3 Hard Lessons Learned from Franchising Horror Stories

Recent feuding between franchisors and franchisees in Canada has been all over the news. The right franchising fit can be an entrepreneurial dream come true, but if things go awry, it can pit franchisees against franchisor or franchisees against each other on a business battlefield.

Here are three hard lessons learned in the franchising field.

1. Small Group, Big Impact

A franchise is like a family and just like a family, it can take only a few individuals to bring disrepute on an otherwise good name.

Recently, the minimum wage in Ontario jumped from less than $12 per hour to $14 per hour with another bump to $15 coming next year. This meant many employers that had workers earning minimum wage were forced to give all those employees a hefty raise overnight. The obvious solution would be to raise prices, but in a franchise, that’s not always easy to do.

Therefore, a group of franchisees in one of Canada’s most iconic brands took it upon themselves to recoup the cost in other ways and they chose to cut employee benefits, including paid breaks. This caused an uproar across the country and has reportedly caused the brand’s reputation and sales to take a hit.

The lesson: In a franchise situation, you can easily be affected by others’ actions.

Franchisees of this particular brand operating outside Ontario would still be feeling the potential drop in sales and reputation brought on by one small group of franchisees acting of their own accord. In a franchise environment, it’s important to remember that the health of the brand can be damaged easily by rogue elements. This is one of the inherent risks you take with franchising. Fortunately, franchisees acting on their own is rare.  

2. Unsustainability

Over in Australia, a major international convenience store franchise and a gas station franchise active in the Asia Pacific region were both found to have systematic overworking and/or underpaying of employees, including migrant workers.

Initially, representatives of both franchises said it was just individual franchisees who were responsible for underpaying employees, but former franchisees of both companies have claimed that the franchisors were complicit with the employee abuse because their business models were not sustainable. The former franchisees said these poor business models caused some franchisees to resort to overworking and underpaying their employees, just to make their individual businesses viable.

Also, franchisees of a major international pizza franchise in Australia were found to be struggling to make ends meet due to rising supply costs and an inability to raise prices because the parent company didn’t want them to. Some of these franchisees ended up underpaying their employees in an effort to turn a profit. The franchisees and the franchisor ended up pointing fingers at each other for the infraction.

The Lesson: Do your research.

Since you have to run a franchise according to what is essentially a template, if you find that business model is not working, you cannot simply change it or you risk discipline from the parent company. Because of this inability to change the business model to suit your individual needs, it’s important to thoroughly research any franchises you are thinking of joining. Good franchises want all franchise locations to be viable and profitable. Bad franchises only care about the brand name. Fortunately, a good franchise broker can help you avoid these situations by pairing you with reputable franchisors.

3. The Narrow Path

A once proud pizza franchise in the United States found itself hemorrhaging money a few years ago because the franchisor decided to put nearly all of its locations inside mall food courts. However, with this narrow focus on location, the franchise was extremely vulnerable. Back in the 1950s when the franchise started, shopping malls going extinct seemed impossible, but fast forward to 2014 and the franchise was already going through its third bankruptcy thanks to shopping malls closing left and right across the country.

The franchise was also loathe to innovate in the extremely competitive pizza market and its pizza slices sitting under warming lamps in the various dying shopping mall food courts became the butt of business jokes.

The Lesson: Beware of a franchise that has too narrow of a focus.

All businesses have to stay up to date on business trends, innovate accordingly and keep some flexibility in order to survive. If they are a mature franchise and they haven’t changed anything they’re doing in decades, something is wrong because the world around them has changed during that time. Don’t get caught by someone else’s blinders. Recognize a lack of willingness to innovate and proceed with caution if you do.

Franchising has its share of terrible tales, but you can avoid being victimized by a bad franchising situation if you have a little help choosing the right business for you. FranNet works with only the most reputable franchise businesses to ensure that our clients only have success stories to share. Sign up for a free FranNet franchise search and consultation today and let us help you on your way to business ownership.

Mar 19, 2018