Monday, May 2, 2011

How the Franchise Industry misused the Internet - Part 4 of 5

This is the fourth of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.
Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at




The Internet has had a significant impact on the Franchise Industry as a whole. There are many ways in which the Internet has facilitated communications within the industry, increased sales, improved customer service and even resulted in new products/services. Nevertheless, this industry has had to adapt as it has lost many of its institutions while those that remain are less effective. This has negatively affected both franchisor and franchisee in ways that are not often considered.

Individual franchisees have become more empowered. They have greater access to more information, vendors and services. Many no longer rely on their associations (institutions) for direction, services or support. There is, however, a negative aspect to these changes that is not often considered. While not entirely comprehensive, here are some of the ways in which the Franchise Industry has been negatively impacted by the growth of the Internet.

  • Franchisees are now better able to obtain information on their own through the Internet but are often incapable of distinguishing good information from bad. In the past, this was a role served by Franchisee Associations. Today, franchisees lack access to those better able to critically review and comment on a wide array of topics from proposed changes in a Franchise Agreement to new legal documents they may be required to sign, new product or service offerings that are mandated by a franchisor or a new pricing structure. More often than not, I think that the main source of comment on these types of issues now comes from the franchisor. Franchisees lack the expertise to critically evaluate the impact of proposed changes that may have been drafted by attorneys or business professionals. They also lack their own research in support or opposition to changes that are being considered. Finally, franchisees lack the financial resources to obtain representation or guidance from professionals better versed in these matters. The lack of an effective Franchisee Association results in a reduced ability to make positive recommendations to a franchisor, and to oppose changes or an approach that may not be in the best interest of franchisees.

  • Franchisees are most often small business owners who lack the skills, time and desire to analyze the impact of macro events on their local business operation. Their focus tends to be on the day to day issues surrounding the survival of their business and overall profitability. Franchisees often make a determination that supporting a Franchisee Association is of no benefit to them because there appears to be no short term return on their investment. The problem with this approach occurs in the future when franchisees find their livelihood is threatened. Perhaps the franchisee has signed an amendment to their Franchise Agreement that they did not fully understand and which may have relinquished control over pricing or product offerings. The amendment may involve higher payments to the franchisor for infrastructure (such as a new store signage, a menu board or technology support) or services newly deemed necessary by the franchisor. By the time franchisees fully understand the implications of what they have signed, the damage is done. The time to enact change is prior to signing such an agreement. At these times it is essential that the infrastructure of a Franchisee Association exist and be fully operational in order to combat these threats at the time that they are presented.

  • Ongoing research is often deemed an unnecessary expenditure. I would argue that the lack of ongoing research is exactly the reason why franchisees often complain about their franchisor. While there is often anecdotal evidence within a large franchise, solid information on any one area of the business (or of the franchise network) is often lacking. While a franchisor may undertake their own research regarding initiatives that are of interest to them, franchisees lack the information to support their own interests. Franchisees often have little knowledge of thoughts and opinions of other franchisees, their financial situation or other information that may be needed to support any particular business perspective. Yet that is exactly what is needed when confronted with an urgent business threat or opportunity. Lacking this information, franchisees have no alternative but to rely on research that may have been provided by their franchisor, and any interpretation of this information that may have been provided. There are times when this information may be incomplete or designed to improve corporate revenues at the expense of franchisees. While some argue that it is the franchisor's role to look out for their franchisees, the reality is that a franchisor has to strike a balance between the needs of multiple interest groups. Without a Franchisee Association taking on this research role, essential decision making resources are unavailable to the franchisee community when they are needed.

Both franchisee and franchisor suffer from the changes identified here. As the weaker party in the business relationship, franchisees must work together to if they desire to have an impact on the decisions made by their franchisor. And without a Franchisee Association to represent them, franchisees are normally unable to present a united front to combat business threats or to exploit business opportunities. The loss of a single voice and combined resources of an organized group, once provided through the Franchisee Association, also makes it more difficult for a franchisor to engage in dialog with franchisees. Decisions must still be made but with less effective input from franchisees. As a result, more of these decisions are likely to benefit the franchisor simply because franchisees do not see the value of supporting their own institutions.

About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.





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