Franchising: Can't We All Just Get Along?

Why do franchisors have such a dysfunctional relationship with their franchisees?

Written by Elaenor Beaton

It’s the kind of franchisee-backlash horror story that keeps a franchisor up at night. Last December, an independent association representing half the 1,800 franchisees of the Super 8 hotel chain threatened legal action to overturn an order from their franchisor, Wyndham Hotels Group, to implement an upgrade on a property-management system.

The association said Dallas-based Wyndham had refused to give them sufficient time and flexibility to adopt the pricey upgrade at a time when Super 8 franchisees are hurting from the deep slump in the hotel sector. This franchisor/franchisee relationship is so rocky that 68% of the members of the independent association who responded to a recent survey said they were unlikely or very unlikely to renew their franchise agreement when it expires.

The impasse at Super 8 highlights a key risk you run if you’re a franchisor: a dysfunctional relationship with your franchisees. Having a great business idea and talented franchisees doesn’t guarantee that the two sides will work well together. Poor communication can breed misunderstandings and conflicts, and even leave you at loggerheads.

But you are likely to avoid such a standoff if you set up a forum of the kind Wyndham lacks: a franchisee advisory council that brings franchisors face to face with franchisee representatives elected by their peers. Franchisors use these councils as a formal conduit for talking with franchisees about topics such as advertising, promotions and technology. Specialists in franchising say that a council, although not foolproof, can help you build solid relationships with franchisees to deal with potential problems before they fester.

Don Sniegowski, editor of Blue MauMau, a Salt Lake City-based franchise-news website, says the franchising model contains an inherent tension that can lead to open conflict. “Franchisees make their money on profits. Franchisors make their money on [a percentage of] gross sales,” he says. “What’s good for gross isn’t necessarily good for profit — you’ve got a built-in conflict of interest.”

This conflict often manifests itself in franchisor-led efforts to boost sales through promotions, says Sniegowski. He points to a recent example of Quiznos’ U.S. franchisees refusing to honour franchisor-issued coupons that they claimed cut too deeply into store profits. The franchisees’ backlash upset customers and hurt Quiznos’ corporate image.

World of Water Ltd., a Winnipeg-based franchisor of stores that sell purified water, water coolers and dispensers, set up a franchisee advisory council four years ago after tension arose over the firm’s marketing and promotions. President Sammy Mittelstadt says that before the company created the council, it lacked an organized method for consulting franchisees about how to allocate the marketing fund they all paid into. What’s more, communications related to in-store promotions and offers were haphazard, so franchisees often had little or no time to prepare. “Sometimes the (promotional) signage would arrive, and the store owners wouldn’t know what it was for,” Mittelstadt says.

He now e-mails his 15 franchisees annually, seeking four volunteers to serve a one-year term on the council. If more than four come forward, the franchisees hold an election to fill the openings. Thanks to the bimonthly council meetings, and franchise-wide communications about the decisions made in those meetings, franchisees not only know about promotions well in advance but have a say in designing them.

“Our store owners tell us they feel much more involved now than before the council was set up,” says Mittelstadt. Rather than responding to marketing directives from head office, he says, the council allows for a better flow of ideas in both directions and more effective in-store promotions, with greater buy-in from franchisees.

The council has yielded other benefits. Mittelstadt says World of Water has adopted localized marketing tactics suggested by franchisors, such as advertorials in community newspapers and market-specific radio ads. Although he doesn’t have hard evidence to prove that the new strategies are paying off, franchisee relations have never been better, says Mittelstadt: “They like that we have more of a democracy.”

Lorraine McLachlan, CEO of the Canadian Franchise Association, says if you create a council, it’s crucial to make a commitment to implement its advice. “The worst thing you can do is set up an advisory council and then gloss over the suggestions its members make,” she says.

McLachlan also advises holding off establishing a council if your company is a new operation with only a handful of franchisees. “With just a few franchisees, one-on-one communication can be just as effective,” she says.

Michael Webster, a Toronto-based attorney who acts on behalf of franchisees, says franchisee advisory councils become an increasingly good idea as a franchise network expands because they’re a more efficient way to communicate with each franchisee than one-on-ones. Franchisors can find councils especially valuable in securing buy-in for system-wide initiatives. “They are critical in aggregating support and persuading franchisees to accept changes,” says Webster — in part because even non-council members know that franchisees had the chance to provide input on decisions.

He says getting buy-in is especially important for established franchisors. That’s because, at times, they’ll need to make changes, such as upgrading software or installing new point-of-sale equipment, that weren’t foreseen in the franchise agreement, the Bible of franchisor/franchisee relations.

But when it comes to creating a body that can help you gain support for new initiatives, beware of what Sniegowski calls a “puppet board” of hand-picked rather than franchisee-elected members. “If franchisees suspect you’re using your board as a mouthpiece for head office, it’s not going to fly,” he says. “If it’s a democratically elected tool for two-way communications, it’s going to be a lot more effective.”

Originally appeared on PROFITguide.com