Strategic Alliances: Embrace the new norms of franchisor-franchisee relations
As the post-pandemic operating environment continues to evolve, both franchisors and franchisees are having to continually adapt their business models to manage through the changes that have affected all multi-unit businesses over the past several years.
Franchise brands and operators today are facing new challenges related to inflation and increases in commodity costs, staffing issues, strained supply chains limiting the availability of certain products, and construction challenges related to the price of raw materials and the availability of labor and equipment needed to meet new development and remodel goals.
Given these challenges, franchisor and franchisee relations have also continued to evolve. Brands have become more selective in approving new franchisees and are more involved in franchisee-to-franchisee transfers and acquisitions. To continue to grow in the franchise space, it is important for franchisees to review their growth plans and strategies to ensure alignment with franchisor goals and objectives.
Successful growth within brands depends on a strong and healthy relationship between franchisors and franchisees. As more franchisees expand and diversify into multiple concepts, franchisor-franchisee relationships become more complicated. To foster a working relationship that is a win-win for all parties, it is important for franchisees to understand each franchisor’s goals, priorities, and concerns.
The performance of specific brands has deviated significantly throughout the pandemic. Different brands have different focuses, and franchisee growth strategies should be tailored to best align with the current objectives of each franchisor. Alignment between each brand’s priorities and goals and franchisee support for those goals is critical to a successful relationship.
As an example, many top-performing brands would likely respond more favorably to a franchisee looking to consolidate and acquire more units if that franchisee was also committed to future growth and development and reinvestment in their current portfolio. On the other hand, a challenged brand may be more supportive of a franchisee willing to acquire and turn around underperforming locations, putting that franchisee first in line for additional acquisition opportunities that arise. Brands are more willing to support franchisees who are willing to assist them in solving problems or are willing to become early adopters of brand initiatives, including remodeling and other key projects.
Be transparent in their communication with franchisors on their growth plans, accomplishments, and financial strength. Many franchisees assume the franchisor is aware of everything transpiring in their businesses. As brands have streamlined internal support and G&A budgets have been cut, franchisors simply do not have the resources to track the activity of individual franchisees at the same level as in years past.
Provide periodic updates on new development, remodeling, and their progress on other initiatives. This will ensure the brand is aware of a franchisee’s accomplishments, as well as any challenges they may come across.
Plan a periodic face-to-face meeting with brand leadership to reinforce their financial capabilities, capital resources, and growth plans. These meetings can also serve as an opportunity for franchisees to position themselves as a resource and steward for the brand.
Get involved with brand committees, advisory boards, and other groups focused on various aspects of the franchise business. Franchisee advisory committees often have more exposure to high-level executives and key members of a brand’s management team. Additionally, these committees allow franchisees to share best practices and learn from other high-profile and influential franchisees on how to better run and manage their businesses. The more visible a franchisee is to a brand and its leadership team, the more opportunities that operator will have to showcase their strengths and accomplishments to improve and gain additional support and favor with the brand.
The relationship between franchisors and franchisees is continuously changing. The days of growing your franchise business without support and involvement from the franchisor are over. The most successful growth-oriented franchisees today are embracing interaction with the brand and supporting brand initiatives relating to discounting and promotions, new marketing campaigns, product tests, and reinvestment. Those most successful at increasing their respective profiles are able to gain easier brand support and approval on future acquisitions, and may even see additional acquisition opportunities steered their way.
Our advice for growth-oriented franchisees is to develop a strong working relationship with your franchisors, and to come up with a plan to continue to enhance and improve those relationships. Let your franchisor know your goals and objectives, because without brand support, growth can be infinitely more difficult and unpredictable. As franchisors continue to exert increasing influence on the direction and growth of their franchise systems, it has never been more important to embrace the new norms of franchisor-franchisee relations.
Carty Davis is a partner with C Squared Advisors, a boutique investment bank that has completed hundreds of transactions in the multi-unit franchise and restaurant space. Since 2004 he’s been an area developer for Sport Clips in North Carolina with more than 70 units. Contact him at 910-528-1931 or email@example.com.
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