Growing a Franchise
The right franchise vendor should understand the brand, deliver across markets and stand behind its commitments. Here's what franchisors should look for before and after signing.
Franchisors add vendors to their systems all the time, but figuring out whether a supplier will work once it is serving franchisees across multiple markets can be harder than evaluating the product itself. A vendor that cannot scale, or that goes quiet once the contract is signed, creates problems across every unit it touches.
Thomas O'Connell, partner and franchise practice chair at Buchalter’s Franchise Law Practice, said the evaluation should start well before capabilities come up.
"The first question isn't 'What can they do?' but 'Do they understand where we're going?’'" O'Connell said.
O'Connell said his clients tend to have better experiences with vendors that come into the first meeting having already done some homework.
"The vendors that fit our clients walk in having already researched the brand, asking questions designed to understand the long-term vision," O'Connell said. “How they start is a remarkably good indicator of how the whole relationship will run.”
Once that conversation happens, O'Connell said franchisors can turn to the more traditional questions. Financial stability and a genuine track record in franchising both matter, along with a contract that includes the protections a franchisor may need later, including indemnification, insurance, data security and clean termination rights. Required purchases and rebates can also raise FDD disclosure and compliance questions, O'Connell said, making it important to involve legal before the agreement is finalized.
A vendor may perform well for one location and still struggle when it has to support hundreds of franchisees. O'Connell said that is one reason he looks beyond the references and case studies vendors bring to the table.
"The vendors that name-drop the most can be the very ones treating your account as a resume builder," he said.
O'Connell recommends bringing someone into the evaluation who understands the service's technical side and can challenge the vendor's claims. He also recommends testing the service on a smaller scale before making a systemwide commitment.
"And a little like a Yelp review, the negative feedback is often more telling than the glowing praise," O'Connell said. "At the end of the day, a good vendor, like a good attorney, shouldn't really be noticeable."
O'Connell said an annual review can be useful, but franchisors should also pay attention to how the relationship works throughout the year. Service commitments can become harder to maintain once a vendor is supporting hundreds of units.
Other problems may not become obvious until later. O'Connell pointed to unexpected fees, changes to the agreement, turnover among the account team and reluctance to put commitments in writing. O'Connell said franchisors should also pay attention to how vendors handle franchisee complaints. A supplier that routinely sends those complaints back to the franchisor can create additional work for the corporate team.
O'Connell said he has heard people argue for a fixed annual review, but the better gauge is how the relationship works day to day.
"At a minimum, it should feel symbiotic," he said. When a system problem comes up, O'Connell said the vendor should be willing to work with the franchisor to solve it.
Franchisors can still put numbers around the relationship. O'Connell pointed to service-level compliance, franchisee satisfaction and complaint volume, price competitiveness and financial health. O'Connell said another question is whether the vendor is keeping pace with where the franchise system is headed. If the franchisor has started creating workarounds because of the vendor's limitations, that may signal the relationship needs to be reconsidered. Advisory councils and franchisee surveys can also give the franchisor a regular view of what franchisees are experiencing.
For more information on franchise supplier selection and management, check out these related articles on 1851 Franchise:
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