For 20 years I worked for a guy who often said, “If two people
in business agree on everything, one of them is unnecessary”.
It was his way of saying that he wanted his team to express
a different opinion if you had one. It’s one of the inherent
advantages of the franchise model; people with different
backgrounds and talents working together towards a common goal will
almost certainly look at ideas and business challenges
Conflict is valuable. Disagreement and friction about
direction give the franchisor reason and incentive to demonstrate
to the franchisees that the system direction benefits both the
brand and the unit level economics. Unless both of these are
in sync, the system won’t prosper. There are plenty of examples of
systems that failed or almost did, two come to mind in the
restaurant space I live in.
The collapse of Boston Market was driven by a system focus on
brand growth without paying enough attention to the unit level
economics. In the early to mid-1990’s the steady stream of
development fees and the early royalty income made the system seem
like a sure bet from the outside. But as restaurants opened and
franchisees began to rely on cash flow and unit level profit the
picture changed and franchisees began to fail as sales tumbled.
In 1998 the company filed for Chapter 11
It’s not a simple story and can’t be told entirely in one
paragraph. But it’s a clear case of not enough challenge to the
business model and too much focus on system vs. unit economics.
There were franchisees involved in this story but they were
large and well financed, at least in the early stages, and were too
willing to wait for the unit success
. It never did.
A more recent example is Chipotle. Chipotle is not a
franchised concept but if it had been I don’t believe they would
have gotten themselves into the mess they are in. Franchisees, by
their nature, are willing to confront the franchisor on issues of
trust and confidence. Chipotle’s very brand identity was
built on locally sourced “food with integrity”. Franchisees
would have easily seen the potential problem created with a concept
built on a promise that was not being fulfilled, it apparently
On the positive side, Popeye’s Chicken has been completely
repositioned to Popeye’s Louisiana Kitchen with significant input
from their franchise community. Sales and unit level profits have
increased dramatically. Talk about conflict: there was a
completed remodel plan presented to the franchise Advisory Council
that the FAC just didn’t like for basic cost and design reasons.
The company, headed by Cheryl Bachelder, elected to start
over and incorporate more of the franchise input. The revised
remodel was a big part of the turnaround.
There are others…think Denny’s and Arby’s, both legacy
concepts bucking the current negative restaurant industry sales
trends after revising their strategy with significant input, and
not a little friction, from their franchisees.
If you are looking at a franchise concept to be a part
- Inquire about the franchise involvement in the decision making
process. Ask questions of the franchisor and of current
franchisees of the concept. Are they committed to brand
growth and unit level economics?
- Does the company operate any of their own concept or are they
just growing the brand?
- Pay close attention to the unit level economics in the FDD and
ask the franchisees about their performance.
Conflict isn’t always fun but it creates sparks that
start creative fires. If you don’t agree with the
direction or have better idea or saw somebody else’s better idea,
speak up, that’s one of the values of franchising.
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