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Franchisors Must Carefully Manage Change

Published on April 25, 2016

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Change is a normal part of operating any company whether the company is small or large, franchised or not. Change can come in many forms, whether procedural, which is implemented per the operations manual or marketing changes such as introducing an advertising program or new product. Change can be of a major category such as a franchisor acquisition, a merger or a sale. If the franchisor is publicly owned, this type of information must be disclosed in compliance with SEC regulations.

Major changes can have a significant impact on franchisees and may demand special handling. In other cases, the change may not be that significant; however, some franchisees may feel that the change is only the beginning of more to come.

Some changes being considered by the franchisor should be communicated to the franchisee community in order to measure the impact of the change upon fran­chisee relations and any other potential impact on the franchisee.

Examples of these changes would include:

  1. Contractual changes to franchise agreements that significantly alter terms, renewal terms, royalty fees and default conditions. These changes can cause particular concern among franchisees that are scheduled to renew their franchise agreements.
  2. Changes in marketing or advertising programs which will represent a significant departure from the current program. Pricing promotions which can reduce franchisee margins can be a source of franchisee dissent and in some cases litigation.
  3. Organizational changes that involve franchisees and those individuals who provide system support for franchisees. A reduction in franchisor support services could be perceived by franchisees as a precursor to franchisor financial problems.
  4. Structural changes to the philosophy and direction of the business that impacts the franchisee network requiring them to invest their financial resources in location upgrades or new equipment.

How to prepare for change:

Franchisors often create special committees or use their franchise association to deal with introducing specific changes. The franchisor, must clearly state the purpose of the special committee. Some franchisors use committees to manage issues that can result from newly implemented changes.

  1. Evaluate and measure how the change will affect franchisees.
  2. Gain feedback from the franchisee network regarding
    major changes. The feedback can come from franchisor field
    staff, or from the franchisees themselves.
  3. Where the change is of significant impact to franchisees,
    consider a FAC or a special committee to help franchisees
    understand why the change is being made.
  4. Demonstrate flexibility in introducing change. When
    feedback indicates a great deal of resistance to change, the
    franchisor should consider the situation, and avoid
    unnecessary confrontations.

Change is an important aspect of all relationships and especially in the world of franchising. It is important that the fran­chisor and franchisees conduct business within a climate of change that is positive and considers the needs and objectives of both parties.

Written by Team

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