Why Franchises fail!

I have summarized the blog for you. Of course, you are invited to read the story and share your feedback. 

Summary

The blog discusses on my perspective on why franchise business in the F&B business does not live up to its worth. I list my reasons as being misrepresentative of the opportunity, making unreliable promises, a weak backend operations, and an execution apathy among control, vetting etc. 

I put my point across that if improved, the very same faults can be a gift. 

The Blog

A couple of days ago I was sitting with one of my favorite client and we were working on bringing his iconic brand to the franchise front and building partners in good spirit.

Between our discussion a question popped up.

Many food business brands franchise and expand, yet most fail to build a reliable brand even in the local market. And within a couple of years, they just fall into oblivion. And he asked for my observations with regards to this aspect.

And so I share my feedback with you all.

I believe a lot of F & B brands are in the franchise business for every wrong reason. There definitely can be a difference of what objectives they intend to achieve but unfortunately most are in the trade of ‘selling Signages rather than their business model’.

I am also of the opinion that a majority of prospects approach a brand to start a business with utmost sincerity, but fail to research what they are putting their money in or are enticed by big words and promises.

I have pondered upon the reasons for a couple of days, gathered my observations and came upon the following.

Misrepresentation

Since this industry is an experiential industry; many franchisee brands misrepresent investment and the operations management cost. It is to my surprise and disappointment that many promoters do not even have a hands-on idea of their own business numbers. Many brands and/or are hesitant to share expected breakeven point or the expected timeline of CAPEX return either because they have no idea or it extends beyond a feel good period of two years and they don’t have the heart to tell for the fear of loss. There are numerous examples where the investments have gone beyond twice the amount of what was stated during the initial presentation.

Promises

It has been noted that whilst promoting and selling a brand to a franchise aspirant, some owners or/and consultants tend to overpromise yet underdeliver the commitments made in lieu of signing the dotted lines. Most of the promises are impractical at the cost mentioned and/or not doable because the support system with the brand just does not exist.

Backend

For any business to succeed in the medium to long term; no matter what the final objective of the brand maybe; the support system including the backend has to be laid on solid foundations and has to work as a well oiled machine. There may be a few flaws or lack thereof but the commitment to improve backend operations has to be visible. It is an ever going process.

This is important because this would ultimately lead to a better Cost management affecting the profits and margins. Isn’t that what everyone in business strives for ?

Execution

To run any business, execution is paramount and is related directly to the backend effectiveness.

One reason why franchises fade is a lack of keeping up with times, not innovating their product line and services with market demands and expectations. I gather that for any brand which has been in the business for a considerable time yet their product offerings are stale, either they are lazy to be happy with the status quo or just don’t care anymore. In today’s time, the customer's expectations have hit the roof and rightly so. The choices available to him and her are unlimited and new innovations/ideas are there every second day.

Another reason is poor operations management not just at the mother unit but around. Operations see a lack of coordination, marketing sucks and there is a general apathy towards work. For this reason, continuous staff and management training is very important. If we look around, every reputable brand spends a considerable effort on training their team members which helps in better customer service and efficient operations.

Control

Franchisee brands need a better control on the product and service line and it is the coordination between the franchisee and franchises that builds a better business. To me it is the responsibility of the Brand to nurture the franchise; just as a mother takes care of her kids. Neither too intruding nor controlling but guiding through the days. It has been observed, once a franchise is sold, there is almost a cut off from the brand’s side, literally closing off the communication channels. Now I am not advocating controlling every action though it depends on what has been promised.

Vetting

It is sound business practices to vet the business you are investing in and the person who is investing with you. I do not suggest asking for account books of either (in selective case, I do) but for a general market view, an operations/capabilities research, the reputation within the market, with vendors and other existing franchises, and holding a few interactions. Most prospects are driven by outer experiences such as how beautiful the place looks, it was busy on a Saturday and so on and so forth. Now these are important but not that important to justify investing.

Location

This is one fact that I tend to reinstate time and again - not every business is made for every location so don’t find the cheapest or most convenient one as per you and start. I have heard of instances where just because the brand wanted to be present in a particular market, it enticed (tricked) the prospect to accept an unviable rental location, and eventually the business had to be closed. The choice of location is important based on the products and services you are going to sell and how you are going to sell.

Understand that every prospect approaching to franchise a brand has the expectations for a better tomorrow for himself or for someone he cares about. It might seem that one way or the other I am blaming the brands in my opinion piece. 

What I insist in a way, is that it is the prime responsibility of the brand and of the Prospect to ensure a good understanding and a deal.

It is in the interest of an aspirational and growth oriented brand to be trustworthy and honest in its deals. Isn't that as simple as it can be.