Is a Franchise Better than an Independent Business in a Crisis?
These five lessons from the COVID-19 crisis show the advantages that owning a franchise can have over owning a stand-alone business.
Lesson 1: We’re all in this together
In business as in life and nature, there’s strength in numbers. We’re all stronger when we stand together, and that’s what franchising is all about – or should be all about.
The problem is that not all businesses have been affected by the pandemic with the same severity. Travel agencies, retailers, entertainment services and restaurants have been among the hardest hit while many maintenance, technology and food delivery services have thrived.
Another problem has been that not all franchisors responded to the lockdown in the same way. Green Acres, one of New Zealand’s longest-established and largest lawnmowing and cleaning franchises, was reported to have continued to demand fees, even though most of their franchisees were no longer able to work and earn income.
But other franchisors set the standard for crisis management. McDonald’s is estimated to have foregone at least US$1 billion in deferred rent and royalty payments as sales slumped worldwide, and then gave franchisees US$210 million to rebuild sales as lockdowns began to ease in many corners of the globe.
The reason for all this apparent altruism is, of course, that franchisors understand that without franchisees, they don’t have a business. By helping their franchisees, they are helping themselves.
But many franchisors have realised that helping their franchisees financially is not enough. They know that if their franchises are to not only survive the COVID-19 crisis but position themselves for growth in the post-crisis world, they must fast-track technology development and product/service innovation and transform their business models.
And that means working more closely than ever with their franchisees to implement these changes, and even involving franchisees – who are closer to customers than the franchisors – in the change-making development and decision process.
Lesson 2: Provide strong leadership
The COVID-19 crisis is like nothing the franchise industry has ever seen before. There have been other pandemics, but no one could have anticipated the far-reaching impact of this one on the entire world. So no one could have planned, let alone prepared for it.
Or could they?
They say history never repeats, but it can offer lessons in dealing with similar situations. Australia and New Zealand are good examples. Both countries have experienced more than their fair share of catastrophic events, what with Australia's bushfires and New Zealand's earthquakes.
“[As a result] we've developed a very good crisis management approach,” says Chris Quin, chief executive of Foodstuffs, New Zealand’s largest supermarket cooperative. “The way people collaborate, take accountability and innovate is spectacular.”
Leadership is key to proper crisis management, and best practice this far into the pandemic would indicate that communication, positivity, transparency, inclusiveness and forward-thinking are the keys to effective leadership.
“Amidst the chaos of our world right now, our instinct may be to hunker down, wait it out, and weather the storm — essentially, hit pause,” says Michael Ruiz, CEO of Global Talent Solutions, a specialist executive search firm for the franchise industry. “But for business owners, and especially franchisors who have an entire network of partners to consider, hitting pause is the worst move to make. Now’s the time to keep swimming to stay alive.”
Lesson 3: Get closer to suppliers and customers
New Zealand Prime Minister Jacinda Ardern’s “we are here for you” approach to the pandemic has been widely lauded around the world. Given that anxiety and depression are now at pandemic levels themselves because of the crisis, business leaders as well as politicians have a role to play in the recovery by understanding and meeting their customers’ changing needs.
For leaders in the franchise industry, that has brought even greater recognition of the importance of getting closer to those who are closest to the franchises’ customers – their franchisees. For many whose supply chains have been disrupted or have the potential to be disrupted, it has also been imperative to get closer to their suppliers.
But how do you get closer during a lockdown or when everybody’s social distancing?
Here’s where the majority of franchises have several other advantages over most independent businesses. Because franchise networks are geographically widespread, many have already developed smart ways to keep in touch using Zoom and other technology for remote communication. Many also use centralised financial, point of sale and customer relationship management systems to monitor their markets and their franchisees’ performance so they can provide management guidance where required.
The prevalence of drive-throughs, e-commerce and delivery services in franchised businesses have also given them a more significant head-start over independent businesses during the crisis.
These advantages, combined with the fact that franchises with their group buying power tend to have strong relationships with suppliers, have made franchising an even more attractive option for would-be entrepreneurs, even during these difficult times.
Lesson 4: Be prepared to pivot
What do you do when your fitness centres, dine-in restaurants and retail stores suddenly become off-limits to your customers?
If you're smart, you'll come up with new and creative ways to meet your customers' needs. Fitness centres started offering virtual classes in the comfort and safety of customers' homes. Cafés and restaurants offered home delivery and click-and-collect meal services. Retailers embraced ecommerce. Health services gave online consultations or opened drive-through clinics. Home improvement stores provided their customers with online DIY courses. Clothing designers streamed online fashion shows.
Creativity and innovation thrive in times of uncertainty. For businesses and franchises around the world, letting go of the past has been the key to surviving the crisis. And those who adapted fastest to the new business environment were the ones to thrive despite adversity.
But effecting change in a franchise can be like trying to turn a speeding road train, so how can you create an innovative and agile culture in your franchise? In particular, how can you motivate franchisees to invest in new technology, products and even business models without creating undue resistance or conflict?
McDonald’s is something of a role model in this. After some false starts in innovating to meet the changing needs of their markets in the 1990s, the corporation now works more closely with its franchisees to innovate, using strategies such as trialling new products and technology in both company-owned and selected franchised restaurants to demonstrate demand and return on investment as a way of championing them before rolling them out to the network as a whole. With innovations such as drive-throughs, delivery services and contactless touchscreen ordering already in place, McDonald's was well-positioned to meet the changes brought about by the pandemic.
5. Get ready for growth
There’s a danger that while franchise leaders are intently focused on dealing with current challenges, they will lose sight of their overall vision. But because the crisis is so deep and pervasive, many businesses can already see that their future will be quite different from the past, says veteran corporate leader, Rob Campbell.
“Executive teams and boards have swung into action, in my experience, remarkably quickly and effectively,” he says. “Many of them are change agents already remaking their businesses… they’re also working on how to emerge as better businesses.”
The question is: What will the world look like once the pandemic is over or at least contained? Once again, smart franchisors are working with consultants and government bodies to envisage future scenarios and using them to develop possible strategies. Just as importantly, they are collaborating with their franchisees, suppliers and other partners to become more agile, rapidly assessing changing situations and then pivoting to take advantage of them and become more robust businesses.
Robin La Pere is a franchise consultant with more than 20 years’ experience as
a franchise manager, CEO and owner as well as a consultant, coach and speaker
on franchising. Based in Auckland, new Zealand, he works with clients throughout Australasia and internationally. He is a specialist in business model development, strategic planning, process improvement and franchise recruitment marketing.