What would a better, stronger franchise system look like?

better stronger franchise system
PCL Lawyers points to steps that can improve your franchise system. (Source: Supplied)

After years of dealing with reviewing franchise documents and franchise disputes, our commercial lawyers have had a ringside perspective to communications and disputes between franchisors and franchisees.

Our lawyers have also spent many hours detailing both parties’ issues and have a unique vantage point in seeing the issues faced from setting up franchise businesses, complex and costly disputes, and termination of franchises. 

From our perspective at PCL Lawyers here are the most common issues which cause franchisees to become disgruntled. These should be seen as opportunities for franchisors to improve their franchise systems and a way to gain a competitive advantage within the franchise industry. 

It is critical for franchisors to look at issues from a franchisee’s perspective for the purpose of improving the outcomes for franchisees, which ultimately has the benefit of improving the franchisor’s entire franchise system. The net effect of addressing franchisee concerns will undoubtedly be increased productivity and profitability for both franchisor and franchisee, and a better and stronger franchise system and network. 

Also importantly, being the most common complaints a way for franchisors to reduce the likelihood of disputes.

What business are you in?

Many franchisors consider their business model to be that of selling franchises. However, the best franchisors operate their business to ensure their franchisees are performing optimally. 

To avoid franchisees thinking that they are just “buying a job”, it is essential that franchisors genuinely work with, and support their franchisees to improve the profitability of their franchise businesses. 

The 3 most common issues franchisees experience

Three issues stand out above the rest:

1. Feel like they are not being supported

The one franchisee complaint which our lawyers hear more than any other is that after they acquire their franchise, they are not supported by the franchisor. Support is the key function of the franchisor. Everything from product knowledge and sales, customer service to accounting should be considered here. Taking key steps to ensure that franchisees have the right information at the right time is essential to their ongoing profitability and success. 

Internal brand health checks, NPS or satisfaction surveys are a way that franchisors can identify the key areas they need to work on with their franchisees. 

2. Believe they are getting charged too much

The costs of operating a business have risen dramatically over the last few years, in particular the cost of stock, electricity and fuel. At the time of writing, notable restaurants and builders are continuing to fail due to cost pressures. While some issues can’t be controlled it is advantageous for franchisors to consider ways to reduce cost pressures on franchisees. It is also important to communicate what measures franchisors are taking to help the improve the profitability of their franchisees. 

The lack of transparency about some fees and “wasted money” are also key areas where franchisees will zero in on. The most contentious fee is the marketing administration fee. In addition to minimising the marketing administration fees, franchisors should be transparent about how marketing fund money is utilised by them. Critical analysis and feedback on what franchisees see as effective use of marketing fund money will help franchisors get a better return on their spend and minimise franchisee complaints in this area.

3. Insufficient training and product knowledge

“We got two days of training and never saw them again” is often quoted by franchisees. Franchise systems are complex and require ongoing support and training. Ensuring your franchisees understand their roles and can efficiently operate a franchise will benefit you in the long run. Training your franchisees is an investment into your business. The key areas that our lawyers have identified in which franchisees need assistance are: 

  • Product knowledge 
  • How to acquire and properly service customers 
  • Back-end operations
  • Front-end operations

Addressing these issues will invariably assist franchisees in running a more profitable and efficient business. Reviewing how and when training is provided will help improve the skills sets and information assimilation of new franchisees.

Addressing concerns of franchisees

Franchising is a unique model and works best when the franchisor and franchisee are working in harmony. It does require franchisors to focus on the overall success of the franchise, and focus less on just selling franchises. Addressing your franchisees’ concerns will help to strengthen the franchisor’s system and network as a whole.

The current economic climate will undoubtedly lead to closures of less profitable franchises. To remain profitable and achieve growth targets, franchisors need to adopt a holistic approach to improving their franchise system. 

Consumer behaviour and other challenges for 2024

ABS data has revealed that whilst monthly household spending was up in February this year to 3.6%, discretionary spending on goods and services fell 0.2 per cent. The main reason for this is attributed to transport costs, driven by fuel and travel. 

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These figures show the state of consumer behaviour and reflect the current cost-of-living pressures. 

Franchisors need to work smarter to overcome of the macro issues that are impacting their franchisees profitability and respond to consumer behaviour. The franchising industry is being challenged from multiple fronts, including interest rate rises, AI, changing consumer behaviour, ecommerce and unfavourable labour market conditions, which are all expected to persist according to the 2024 Franchising Economic Outlook conducted by the International Franchise Association. 

The report noted that the US franchise industry grew by 2.2 per cent and output growth increased by 4.2 per cent. Whilst the report looked at the US, the macro conditions and consumer behaviour are consistent with the Australian market.

Those in the industry who can identify opportunities and adapt will no doubt flourish. Now is a critical time to step back from the day-to-day operational challenges of running your franchise and look at the health of your franchisees and where you can add value. As franchisors you have a great responsibility and ability to positively impact the livelihoods of your franchisees and help upskill them to navigate what is already a challenging year. 

  • https://www.abs.gov.au/media-centre/media-releases/household-spending-36-last-12-months