor and this can take a serious toll on the business.
Resolving Communication Gap: The issue can be resolved by establishing communication by both formal and informal communication channels between the franchisor and franchisee. Franchisors should provide for any ongoing activity along with franchisee should use this to its potential and share any related concerns. In the year 2009, Quizno’s franchisor stepped up to compete against Subway’s special. The franchisees had different concerns and ways by which Quizno would have won the sandwich contest between these two parties. But, because there was lack of communication and the owner was ignorant. Quizno’s Customer base reduced as it angered the consumers. There are not even around 400 outlets, earlier what used to be a well setup business with around four thousand outlets.
Disagreement on Brand and Market Positioning: There can be disagreements on market position and branding because the visions of both franchisor and franchisees may differ. Usually, the friction between the parties occurs when there is a dip in the profit margin and the blame game begins.
Resolving the Disagreements: The franchisor can be stuck to their visions and methodologies. But as it is important for the franchisee to understand the approach, it is equally important to negotiate and meet at least midway in understand the changing market, embracing the new structure and innovative approaches can be good for business. The franchisor should propose negotiation on matters like adjusting royalties and fees during such transitions. In the year of 2019, Pizza Hut had majorly shifted from Dine in pizzeria to predominantly takeout and delivery restaurant. The re-branding and the transition had made the business weary. The president and then CEO David Gibbs also mentioned about the economical crisis the franchisees are facing is only for a short period of time. But franchisees were not only sustaining a loss but it faced with a major threat of restaurant closure.
Unwanted friction due to stress of competition: There is constant scrutiny from consumers, stockholders, and the media to sustain in the market. It’s very easy to boil down the relationship between franchisor and franchisee because of the constant competition.
Resolving the conflict caused due to competition: This issue can be resolved through flexibility which will in due course unite both the parties. Negotiation and conciliation is very important. Mc Donald’s future looks brighter in the year 2020 as “National Owners Association” was formed to achieve what franchisee had to put forward but the owner never paid attention which dipped the sales in United States drastically. More than one thousand franchisees joined hands to form the association which expresses the grievances on the franchisees behalf. Allowing remodeling and restructuring that could not have happened if there were no alliance of the franchisees turning it out to be a good business strategy.
Technological differences: Some franchisees are less receptive to change than others, which complicates accounting and reporting on both the franchise level and the corporate level. Conversely, some franchisees are ready and willing to adopt new systems, but corporate is unenthusiastic to change operations at their thousands of locations.
Resolving technological differences: Franchisors mandating massive technological changes should provide a clear rationale for the change, a list of benefits, an outline of costs, and a list of dates as to when changes should be made. Franchisees should share their concerns and work alongside franchisors. Providing information like the cost cutting results and efficient work can be achieved through software with utmost accuracy. Non-compliance in the case of Wendy’s Franchisee was observed in the year 2015, when the franchise did not adopt the universal POS system for auditing. Wendy sued the owner of the 152 locations. As restaurants become increasingly reliant on technology, it’s imperative that large franchises have systems in place to gain clear visibility. This is true for all software—not just POS software. Otherwise, corporate will have a huge blind spot into how to improve and develop their business.
In conclusion, it is imperative that the franchisees should initiate the agreement with the understanding that the provisions already provided in the agreement are tilted a bit towards the owner/franchisor. The pact should be properly negotiated after gaining complete understanding. The visions of both the parties should be properly discussed beforehand to avoid any nasty end of the business turning out to be ugly for franchisor-franchisee relationship.
Authored By: Adv. Anant Sharma & Shivangi Ghosh