Over the years, franchising has gained a, somewhat unfair, reputation for disputes and litigation between franchisors and franchisees.
Recent years have seen a marked increase in the frequency of groups of franchisees threatening legal action against their franchisor.
This is very distinct from franchise advisory councils, or formal franchise associations set up by franchisees as a quasi trade union representing their interests.
They are groups of disgruntled and irate franchisees who may feel that they have been mis-sold to, or that the franchisor is not honouring its obligations or that there is some other serious breakdown of the relationship.
These groups frequently start in WhatsApp discussions which may not involve all franchisees in the network but will amount to a good proportion.
Corona is affecting many franchise networks with franchisees either unable to trade or severely restricted in their trade, so tensions between franchisees and franchisors can rise. This is particularly the case where the franchisees believe that the franchisor is unreasonable in still requiring fees (even though that is the franchisor’s life blood) or where they feel the franchisor’s response to the crisis has been inadequate. Without intervention and strong levels of consistent communication these tensions can escalate to open rebellion. So, what could franchisors be doing if this is a risk in the business…
In the last 25+ years I have been involved on at least 30 occasions in either pursuing claims for action groups or representing franchisors facing such claims. I have learned through that experience that most groups have many common characteristics.
They are initially very well led with high profile franchisees, who have the respect of the network, able to gather around them other franchisees who may share the same concerns or who are swept along with a tide. With anonymous communication, away from the franchisor’s gaze, there can be a high level of aggressive complaints, demands and calls for action.
Numbers normally reduce when there is a need to go public and confront the franchisor, either requesting a meeting or where the network appoint lawyers.
The threats to the franchisor are large numbers of the network withholding management services fees or marketing contributions, refusing to incorporate changes and upgrades to the System, making their dispute more widely known, which might affect recruitment and retention of franchisees and, occasionally, starting court proceedings.
Another frequent characteristic of a group is that it will often splinter and there will be leadership battles, particularly if the group do not get their own way immediately. At the initial stage they may all have high expectations, having encouraged each other to join the group and pursue their perceived grievances. They might have some reasonably positive legal advice and feel emboldened. But when the franchisor does not immediately give them what they want then there will be disputes over strategy, increasing demands for financial contributions to group coffers to fund legal expenses as well as suspicions that there might be moles in their midst feeding information back the franchisor.
The old adage ‘divide and conquer’, is usually the tactic employed by franchisors. That is easier said than done. However, it is possible to reduce the size of the group. Strong counter-threats from the franchisor will cause some of the less motivated group members to fall away. Incentives offered to ring leaders can sometimes work but have to be very carefully managed. Isolating one or two group members to be made examples of by the franchisor, such as withdrawing national account work or requiring payment of any arrears of fees, usually reduces numbers even further. A smaller group will have to make individually larger contributions to the legal expenses and that itself can mean some of the franchisees withdraw as the legal expense becomes unaffordable.
However, all of these techniques, whilst useful from time to time, are never the whole solution. A franchisor who goes on the attack might win a few battles but will not win hearts and minds and will not resolve the underlying issues enabling the network to come together with the common aim of making the brand successful. The vast majority of franchisees understand that their financial success is largely the result of their own hard work and market conditions. Of course, the franchisor has a role to play in developing the brand, improving systems and assisting franchisees to generate higher income and higher profit. Equally importantly, the franchisor must help all franchisees to feel valued, that they are contributors to the overall success of the brand, that they have an opinion that is worth listening to, and that they have experience in the market place which should be considered. Above all, franchisors have a responsibility to give clear leadership and strong and consistent communication to their network.
Communication is not just about telling franchisees what to do or issuing newsletters that focus on good news stories only and ignore the reality that some franchisees may be struggling. Communication, to be effective, must be two-way. A network where franchisees have a voice, where they are listened to and their views respected is one that has far less prospect of experiencing an action group. Of course, communication alone cannot mask any underlying deep-rooted problems in the business model, but in most cases it will ensure that those lone voices of dissent do not attract a crowd.