FEEDBACK REPORT
Networking Breakfast: Cape Town 14 February 2008

Tables 1 and 2:

Question:
Is there a typical profile of a “franchisee from hell”? 
What factors contribute to a “hellish” franchise? What are the first signs that there is “decay” within the franchise and what can the franchisor do to limit this?

Response:
•    A franchisee without business experience can be problematic

  • Generally, an experienced franchisor will have 70% good franchisees in the network, while an inexperienced franchisor will have approximately 50% good franchisees in the network.
  • A franchisor can limit “decay” by:
    • Enhancing the franchisor/franchisee relationship and communication;
    • Provide equal responsibilities for franchisor and franchisee;
    • Manage expectations adequately right from the outset;
    • Select the right franchisee;
    • Franchisee must be an owner-operator: no passive ownership;
    • Prevention is better than cure;
    • Franchisee must make a good unencumbered cash contribution;
    • Watch break even point in business;
    • Franchisor should get tough and not give royalty breaks/concessions.

Table 3:

Question:
If you look back retrospectively regarding how you dealt with difficult franchisees, is there anything you would change and why?  What protocols have worked for you?

Response:

  • No royalty breaks
  • Better screening of franchisees
  • Only franchisee’s managers get trained and not the franchisee himself
  • Manage expectations
  • No absentee franchisees

Table 4

Question:
Do you have performance criteria in your Contract/Manuals with your franchisees? What are they and do they drive franchisees to perform? 
What do you believe are the “push” and “pull” factors franchisors can deploy to drive franchise performance?

Response:

  • Franchisee compliance definitely affects performance
  • Pull factors include benchmarking; recognition and awards.
  • Push factors include: coaching; mentoring and intensive care.

Table 5

Question:
Do you conduct any of the following on your franchisees businesses?

- Performance reviews/audits
- Audits
- Mystery shoppers
- Targets, benchmarking

Are these effective in controlling franchisees performance?       

Response:

  • Performance reviews are based on the critical success factors of the business;
  • Benchmarking must be based on measurable outcomes;
  • Audits should be done on financial reports and tax returns, if possible.

Table 6

Question:
How would you define a “bottom of the barrel” franchisee? What measures could you introduce to “save” this franchisee?  When is a franchisee deemed beyond redemption?  What steps do you take then?
           
Response:

  • Franchisee not making money-notion of “ get rich quick”
  • Passive ownership
  • Franchisee does not conform to policies and procedures
  • May need to :
    • Improve communication
    • Address the issues
    • Adopt a mature approach
    • Monitor turnovers and financials on an ongoing basis
    • Provide upfront and ongoing training
    • Offer special assistance where need be
    • Ensure good location
    • Define a remedy period
    • Defranchise in worst case scenario
    • Offer a buy-out and operate a corporate store


FEEDBACK REPORT
Networking Breakfast: Johannesburg 15 February 2008

Tables 1 and 2

Question:
Is there a typical profile of a “franchisee from hell”? 
What factors contribute to a “hellish” franchise? What are the first signs that there is “decay” within the franchise and what can the franchisor do to limit this?

Response:

Tables 1 and 2;

Profile of a problematic franchisee:

  • Too entrepreneurial
  • Absentee franchisee
  • The franchisee owns more than one store
  • Personal problems such as death or divorce
  • No communication between franchisor and franchisee

First signs of decay:

  • Straying from sourcing product correctly
  • Not making the right GPs and expenses being out of line
  • Not conforming to franchisor’s systems.
  • Communication stops
  • Profitability wanes
  • The franchisee does not attend meetings and stops using preferred suppliers.

The franchisor needs to:

  • Be transparent
  • Offer financial guidance
  • Foster good relationships
  • Ensure the franchisee is making money and check his financial projections
  • Check up on franchisee and offer help with systems and other difficulties
  • Offer ICU
  • Prove to the franchisee that he knows what he is talking about by potentially assisting with the actual operating of the business
  • Appoint Operations Managers to problem stores.

Table 3 and 4

Question:
If you look back retrospectively regarding how you dealt with difficult franchisees, is there anything you would change and why?  What protocols have worked for you?

Response:

  • Correct recruitment
  • The franchisor should put the right structures in place from the outset
  • The parameters of compliance should be in the Agreement and expectations and consequences should be clearly highlighted
  • Field Service support and consistency of follow up calls
  • If there is an inherent trust between franchisor and franchisee, it is easier to “fix” problems

Tables 5 and 6

Question:
Do you have performance criteria in your Contract/Manuals with your franchisees? What are they and do they drive franchisees to perform? 
What do you believe are the “push” and “pull” factors franchisors can deploy to drive franchise performance?

Response:

  • Realise franchisees go through lifecycles.
  •  In the initial “euphoria” stage, the franchisor should inform the franchisee of the risks and not oversell the business concept
  • In the franchisee “free” stage, the franchisor should devote more resources to nurturing the franchisee, as getting rid of a franchisee is very expensive
  • The franchisor should offer training, support and good systems
  • There needs to be the right chemistry between the franchisor and the franchisee
  • Senior management should be involved in the franchisee’s business throughout and not just at the initial sign-up

Table 5

Question:
Do you conduct any of the following on your franchisee’s businesses?

 Performance reviews/audits
 Audits
 Mystery shoppers
 Targets, benchmarking

Are these effective in controlling the franchisee’s performance?        

Response:

  • Business Consultant visits are important where value is added
  • Franchisor formal communication initiatives
  • The franchisee must realize it requires hard work to make a business succeed, it is not only up to the franchisor
  • An absentee franchisee is problematic
  • The franchisor must be firm and consistent and deliver what he promises

Table 6

Question:
How would you define a “bottom of the barrel” franchisee? What measures could you introduce to “save” this franchisee?  When is a franchisee deemed beyond redemption?  What steps do you take then?
           
Response:

  • There has to be measurement criteria in place e.g. Operations Manuals, minimum stock holdings etc.
  • The franchisee runs an independent business so it is tricky to intervene too much
  • There should be penalties if targets are not met
  • ICU  is important
  • The franchisor should have promotional activities and incentives. The franchisee should be taking their mission statement and applying it to communities

 Table 7 and 8

Question:
Do you conduct any of the following on your franchisees businesses?

- Performance reviews/audits
- Audits
- Mystery shoppers
- Targets, benchmarking

Responses
Table 7

  • Lots of performance criteria needs to be put in place
  • Franchisor should intervene at early stages
  • It is difficult to balance maintaining a “rogue” franchisee with a good site (there is a possibility of the franchisee being “stolen” by another brand when the Agreement terminates)
  • The franchisor should execute all measures to preserve the franchisee
  • The franchisor must use the Franchise Agreement to regulate the relationship and not make allowances
  • The franchisor must attempt to rehabilitate the franchisee at the first breach and not make exceptions .  This will set the ground rules.

Table 8

  • Audits are vital
  • Use systems to obtain financial information from the franchisee and keep an eye on key financial areas (integrate this into the Franchise Agreement)
  • Mystery shoppers
  • Local area marketing initiatives

Tables 9 and 10

Question:
How would you define a “bottom of the barrel” franchisee? What measures could you introduce to “save” this franchisee?  When is a franchisee deemed beyond redemption?  What steps do you take then?

Responses
Table 9:

  • Problem when the franchisee becomes bigger than the brand
  • Problem when the franchisee loses interest due to personal problems or buys another business
  • Ensure that there is always the right “cultural fit”
  • Save the franchisee through:
    •  ICU
    •  active franchisor communication
    •  communication between franchisees in order for successful franchisees to assist struggling ones
    •  beware of franchisee boredom

Table 10:

  • Always ask if the franchisee’s commitment and loyalty is still there? This is imperative in the business
  • Beware of one franchisee damaging the brand. This has to be contained as soon as possible.


PANELISTS RESPONSES

Mimi  Masala
MacDonald’s Franchisee and formerly involved in MacDonald’s Head Office

MacDonald’s Recruitment and Selection Process

1.         Pre Interview Screening:

  • Approximately 20 varying criteria

2.         On the job evaluation:

  • There is a 3 day weekend evaluation in a busy restaurant
  • During this time the potential franchisee is supervised by a Field Service Consultant
  • The potential franchisee is given challenges  such as managing customer complaints, inventory counts etc. which are over and above working with the crew
  • This is an excellent true test of the potential franchisee to assess their  stamina and business acumen
  • The potential franchisee has a lengthy interview with the Franchise Manager
  • The  potential then has an interview with the Operations Director/MD
  • There is a 9 month unpaid training period with no documentation signed and  no obligations on either side

Ongoing Support provided by MacDonald’s:

  • Structured Field Service visits
  • The franchisee knows the frequency of the visits, who will be visiting and  what will be checked etc.
  • Field Service Consultant is not an inspector but rather a business advisor who is very in touch with the franchisee’s business and provides valuable input
  • Conducts both announced and unannounced visits
  • Mystery shoppers form part of the overall inspection process
  • The franchisee’s business is reviewed holistically e.g. profitability, customer service, operations, franchisee involvement etc.
  • The franchisee is given 90 days to rectify a breach situation
  • If the franchisee is still in breach, legal action is taken
  • MacDonald’s gets weekly financials from the franchisee as well as quarterly balance sheets
  • Have own ratios by which they monitor franchisee’s performance.  If the franchisee deviates in ratios, intervention takes place by MacDonalds

Hein Scheffer
CEO AutoMagic

Auto Magic’s Recruitment and Selection Process:

  • Very scrupulous and lengthy franchisee selection
  • Interview spouse too
  • Psychometric testing (tailor made for AutoMagic)

Ongoing Support:

  • Field Service Support
  • Place work with franchisees on behalf of insurance companies – helps AutoMagic keep track of the franchisee’s performance
  • A happy franchisee is a franchisee making money
  • Franchise Advisory Councils are important
  • Auto Magic have an incentive system which includes all the franchisee staff

Bendeta Gordon
CEO Franchize Directions

Recruitment and Selection Process:

  • Formulate what you DO NOT want of a franchisee
  • Conduct telephonic screening. Get the initial application forms first to provide an idea of the franchisee’s background.
  • Develop a qualified base of franchisees
  • The franchisor needs emotionally mature franchisees who can deal with challenges and people interactions
  • The franchisor should conduct a few reference checks on the potential franchisee

Ongoing Support:

  • Senior management that were involved in the franchisee selection process should continue to be involved with that franchisee on an ongoing basis e.g. telephone calls once a month
  • Recognise that the franchisee is lonely and provide him with support
  • The vast majority of franchisee problems start when the franchisee has financial difficulties. The franchisor, therefore, needs financial accounts on a regular basis from the franchisee to monitor and be aware of the ups and downs
  • When the franchisee is guilty of a material breach of the agreement, give him a specified no of days to rectify it. If this is not done within the time span given, terminate the Agreement.  This is better than having a bad apple in the cart
The exact termination process as stipulated in the Agreement should be followed by the franchisor