Franchisees and Franchisors go to war over discounting, advertising.
Marketing strategy and use of advertising funds has always been an area of heated debate between franchisors and franchisees, especially in the foodservice segment of franchising. The recession, declining sales and a trend toward deep price discounting and product giveaways has heated the debate past the boiling point for many franchise organizations. Some franchisees are banding together and publicly voicing their discontent, while others filing lawsuits against their own franchisors to protect their interests.
The structure of the franchisor-franchisee relationship makes conflict nearly inevitable. Franchisors generally receive their income in the form of royalties paid as a percentage of their franchisee’s gross sales… regardless of whether those sales are generating a profit for the franchisee or not. Franchisors can make money on a promotion that drives top-line sales even if the franchisee is losing money on every sale. Additionally, franchisors that are publicly traded are under constant pressure to increase their revenue, not the franchisee’s profitability.
Franchisees, whose advertising contributions fuel much of the systems advertising, are constantly questioning the franchisor’s motives. Lately, many have joined with their fellow franchisees to make their displeasure heard and to put pressure on their franchisor by any means possible.