In this last episode of our trilogy dedicated to the management of late payments by the partners of a franchise network, we will discuss the economic and psychological impacts that lead the management of a network to consider a reversal of the situation in the management of a conflict with one of its partners.
As we have seen, we are at a stage where the operational staff no longer has control over the file that is on the lawyer’s desk. An exit from the network perimeter is a more than probable option for this outlet which accumulates late payments in order to put pressure on the network head.
The situation is tense because the brand’s image is at stake. Its development strategy is a priority for the group. Unbudgeted sales outlet closures risk damaging the landing planned at the beginning of the year.
A good agreement is better than a bad trial
The network director who has been following this case from a distance puts a working group under his responsibility whose objective is to identify the advantages and disadvantages of the future termination of the franchise agreement (to the detriment of the franchisee) that is looming.
In this reflection, the following elements are intertwined and he must master them :
- Closing the outlet: The network coordinator will be in charge of verifying that the brand name has been registered and that the outlet has been properly unmarked. Photos will be given to the legal department which will validate that the customers will not be misled by images characteristic of the brand, left as is. The animator will also have to recover all the supports on which the brand’s logo appears (advertising banners, flagship, letterhead, leaflets…). The marketing department will prepare a standard response if the press (radio, web, paper, local, franchise specialist, etc.) reports on the closure. The recruitment department should also be able to answer candidates’ questions about the closure without going into the details of the dispute. The financial department will explain to the financial partners and credit organizations that refer to the network the reasons for this exit from the network. The legal department will have to update the Pre-contractual Information Document (PID). Finally, the franchisees closest to this point of sale will be asked to welcome loyal customers who are willing to travel a few extra kilometers.
- Reopening in the same city: The recruitment department will start new targeted sourcing campaigns in the region, will communicate on partner recruitment sites and will carry out a rigorous pre-selection to ensure that the chosen profile has a good knowledge of the local fabric. The expansion managers will look for a location in the same catchment area; if possible in a better position and with the same rental conditions so that customers will not see it as a simple move of the store. The people in charge of the works will manage the opening retro schedule with the tradesmen to ensure an early (re)opening. The training department will have to plan the training of the new partner and his teams and then accompany him with the network coordinator during the first days of operation. Then, the marketing teams will look for the best ways to communicate on the return of the brand in the city.
- The operating loss resulting from the interim period: This element will be taken into account by the financial department, which will have to revise its cash flow forecasts downwards. The suspension of royalty collections during the closure period will have an impact on the financial statements for the year. In terms of purchasing, the impact on the network’s purchasing volumes could affect the level of year-end discounts. The human resources department may have to review the agendas and scope of the field teams in order to adapt their workload to this closure. Not forgetting certain other franchisees, who are always attentive to movements in the network (openings, closures, disposals) and who could enter a period of destabilization or doubts that could have consequences for their operations. Finally, the deterioration of the brand image of the company, which could lead to a loss of confidence of the customers in the area, is a parameter that is difficult to quantify and that the decision-maker should not neglect in his analysis of the situation.
This non-exhaustive list is on the agenda of the steering committee and other more subjective elements have already been added :
- The network risks losing one of its best locations,
- The impact on the territorial network
- The refusal to leave the place free to its main competitor,
- If the franchisee agrees to give up his lease, the probability of quickly finding a buyer within the network or via external sourcing
- The certainty that it will be impossible to relocate to this area at rent levels compatible with typical business plans…
- The influence of the outgoing franchisee in his city.
- The discourse he will have with customers, retailer associations, city hall, and even with organized commerce authorities.
- …
Regardless of the extent of this finding, the store manager will have to make a decision that is fraught with consequences, but which in any case will be the lesser of the two alternatives he must choose from:
- Go all the way: file a termination action, separate from the partner and lose the outlet.
- Opt for a compromise: draw a line under part (or all?) of the debt in order to bury the hatchet with the franchisee who will continue to contribute to the global turnover of the network, in his outlet under the brand.
What would you do if you were the leader?
Organized trade is a big family in which each party expects a great deal of recognition from the other. The head of the network via the thanks of the partners when they are satisfied with the actions carried out (advertising campaign, new range of products, referencing of a supplier, data-processing or technical support…), leading to the progression of the sales turnover in the network. Then, the franchisees, proud to appear in the interviews of the internal magazine for their recent success or, eager to get the trophy of the year at the next national convention.
Thus, affect is so present in a network that it is common to see reactions of pride and bitter or resentful behaviors of some towards others. But after all, organized commerce is a big family, and in any family there are disagreements between its members, and in most cases, it is the head of the family who plays the role of unifier to calm down a situation.
As the true head of the family of the network, the general manager of the retailer must make a decision: to continue the litigation with the consequences we have mentioned or to opt for a more pragmatic settlement, with a view to recovering part of the debt in the royalties generated by the continuation of the activity of the outlet in the network. It is difficult for us to give an opinion here on one option rather than another, as each case has its own specificities and each network has its own strategic vision. However, it seems to us that the role of the head of the network is to always favour the win-win relationship and to consider that the interest of the collective takes precedence over the individual interest. A network head calls upon independent entrepreneurs for their management, business and management qualities. These entrepreneurs can have survival reactions when they feel that their business is in danger. They then forget that they have signed a contract which commits them on several precise points and move on, until they find the confidence which will enable them to find a serenity in their daily life.
David BORGEL
06.11.19.18.44
dborgel@franchisemeup.com
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