Reader: Franchisee strategies often include succession plans

Editor, NRN: I read with interest your story on franchisee succession planning, “Unclear exit strategies cloud chains’ outlooks [2],” Jan. 8. It is an under-appreciated business challenge and your coverage of it was thoughtful.

Unfortunately, an aspect of it was misleading in the context of the story. First, the number of domestic KFC [3] restaurants has been declining slowly but steadily for many years—it has nothing to do with the current remodeling program at KFC. Second, the KFC restaurants that will close in 2008—the number is anyone’s guess; the “200 to 300” you mention is only Yum’s guesstimate—will be smaller units in small or declining trade areas where the unit economics of the KFC business don’t support significant and arbitrary new investment. It has nothing to do with older owners. Indeed, some of the units that will close are owned by some of the largest multiunit KFC franchisees with solid succession strategies well in place, and many KFC company-owned units will also close on the same basis. Third, KFC franchisees are the beneficiaries of a collectively negotiated standard franchise agreement that recognizes that franchisees have successive renewal rights indefinitely into the future. Thus, today, many KFC franchises are owned by second-generation owners; a few are even owned by third-generation owners. These are truly family-owned businesses, and succession planning is a natural and common element of their strategic planning.

The same situation exists for many Pizza Hut [4] and Subway [5] franchisees.

Andrew Selden Briggs and Morgan, P.A. Minneapolis