One might think the most important thing franchisees need from their franchisors in the midst of a pandemic is money, but they'd be wrong.
It's leadership, said Ronald Gardner, a partner in the law firm Dady & Gardner in Minneapolis, who represents both individual franchisees and franchisee associations.
“Franchisors need to lead,” he said. And while that’s a given in the best of circumstances, it’s even more so in unprecedented times like the current one." And a big part of leadership, Gardner contended, is communicating.
Franchisees, like all small business owners, are afraid right now, he pointed out. And even systems that seem to be gaining the lion share of the dining dollars during Covid-induced in-dining closures need guidelines and game plans, and empathy for what we’re all collectively going through business-wise and personally.
The franchise systems that are winning right now are the ones whose leaders are in regular communication with franchisees, showing empathy, providing value and at the very least information, Gardner said. “The (systems) that are losing are the ones where the franchisors are missing in action.”
An example? "I had a franchisee call me a few months ago and say, ‘I had an employee test positive, what should I do?’ When you have to call your lawyer, that’s going the wrong direction,” he said.
While Gardner hasn’t seen franchisors cutting back on royalties at this time, he has seen forbearance on their part to help with cash flow, so franchisees should expect no-interest help, not forgiveness.
Other ways franchisors can assist franchisees, he said, is to negotiate with vendors. While this may not result in lower prices, he said it helps if franchisors can give assurances—just short of personal guarantees—to vendors that they will be paid.
With business down for many franchised restaurants, the pre-pandemic solution for slow transactions would have been discounting, he said. “The problem I see in this environment,” he said about lowering prices, “is I’m not sure people are making their choices on which drive-thru they’re going to based on that.”
Courts have said it’s OK to sell one item at a loss because you can make it up on other items. Some contracts allow franchisees to set their own prices, but in a national chain with national advertising, not selling a sub or a pizza for the advertised price can cause PR problems with consumers for the franchisee not discounting.
Because franchisees could use PPP money for rent, Gardner said he isn’t seeing a lot of landlord disputes. “I’ve seen a lot less franchise orders chasing post termination losses,” he said. Of course another factor is that kicking out one tenant doesn’t guarantee there’s another one to take its place.
But what he is seeing, oddly enough, is an uptick in potential franchisees wanting a lawyer to look over their agreements. "In the normal flow I see one every other week,” he said. “I’m getting three a week now.” And while it may be anecdotal, what convinced him of a possible trend was that a franchisee he helped get out of a system a couple of years ago is looking at two new franchises now.