Franchisee and Franchisor Relationships

by FBR

"We ought to be walking arm in arm to figure out a way out of this sales decline. We ought to be shooting the competition. Instead, we're shooting one another."

– KFC Franchisee, Charles Nailen

Franchisees’ filling law suits against the franchisor is a systemic issue in franchising and has become a reoccurring issue with some large well-known franchise systems. A major catalyst for the issues between franchisee and franchisor boils down to culture and communication within the company. If franchisors foster an inclusive culture... where major decisions (like shifting from fried chicken to broiled chicken) are made together with strong franchisee input, law suits will be minimized. When decisions are simply passed down from the top, and things go wrong (like in this case!), franchisees blame the franchisor and react with legal action.

It is important to include franchisees in major decisions to avoid tension in a franchise system. Ultimately, all decisions will be made by the franchisor... some of which will still be unpopular with the franchisees. The key is that the franchisors decisions are consistent with "protecting the brand" and that franchisee positions and perspectives on the issue are fully understood. Franchisees’ may not agree with every decision a franchisor makes... but as long as they feel like they were listened to and that their feedback was considered, they will still respect their franchisor. If there is a lack in communication in product value to the franchisee, it won’t be passed down to the customers. It is important to have the franchisee understand the value in franchisor decisions so they can properly convey it to the target audience and be “onboard” themselves. Problems occur when the chain of communication breaks down; it is important that franchisees understand the value of the franchisor’s decisions. If a franchisor overlooks providing franchisees with value in corporate decisions, the chain of communication fails. Franchisees want to be part of a system that provides them with the tools they need to succeed. Regardless if it is a marketing campaign, product launch or change in operations, a franchisor should make decisions that provide both the franchisees and the customer with value, if they want a favorable outcome.

Franchisees need to have an understanding that in order for a business to have continual increases in sales, the company needs to adapt to occurring trends in consumption, culture and communication to consumers. The way customers hear about information, buy products, and use products are continually changing. The franchisor needs to research these trends to meet the changes in demands from customers, in order stay on top of their competition. If companies continue to operate the same way year after year they will lose efficiency and understanding customers’ needs. Companies need to change and adapt with the times. On the flip side, every time a company makes changes there is associated risk, whether it is misunderstanding the demand, miscommunication or faulty products/services. The ideal situation is when there is collaboration between franchisees and the franchisor to figure out what it is that will work in favor of the system as a whole (the franchisees, the franchisor and the customers.)

In today's market, brands need to be constantly evolving to meet the changing wants and needs of their customers. Franchisees need to be comfortable with constant change and franchisors need to be comfortable involving franchisees in that decision process. It's a core cultural issue at the heart of every franchise system. Those that do it right... having a strong inclusive, team-focused culture.... will be successful and maintain high levels of satisfaction with their franchisees and customers.

KFC owners wonder what happened to the 'F'

Bloomberg Businessweek