The Trouble With Franchises

Actually, there are a lot of problems with a franchised business model, both from the franchisor’s standpoint and also from that of the franchisee. If you have purchased a franchise from someone then by definition you have given them a large sum of money in exchange for the right to open a branch office of their business and contribute to their bottom line. You may not ever see a dime of that money back; you may in fact go bankrupt even before you make your first franchise fee payment, but the company will still get its money. In some cases this might work out very well, such as the McDonald’s franchises, some of which have been estimated as being worth more than the franchise fee in marketing advantages alone. In other cases it might be a nightmare, as it was for the Krispy Kreme franchise holders who were basically used as a revenue source to enrich the personal fortunes of the CEO and his cronies in the early 2000s…

As bad as that is, things are frequently worse on the franchisor side. As attractive as it is to have people paying you to expand your business, the fact remains that every time you sell a franchise you are putting your company’s honor, reputation, and financial future into the hands of someone who you can’t control, who has no reason to like you or protect your company beyond the need to recover their investment. This can lead to improperly maintained locations that give your company an unwanted reputation for slovenly management and unsanitary conditions, public relations disasters that impact the performance of other franchisees miles or time-zones away, or human resources atrocities so absurd that they get you mocked by scruffy bloggers all over the globe…

I picked up the original story from the local television station in Houston, but in case you missed it, there are reports of a Popeye’s franchise demanding that the shift leader in one of their stores pay back the money that was stolen during an armed robbery because it was her fault the registers had enough money in them to be worth stealing. When the woman in question refused, saying that she’d already been robbed at gunpoint and couldn’t have afforded to replace the money anyway, she was fired. This would have been bad enough, but it turns out that the fired employee is a mother of three children who is currently pregnant with a fourth – and now facing unemployment in addition to her other problems…

Now, I don’t know enough about employment conditions in Houston to comment on whether firing someone because your company was robbed of less than $400 makes any financial sense. Typically, we assume that recruitment/replacement costs for supervisory personnel run between one-third and one-half of the first year’s salary, which in this case would mean somewhere between $5,000 and $10,000 for a supervisor in the $8 to $10 per hour range; possibly much more than that. Unless there are so many employed first-tier managers in the Houston area that a replacement can literally be found sitting in the restaurant itself, this was already an asinine decision on the part of the business. But once the story got out things became even worse for both the franchisee and the company…

There’s only one Popeye’s location within a fifty-mile radius of my office, and I already don’t go there because I would literally have to drive past dozens of other fast-food restaurants to get there. And I know that our local franchise has absolutely nothing to do with Z&H Foods in Houston, except for the fact that both companies purchased a franchise to make and sell fried chicken and biscuits. But even knowing that, I feel rather more negatively toward Popeye’s in general than I did before I read this story, and even more so since the franchisor in this story is refusing to comment and just dumping all responsibility for this fiasco on the local franchisee. Just imagine how much worse that could get if everyone who sees this story, on the air or on the Internet, has the same reaction…

Still want to go into a franchised business model? I can wait while you think it over…