Franchisee tension at an all-time high

Nick Hall

Franchisee tension is at record levels, according to data from Australian research and education company, the Franchise Relationships Institute (FRI).

The intelligence was collated through confidential franchisee satisfaction surveys and revealed a growing dissatisfaction relating to franchisor sentiment.

Greg Nathan, psychologist and FRI founder said the average percentage of franchisees reporting a mild or severe conflict had increased significantly over the past three years.

The FRI has been collecting data on franchise relationship health since 2004. In his submission to the parliamentary inquiry, Nathan suggested the model’s foundations presented challenges in themselves.

“The interdependent nature of the franchise relationship, where franchisees are locked into a franchise contract which requires them to pay ongoing fees to their franchisor, will always set up a psychological climate for some tension and conflict,” he said.

While the franchise expert believes some conflict is inevitable, recent sector conditions have greatly impacted franchisee attitudes. Here, Nathan revealed the three key factors influencing franchisee tension in Australia.

1. Public perception

A dwindling public perception of franchising as a whole has significantly affected franchisee sentiment.

Nathan said repeated criticism of the franchising model by segments of the media and politicians had undermined sector confidence.

“Public discussion of bad behaviour by a few franchisors, has created doubt in the minds of many franchisees about the motives and behaviour of their own franchisor, when previously this was not on their radar” he said.

While franchisors could blame the parliamentary inquiry for the slate of bad press, Nathan revealed economic factors had also contributed.

2. Economic conditions

A downturn in home-ownership, coupled with a declining physical spend is continuing to put pressure on small business owners.

Nathan said economic factors had reduced unit profitability in some cases, causing an escalation in franchisee tension.

“Most franchisees will tell you, despite working longer and harder, they are facing declining profits” he says.

Franchisees demand greater support in bringing customers through the door, which as consumer tastes change, is an increasingly difficult task.

3. Change

Evolving consumer demand has seen a shift in the way a number of industries operate. As customers embrace e-commerce and online ordering, traditional bricks and mortar businesses are likely to be impacted.

A major source of franchisee tension is change. Nathan said franchisors must revisit and reengineer their models to stay relevant in the face of changing consumer buying patterns.

“Change comes with uncertainty, financial cost, and personal stress, which inevitably translates into greater tension in the franchise relationship.”

Overcoming franchisee tension

While the data suggests tensions are rising, it presents an opportunity for franchisors to demonstrate a renewed focus on support.

Nathan said more ‘two-way’ communication and greater transparency was needed for franchisors to manage pressures and reduce franchisee doubt.

“Franchisees respond well to being treated as a strategic partner in the business, where their financial and emotional investment in the brand is acknowledged, and their experience at the frontline is respected” he says.

“Franchisors also need to invest in the ongoing education of their support teams, so they understand the pressure franchisees are under, and can provide relevant, empathetic support.”

In response, the Franchise Relationships Institute is conducting a series of Culture of Franchising workshops. The workshops show franchisor staff how to best communicate with and support franchisees in the current climate.