The Pandemic Has Scrambled The Franchisor-Franchisee Relationship
By Judith Bachman
In the best of times, owning a franchise provides a fast track path to business success by using a proven template that’s been tried and tested, and with ongoing support from the franchisor. Franchise systems are designed grow revenue while working in partnership with enthusiastic brand ambassadors.
Unfortunately, the pandemic has scrambled the franchisor-franchisee relationship and both sides are struggling to adapt.
A franchise is a method of distributing products or services by a franchisor, who establishes the brand’s trademark and a business system, and a franchisee, who pays an on-going fee to do business under the franchisor’s name and system.
McDonald’s is the quintessential example of a franchise. While each McDonald’s location may be owned by a different franchisee, no matter where you are in the world, whether its Brooklyn or Beijing, when you enter a McDonald’s you know what to expect – – what the menu items will be, what the décor will be, and how the food will taste.
Uniformity is both the product and the benefit of the detailed policies and procedures every franchisee is contractually bound to follow. In following these policies and procedures, the franchisee supposedly has a tried and true revenue model. In turn, the franchisee can afford to make on-going payments to the franchisor for using the brand and the turnkey system.
The COVID crisis has disrupted the franchisor-franchisee model.
A central element of a franchise is the payment structure; in most cases, franchisees make percentage payments based on the location’s revenue, subject to a minimum payment. But with incoming revenue at many franchises down dramatically, franchisees are unable to make these minimum required payments.
Beyond money matters, local government restrictions regarding hours or method of operation, such as a ban on indoor dining, have put franchisees in the difficult position of choosing between franchisor mandates and following local regulations.
Franchisees have sought relief from some of the more stringent requirements of their franchise agreements. That relief has not come easily. For example, the National Coalition of Associations of 7-Eleven Franchisees says that since the pandemic began, “7-Eleven has taken an even more authoritarian, top-down approach to dealing with its franchisees . . . and the needs of the franchisee community have been ignored.” McDonald’s unsympathetically warned franchisees that they may have to consider selling locations or downsizing.
As the pandemic wears on franchisees remain under pressure and franchisors clearly are not doing enough. Franchisors are in a much better position to weather this storm than franchisees: they can rely on geographic diversity to balance out regional problem spots and they have access to loans, and lines of credit to bridge the hard times. Franchisors must do more to support their franchisees than simply telling them they are on their own.
Judith Bachman is the founder and principal of The Bachman Law Firm PLLC in New City. firstname.lastname@example.org 845-639-3210, thebachmanlawfirm.com