Franchising is like any relationship really. It ebbs and flows. At times, things will seem positive and stable between franchisor and franchisee. The restaurant is rapidly achieving unit growth and opening new franchise locations nationwide while current franchisees are experiencing healthy same-store sales growth. When it’s at its peak, a strong franchisor-franchisee relationship can be a thing of beauty. Sophisticated and creative marketing along with national brand power built by corporate can boost sales for franchise locations. In turn, franchisors reap rewards by gaining more revenue from royalty fees, which creates a mutually beneficial partnership for continued success.
On the other end of the spectrum, changes like new executive team leadership, product launches, national promotions, royalties, ad fund management, operational procedures, and expansion can cause consternation. One study, conducted by the Franchise Relationships Institute in 2019, suggests franchisee tensions are at an all-time high. Their study revealed the average percentage of franchisees reporting a mild or severe conflict had increased significantly over the past three years. Throughout my 20 years of marketing experience in the franchising industry across multiple brands, I have seen both ends of this spectrum.
Has there been growing tension between the franchisor and their franchisees? If so, what can be done about it and how can operators use it to their advantage?
Tension is Not New in Franchising, But It’s Real
If you’re the franchisor, first and foremost don’t panic. You may already be feeling tense enough reading this and realizing that tension exists within your franchise system. Tension is not a new thing in franchising. Additionally, as I’ll explore later, healthy conflict or what I’ll refer to as a “collaborative tension” is actually good for franchises and can help brands pivot or move forward versus getting left behind.
For those of us who have been in the franchising industry for at least the last decade, we’ve all been witness to this growing tension across even some of the biggest, most successful and recognizable brands on the planet. The rise and then sudden fall of Quiznos was due in large part to the failure of franchisees to be aligned with corporate and adopt the free sub giveaway promotion in 2009 to combat Subway’s $5 footlong deal. In 2015, Wendy’s threatened to sue one of its largest franchisees (152 locations) for not converting over to their new POS system. In late 2017, Subway’s own franchisees pretty much declared an open revolt over a plan to once again sell their footlong subs for $4.99 despite inflation and increasing food costs eight years later.
In late 2018, both Jack in the Box and McDonald’s were in the news, with the former’s franchisees looking to remove the CEO and the latter’s franchisees having conversations around forming their own independent franchise association which has now come to fruition as the NOA. Around that same time, 11 of Domino’s biggest franchisees threatened to “declare war” against corporate unless the cost and profit models were restructured to give them a bigger piece of the pie. The list goes on and includes brands like KFC, Applebee’s, Dickey’s Barbecue Pit, Tim Hortons, and others. If this sounds familiar, take solace in the fact that you’re in good company and your franchise won’t be the first or last one that experiences tension.
Tension Has Been Ratcheted Up a Notch in 2020
Fast forward to 2020, layer on a nationwide pandemic and declining sales ranging anywhere from 30-40 percent or more for many brands, and things can get downright contentious. McDonald’s was at odds with some U.S. franchises concerning coronavirus relief efforts after same-store sales fell 13 percent in March and were down an estimated 25-30 percent during the first two weeks of April. Pizza Inn franchisees have been pushing back as the company attempts to take control over the chain’s national ad fund during the COVID outbreak similar to a power move Subway pulled many years back.
To be clear, there will always be some tension in the franchisor-franchisee relationship. Franchisees paid a large sum of money to join your brand and expect to be supported. Franchisors rely on brand and operations compliance and royalties, which come from franchise location sales, while franchisees are the ones having to make a profit. Franchise development (opening more stores) is good for the brand and consumers’ perception that if you have a lot of locations you must have something people want. However, open too many stores near franchise-owned locations and you’ll risk cannibalization and unhappy franchisees. When sales sharply decline as is happening in today’s current climate, and the operating environment grows more difficult, that tension naturally elevates when both franchisee and franchisor are being affected and not growing together. Pretty typical stuff. But what’s the solution?
In this article, we’ll take a closer look at some marketing-specific points of contention between franchisor and franchisee and how you can ultimately turn those into positives to benefit your brand and boost sales for your locations now and in the long run.
To Market or Not to Market? That Is the Question, but It Shouldn’t Be
Right now, a tension point for many brands is whether or not they should be spending national advertising fund dollars to benefit local franchise locations. Especially if customers, many of whom now face unemployment, are less likely to be going out and spending money. This debate especially rings true within franchises not deemed an “essential business," but even essential businesses like automotive service franchises have been down 30-40 percent in sales and have put marketing “on hold”.
Back in September 2019, Forbes published an article warning of past times when brands moved away from marketing during recessions. Regardless of the industry, history has shown it’s a mistake to stop marketing to your customers when facing financial hardship. Not only will such a decision impact short-term revenue, but it will also affect your long-term market share, which frankly is much harder to recapture.
Rather than make massive cuts to marketing spends, the answer lies in strategically focusing your marketing dollars on media that provides a positive return on investment. The most successful franchises are implementing cost-effective, technology-based hyperlocal marketing strategies that are personalized and relevant to customers in the local communities their franchisees serve. When developing your strategy, consider both offline and online data sets—historical performance, in-market signals, past purchase behaviors, best customer profiles, media preference, and demographics—to drive specific and focused marketing messages to engage the right consumers, at the right time, with the right offer. Do some of your franchise locations offer late night hours or drive-thru service to differentiate themselves from the competition? If so, allow them to leverage that in their local marketing. Whether you’re a franchisor or franchisee, your business is too important to sit idle and hope guests come in, especially when times are tough.
Don’t Let National Ad Fund Spending Be a Franchise Tension Point
I spoke earlier about some franchises looking to take control of and harness their franchisees national advertising fund accounts. Even prior to the pandemic, national ad fund spending has long been a source of consternation amongst franchisees and franchisors. I’d even argue, from a marketing perspective, it’s the largest problem franchises face.
Franchisees contribute a percentage of their sales back into the national advertising fund, which is supposed to be used on marketing tactics to build brand awareness and benefit all franchise locations. The problem is all franchise locations don’t benefit equally and each location doesn’t generate brand awareness, sales and an ROI commensurate to their contribution. Broad programmatic optimizations guide the national budget, eventually steering most, if not all, digital marketing dollars toward DMAs with the largest population or areas that generate the most clicks, conversions, or other KPIs.
Under their franchise agreement, franchisees are also required to spend on their own local marketing. On the digital side, this can be fraught with brand compliance, cost-efficiency, data, and optimization issues. Plus, without the national buying power of the brand or corporate guidance, individual franchisee campaigns suffer and, more often than not, don’t break even on ROI. Not a great recipe if you’re asking franchisees to spend the precious few marketing dollars they have while they’re struggling to generate sales.
When these scenarios unfold, tension rises and resentment occurs. Trust between franchisees and franchisors begins to erode. Some franchisees go rogue. Other situations escalate even further, like some of those mentioned earlier, leading to lawsuits. Don’t let this happen to your franchise brand. From a marketing perspective at least, there’s a better way.
Create the Best Customer Engagement Experience Together with Your Franchise Locations
Brands can now take advantage of enterprise multi-location marketing platforms to bring big-brand digital marketing capabilities to their smaller-budget individual locations in a unified and highly cost-effective way. As a franchisor, you can now localize paid digital marketing programs seamlessly across all major platforms with messages and individual budgets that can maximize results for each location.
Rather than ruling over the national ad fund with an iron fist, you can now ease that tension and empower local owners or franchisees to be fully invested in their local marketing campaigns by giving them access to individual budgets, reporting, locally relevant creative, and content customization options. Most importantly, they now have the ability to drive ROI to their locations commensurate to their individual marketing fund contributions.
Collaborative Tension Is Where It’s At
Franchising can be the ultimate double-edged sword if not approached very strategically and it should take into account the voice of those your success ultimately rides on: your franchisees.
Tension can be a healthy and good thing overall in terms of driving a brand forward. It’s why many brands have adapted FAC (Franchise Advisory Councils), MAC (Marketing Advisory Councils), or other franchise associations that are comprised of elected franchisees that serve as consultants and steer the decision-making process alongside the franchisor. The recipe for success in franchisee-franchisor relations balances fairness with good communication. It’s holding each other accountable for the betterment of the brand. Keeping the dialogue open and ongoing, even when there are points of disagreement, is paramount. No brand has ever experienced radical growth when everyone in the room agrees and is a “yes” person. Some of the best ideas have risen from the ashes of disagreement and have come from franchisees.
Another part of franchising success is the franchisor offering some flexibility in the way local franchise owners operate their stores. This could be something as simple as letting them customize their local advertisements (creative, content, price points) while still operating within brand guidelines. Encouraging franchisees to utilize the knowledge they’ve gained by serving their local community and understanding their customers’ preferences in a way no algorithm can, gives them confidence in how their marketing dollars are being spent. Brand directed, yet locally perfected. That’s the way it should be.
To sum up the idea of collaborative tension, there’s a quote from Kenneth Blanchard that really drives the point home. He said, “None of us is as smart as all of us.” Never has this been more apparent than in the franchise community.
Jeffrey Lentz is owner & CEO of Elevated Franchise Marketing, which provides consulting and marketing services to franchisees, franchisors, and franchise suppliers. A franchise marketing executive, consultant, and business owner with 20 years of experience across quick-service restaurant, retail, fintech and automotive industries, he has held marketing leadership roles across five franchise organizations with a focus on franchise development, consumer, b2b, product, field, and local store marketing. After getting his start at Cousins Subs, he spent 10 years at Batteries Plus Bulbs where he led franchise development marketing efforts over a period of rapid growth that saw the company open 250 stores in 5 years. At Lendio he served as Sr. Director/VP Marketing and built direct marketing and partner marketing strategies to grow their franchise start-up. He has made multiple appearances on national TV show Fox & Friends and is a contributor to industry trade publications and media outlets. He holds a B.A. Degree in Communications and Marketing from Marquette University. Connect with him on LinkedIn.