Franchisor Success or Failure Depends On The Development Path Chosen

Franchise or company owned locations: a critical path to follow

Could you please indicate whether you have a point of view on what drives some franchisors to start new company-owned stores, as well as franchised locations? If only one of the two makes more financial sense in the franchising world (as far as return on investment, net present value, etc.), why don’t they go with that choice only?

Franchise goals dictate franchise or company owned locations and choices

This is a good question that gets beneath the surface of several critical franchising issues. Here’s our take:  The sword can cut both ways, but it is a function of the swordsman’s skills, and intent.

Franchise or company owned locations can be driven by a number of factors. Example: company owned units may allow for testing of new products, services, etc. that might be unfair to foist onto franchisees initially. These units can be a “proving ground” for ideas thought worthy by the franchisor, but not yet ready for network distribution, or not yet accepted by franchisees. If this is really the case, then hail to the franchisor that would lay out its money instead of using franchisees as guinea pigs.  Unfortunately, we can’t assume that’s always the norm. And those instances in which a franchisor does not test market first, good relationships are put at risk and that is not a good road to travel. But there is a sharper blade to be concerned with and that is the razor of perception and competition.

Franchising and quality relationships

Quality franchise relationships are mostly a function of trust and performance.  Let’s assume that you are my franchisor and I am your franchisee.  I would expect you to be in the business of franchising, not in the business of competing with me, and that is the way your actions would be viewed.  If you are opening company-owned locations, it is highly unlikely that you would be placing those units in undesirable areas. You are opening in the best areas that you can find.  So, what does that tell me, and the rest of the franchisees in your system?  It tells us that you will drive both ways on a one-way street.

On the other hand, when a franchisor is deciding between franchise or company owned locations, the goal may well be getting to a good territory before the competition gets there and there is no franchisee willing to take that spot.

We are of the opinion that franchisors should take care of franchisees as a top priority to achieve a return on increased franchise sales and royalties. If the franchisor straddles both franchising and chain operations, it may have an identity crisis.

But, like most things in life, there are circumstances that demand certain actions and franchising is nothing if not dynamic and changeable.