Franchisee complaints

“A lot of times franchisees want to be heard; they want to know that the parents understand what they’re going through,” he says.
May 1, 2009

Franchisee Complaints
Corner Office
Deborah L. Cohen

Take complaints from franchisees seriously in order to maintain your image and bottom line.

Like many chains coping with the economic downturn, Wing Zone, a quick-serve specializing in Buffalo-style chicken wings, posted a decline in same-store sales last year. Before concerns about the economy’s impact on sales began to surface among operators, the company took pre-emptive steps to keep operational worries from escalating.

In addition to posting weekly electronic newsletters about important issues such as supply chain and promotions, Wing Zone increased store visits by its field consultants to six times a year. It also reduced the number of restaurants each representative tracks.

The Atlanta-based company also eased the burden of franchisees’ travel to its annual meeting by shifting to four regional conferences and began hosting periodic interactive webinars to educate operators on marketing and menu developments.

Most important, says Wing Zone co-founder and CEO Matt Friedman, the company elevated the status of its Franchise Advisory Group (FAG). Each of the four elected franchisee members has direct responsibility for vetting concerns that arise from about 60 franchisees operating the system’s 90-plus restaurants. All of these moves were designed to open the lines of communication between franchisee and franchisor and head off conflicts before they escalated.

“We’ve really put franchisees, the peers, in a role where operators can now communicate with them,” Friedman says. “They develop a relationship, voice concerns, complaints, compliments. They then work with us to determine whether it’s an individual problem or a systemwide issue.

“We don’t run away from any complaint,” he says. “You’ve got to address it hands-on.”

As the economy worsens and more brands shutter stores, franchisors around the country are dealing with rising levels of concern within their networks. Besides declining sales, anxieties range from how to obtain financing in the difficult credit market to higher costs for food, paper, and energy.

“When people are in a panic, they don’t even take time to open the manual,” says Dan Rowe, CEO of FranSmart, a franchise developer that owns expanding fast-casual chains such as ZPizza, Vapiano, and Elevation Burger. “We’re anticipating that,” he says. “We’re picking up the phone. We’re doing e-mails.”

In tough times, simple efforts such as these, as well as increased one-on-one time from management, can go far to ease anxiety within a franchise system, Rowe says. “A lot of times franchisees want to be heard; they want to know that the parents understand what they’re going through,” he says.

In addition to fostering open communications and boosting their field presence, savvy operators are shoring up their procedures for handling conflict resolution, says Karen Spencer, CEO of Fran Systems. Having clear-cut measures to mediate disputes can help to avoid potentially costly litigation, says Spencer, who helped Wing Zone develop its new procedures.

“Those franchisors that do not have particular policies and people in place are feeling the heavy, heavy weight of this,” she says. “When franchisees start to complain, that’s a symptom of something going on in the system. It’s always a symptom and we try to find out what the cause is.”

There is no single best practice for handling the issues, Spencer says. Often the methods are driven by the size of the franchise system and the internal corporate culture. Large operators such as McDonald’s have built multifaceted dispute-resolution programs into their operational practices. These include reliance on internal ombudsmen to investigate complaints and report their findings to management.

Smaller chains might have less-sophisticated practices and sometimes rely on senior management to handle franchisee complaints directly.

“We over-communicate in these times,” says Matthew Corrin, CEO of Freshii, a fledgling Chicago-based chain of 14 stores and 10 franchisees.

“For us, instead of bringing out the book, it’s face-to-face meetings. It’s getting all the members of the team involved so we can put out the fires,” Corrin says.

Regardless of the policies, franchisors should take care to handle problems uniformly throughout their system. Unequal treatment can often be the catalyst for a lawsuit.

“That’s when the lawsuits start because franchisees talk and they find out somebody got treated differently,” Spencer says.

Once a chain grows to the size of about 100 units, it’s time to establish a corporate compliance committee to field problems brought forward by corporate field representatives on behalf of operators, Spencer says. If a complaint can’t be handled within the standard set of guidelines, it will be taken up by the committee, which includes representatives from marketing, operations, development, and other corporate functions.

We don’t run away from any complaint. You’ve got to address it hands on.”

When internal disputes reach an impasse, it’s in the best interest of both sides to keep the argument out of the courts, says F. Peter Phillips, a New Jersey-based mediator and editor of the International Institute for Conflict Prevention & Resolution’s (cpr) guide “Managing Franchise Relationships Through Mediation.”

Franchisors should view conflicts with their operators as business challenges rather than opportunities for legal confrontation. Litigation can be costly for both parties, erode longstanding relationships, and lead to negative publicity for the operator.

“I think there are still many more matters filed in the courts than there need be,” Phillips says. “What we’re trying to do is suggest that there are alternatives.”

In addition, more companies are under pressure to keep corporate legal expenses under control; the savings from avoiding litigation go directly to the bottom line. “It’s just a way to negotiate better,” Phillips says.

CPR and the International Franchise Association are two of several groups that provide resources about mediation, which unlike arbitration, is a nonbinding process. An outside third party, often a lawyer with significant industry experience, is contracted to facilitate the dialogue. On average, costs run about $1,500 a day, says Phillips. The process often takes a day or two.

Bill Hall, a Texas-based Dairy Queen franchisee and co-chair of the Franchise Mediation Program, is an avid supporter of nonlegal solutions.

“You cannot have a franchise system without having conflict,” he says. “You try to resolve your dispute and move forward so you can maintain the relationship.”

Deborah Cohen is QSR’s former Finance reporter. Suggest future Corner Office topics for her to cover at moc.enizagamrsq|harobeD#moc.enizagamrsq|harobeD.

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