Last week I was asked by a restaurateur my opinion about franchising his newest concept. He had opened several of these conceptual restaurants and was achieving great success. I think he was surprised when I told him to be careful. The truth is that the franchisee/franchisor relationship can often end so badly that it should be carefully thought out whether or not to embark in this direction. I started my business of supplying furniture to the food service industry in 1958 when the food service industry was still in its infancy. I accompanied its growth to today, where it has become the largest employer of people in our country, with sales close to one trillion dollars. The bulk of the business is done through chains, most of which are predominately franchise owned.
I have a lot of experience with the franchisor/franchisee operation and have seen many successes but many more that have failed. These relationships rarely, if ever start off badly. Invariably in time the franchisee begins to feel that they being taken advantage of. The reasons stem from being required to run promotions that may adversely affect their profits, from being required to purchase expensive equipment or from being forced to overpay for their daily supplies. On the other hand the franchisor feels that the individual units represent them or their brand and so must be run properly to reflect well on the company.
The most successful operations are those that bring complete transparency in all operations between the two parties. One where the franchisor allows the franchisee, or at least a representative group, to have some input in all major decisions, especially those impacting the franchisees. In addition the franchisor shares with the franchisee, in complete candor, their buying power with vendors so that the franchisee knows that whatever they are paying for equipment, food and supplies has no hidden costs attached.
A good relationship, can be fostered if the franchisor lends value to the franchisee. My best example for this is the KFC Co-Op that existed in the 1960s. KFC’s transparency and shared profits with their franchisees led to a great working relationship that added value to both franchisee and franchisor. My advice to anyone who is thinking franchising is to remember to consistently be bringing value to their franchisees not just to collect fees.