When chains suspend or even stop their franchise program, it can look like a bad omen to the public. The reality, however, is quite the contrary.
“You name it, there could be a hundred different reasons why brands might suspend or stop franchising, and it’s usually not just one single reason, or even for negative reasons,” says Lynette McKee, a franchising consultant and former long-time franchising exec for Dunkin’, Burger King, Denny’s, and other brands.
A chain might have started too fast without adequate staff or systems in place. Some might find they need to build up their equity, brand, or record of franchise success to better recruit newcomers. Others might simply want to suspend franchising while they put their efforts toward restructuring at the corporate level or designing a new prototype.
“There is so much competition in the franchise arena today that it truly is survival of the fittest,” McKee says. “You have to have great food, a great operation and great facilities, but for franchisees, the infrastructure also has to be there in order to support successful growth.”
Developing or improving that infrastructure could mean slowing down in order to fine-tune leadership and best practices. Take Biggby Coffee, for example. The chain was growing so well and so fast in Michigan that execs decided to discontinue franchising in that state, at least for a little while.
“We decided to suspend franchising to show loyalty and support our current owner/operators,” says Tony DiPietro, CEO, who notes the chain suspended its franchising program in Michigan in June 2016 after its successful 20th year in business. “We came off a fast sales growth of 120 franchise units in a three-year period and wanted instead to have controlled, smarter growth—not explosive growth.”
Co-CEO Mike McFall adds that this decision came about after a franchise meeting with Michigan operators when one of the more experienced franchisors questioned corporate’s intentions.
“He looked at us and said, ‘Where is your loyalty? You have people in this room putting down millions of dollars to build their business and yet you keep selling contracts to new owner-operators.’ That was motivation enough for us to get to work on a new franchising system,” McFall says. The new system would demonstrate loyalty to long-time operators and offer them more support.
The result was a red light–green light approach when deciding on new store openings, and one that, at least in Michigan, would apply to existing operators only. Approval from the existing franchise community, along with key metrics on consumer data and existing store growth rates, are now required before getting a go-ahead to open. Proposed locations with nearby stores reporting less than 5 percent same-store sales growth, for example, would show a “deep red” metric, McFall says. High cost per capita in a marketplace might also add a red metric to the score.
During its suspension, Biggby also worked on selecting and training area representatives, particularly in states outside Michigan where there was more white space. In this case, veteran franchisees in an area might serve as the boots-on-the-ground leader for new locations. Biggby’s 100 percent franchised model now consists of 232 stores in Michigan and other Midwestern states, as well as South Carolina, Kentucky, Texas, Florida, and New Jersey, with 46 locations coming soon since the suspension was lifted in 2017.
The franchising changes seem to have worked; DiPietro reports that Biggby’s same-store sales have accelerated to 9 percent over the last couple of years and remain on an upward trajectory.
For other chains that choose to suspend franchising, it can be a matter of franchising not too fast, but too soon.
“It’s important to remain conservative, working all the bugs out first and making sure you understand what you’re bringing to the table as a franchisor before adding more stores,” McKee says.
This was the case for Firehouse Subs, which suspended its franchising program back in 1995, just one year after the original location opened in Jacksonville, Florida.
“The founders made a bit of a misstep when they got into franchising after having just one unit open,” CEO Don Fox says. “They got swept up in the euphoria of franchising after they were approached by an interested investor. That’s a common move in the industry, but it can cause people to stumble into franchising.”
After buying back the rights to the two franchised locations, the chain stopped all other franchising to focus on store development and other operating procedures.
There’s an even deeper problem with franchising too soon, says Fox, who joined Firehouse Subs in 2003 first as director of franchise compliance. “Franchisors have a moral obligation to make sure their ducks are in a row and demonstrate a proven business model; otherwise, why would people invest in it?” he says.
After recruiting a limited group of restaurant industry veterans, Firehouse Subs restarted the program in 1998, but only for a short time. The chain again suspended franchising in 2000 for one year to tackle questions regarding how many company restaurants to develop and when and where.
Like Biggby Coffee, Firehouse Subs landed on a two-tier system with area representatives supporting operators and facilitating smart growth. The chain now has more than 1,100 franchised units in the U.S. (20 in Canada) and maintains 37 domestic company stores, which conduct research and best practices to the benefit of the franchise community.
“Restarting our franchising program has been all about being more disciplined with our growth,” Fox says. “It’s always important to know what you want to be when you grow up in terms of your brand and your franchise program.”
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