Communication is the key to a strong restaurant franchisor/franchisee relationship

A strong franchisor/franchisee relationship is perhaps more critical than ever against a backdrop of persistent challenges, from high rent and labor to more regulations to tech needs. Establishing solid ground here requires communication, resources and support, and franchisee advisory councils.

That is, at least, according to a National Restaurant Association Show panel moderated by Lynette McKee, senior vice president of franchising at Potbelly. She was joined by Bryant Keil, CEO of the Keil Group, Gregory Nigro, co-founder of Restaurant Service of the Outer Banks, and Mark Verges, vice president of franchise development at Chicken Salad Chick. McKee said the franchisor/franchisee relationship varies from brand to brand, but understanding expectations is a critical first step. Meeting expectations is easier to do if you’re aligned with the company, Nigro adds. His company includes Dunkin’, Baskin-Robbins and Little Caesars units, and he said he chose those brands because of their culture.

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“Chris Ilitch (Little Caesars’ CEO) makes time for everyone. Second, you want to be around people who love and know that brand and who are passionate about that brand. When you find those things – clear lines of communication, clear direction, coupled with people who are fanatical about the brand, that’s a winning recipe from where I sit,” he said.

Keil’s experience as a franchisee is a bit more unique. He bought Potbelly in 1996 when it was a single antique shop in the Lincoln Park neighborhood of Chicago. He then became CEO and expanded the company to 250 locations by 2008. Last year, he returned to the brand as a franchisee.

“My experience has been extraordinary – becoming a franchisee. I’m blown away by the level of detail – a system built around every element of the business, a supportive structure. People respond very quickly. They’ve really set Potbelly to be a scalable growth business. I’m literally learning new systems every day,” he said.

On the franchisor side, Keil said having skin in the game is important and creates an environment in which the company can learn how franchisees can best hit their development targets and make money. That is why he tested company-owned locations during his tenure as CEO.

“We proved it. It makes you feel good when your franchisees are making money and that’s part of the equation,” he said.

Meanwhile, Chicken Salad Chick has grown to about 250 locations in 18 states and has had to adjust its process a bit to support such growth. Verges said a smaller/emerging chain has the capability to have more one-one-one meetings with the leadership team, but as it expands, franchisee advisory councils become more important. Such brands should have consultants within each market with multiple units.

“The key piece is communication. Relationships fail 84% of the time with bare communication. Business is a relationship,” he said.

That said, you can have the best communication process in the world, but the franchisor/franchisee relationship always comes with “honest tension,” nonetheless. Verges said the start of the process is where these tensions can best be ironed out – discovery day, orientation, join a team day. This is when franchisors tell franchisees the support process that’s in place, including franchise business consultants. Verges said a brand should have, on average, one franchise business consultant for every 20 to 25 franchisees.

“I’ve seen brands with one every 50 to 100. You really can’t have those touchpoints when you’re stretched with that amount of bandwidth. Make sure you’re living up to the promise you made when they joined the system and you’ll find the process is going to go a lot smoother,” he said.

Nigro added that this process can go south quickly, however, when franchisors make big, unplanned changes, or if what’s promised doesn’t happen, or if support disappears for some reason. Also, his company budgets out 24 months in advance, so adding more tech or marketing fees out of the blue is a hindrance.

“We want to understand things like CapEx, things like marketing. If a brand says, ‘hey you have to buy all this new equipment,’ that’s frustrating because we haven’t planned for it and it can be a lot of money,” he said.

Verges said companies can gauge how they’re doing as a franchisor through validation scores – from guests, candidates looking to join system, and existing franchisees. He said best-in-class companies yield about 80 to 95% validation.

“If you’re drifting into 50 to 60%, there are probably gaps in your system you need to work on,” he said.

The biggest frustration he hears from franchisees is site selection – knowing your brand and development schedule. The average timeline to open a location is now nine to 14 months, for example. Site selection is about four to seven months, with drive-thru locations on the latter end of that timeline. Permits also take longer than they did pre-Covid.

“Set the expectation along that process and timeline and you’ll find that things will go well,” he said.

Setting that expectation, like everything else, comes back to communication. That’s why franchisee advisory councils are important. Keil said they’re a necessary component to create dialogue about things franchisees are facing.

“It’s important to listen to franchisees. They come up with the Big Mac and some big ideas,” he said.

“And many times the franchisees are experiencing things every day and things bubble up,” Nigro added. “Try to make the tent as large as possible. You want to hear from as many franchisees as possible.”

Chicken Salad Chick has FACs as well as a marketing advisory committee because franchisees are also paying into that fund. The company has five such councils and Verges suggests picking franchisees who have been in the system at least two years, who are compliant, and who are doing well. The company then mixes it up – multiunit franchisees, single-unit franchisees, varying regional locations, etc.

“Also have a two-year tenure. Bring some new voices in. Get some new feedback coming through,” he said. “And follow up with the members of the committee. Respect the time they’ve given. Take the action you believe is actionable.

“They’re not dictating what we’re going to do but we’re giving them a voice. Sometimes it’s hard to listen to feedback that’s not always positive, but the right brands take that and move forward with improvements to their systems.”

Contact Alicia Kelso at [email protected]