Capital

The Relationship Between Franchisee and Franchisor

Many entering the fray known as the restaurant business face this dilemma: to become a franchisee, or to stake their own claim and sink or swim by their own design. One of the main considerations in this decision, that will drastically shape one’s future for better or worse, is the concern about working with a franchisor. Just how much pull do they have, and is their experience, brand, and business model worth the money and the loss of certain freedoms? A prime example of this tug of war is currently occurring between McDonald’s and their franchisees.

As many of you know, remodeling can be expensive. When your franchisor makes the request for a major remodel (which is less of a request, and more of a demand) feathers can ruffle. Such is the case with many of the franchise owners who joined the massive fast-food enterprise known as McDonald’s.

At the core of the disagreement are two issues.

Issue Number One

McDonald’s has developed the “Experience of the Future” remodel program. One of the main changes is the creation of a SAM Wall or service area modernization barrier. The “wall” separates the front counter from the kitchen. One side (McDonalds) argues that this type of remodel will hide the kitchen and BOH from customers. The other side (franchise operators) say it offers no increase in value or experience to the customer and it offers very little in the way of a return on investment.  Many owner operators would rather invest in updating their kitchen or drive-thrus—areas where they believe investing and remodeling could make a significant difference.

The cost of the barrier and remodeling is expected to range anywhere from $160,000 to $750,000. If completed by 2020, McDonald’s has agreed to pay 55 percent of the remodeling costs. If completed after 2020 and by 2022, McDonalds has agreed to pay 40 percent of the costs. Operators argue that this type or remodel is, financially, not in their best interest.

Apparently, they are not alone. According to the National Leadership Council (NLC), another franchise group who recently conducted a survey among Franchisees, 7 in 10 said they were unsatisfied with cash flow. Many would also like more “local” control.

Issue Number Two

The other issue has been a long time in the making and one that others in the restaurant industry can certainly relate to—an expanding menu that is creating some growing pains when it comes to maintaining the all-important speed of service that McDonald’s customers have grown accustom to.

The disagreements have reached such a height as to call the troops in and create a coalition. Called the NOA or National Owners Association, the group has asked its members to stop any remodel projects not already started until an agreement can be reached.  

But let’s not end on a franchisee/franchisor sour note. For the fortieth year in a row, Entrepreneur has posted their Franchise 500 Ranking—the top 500 franchises in the industry and, you guessed it, McDonald’s is number one. The ranking is based on costs and fees, size and growth, support, brand and strength, and financial strength and stability.

Getting into the Business

So, what’s the next step to take if you’ve been bitten by the franchise business model? Start your research, and don’t stop until you feel a strong sense of passion and a deep understanding of the business model, and you’re ready to “get into bed” with your prospective franchisor. After all, this relationship is very much like a marriage. Are you committed to common goals, do you have the same commitment level, and do you have each other’s backs come hell or high water?

Are they willing to develop a business strategy with you and help you set goals and then fulfill them?

We all know that communication is key in any relationship. The first red flag, then, is an unreturned phone call or email, or a sense that you’re not really being heard and the answers to your questions are being read off a notecard. Listen to that still, small, sometimes barely audible voice within and trust your instinct. You’ll know when you’ve found the right partner.

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