Franchise Inquiry – Fairness in franchising: how the digital space can lead the way

16 Mar 2019 - 7 minutes read

As the fallout from the franchising inquiry snowballs, at Salt & Fuessel we’ve been thinking about the bigger picture consequences. As the full scale of the malpractice and poor governance is slowly and painfully uncovered, we’ve been thinking about how operators in the digital space can best react and adapt to the big changes afoot.

There are wider questions. On a macro-level, what policy and procedural changes must be prioritised by the Government to surefoot the transition to a fair, balanced franchisor-franchisee relationship? On a micro-level, what – if any – recourse to law do individual franchisees and employees have?

But perhaps the most important question is one that can be asked in any legal/political/business/moral crisis. What practical steps can we take to rapidly improve the situation? Steps with tangible and concrete benefits both to franchisors and franchisees, and both short and long-term. Sustainable and productive steps as a catalysts for change from the digital space.

For a start, here are a few of our ideas on how operators in the digital space can push a positive impact and help transform the regressive franchisor-franchisee relationship:

  • Franchisors must massively increase transparency to franchisee

What do we mean by this? For a start, potential franchisees need to be fully aware of the business reality they are stepping into when they buy in. Many franchisees have said on record they would not have purchased had they known the reality of the business they were buying into. So what are their real costs and cost of sales going to be? What are the turnover rates? Will they have to engage in wage fraud just to keep their heads above the water? Can they talk to or meet with current franchisees to get an insight into the real situation on the ground?

  • Clear and transparent reporting in terms of marketing spend and initiatives is vital

Dominos franchisees were reported in the SMH as having to pay 6 percent of their sales to an “advertising fund” on top of an “additional local store marketing fee”. The former alone would come in at just shy of $5,000 a month for an average store. For that investment the absolute minimum they should be able to expect is regular and accurate monthly reporting on the impact of their marketing dollar. This would in turn put pressure on the franchisor to make sure every marketing dollar was wisely spent in what is an ultra-competitive market for digital and media sales.

  • Provide clear results to franchisees on performance for digital assets and marketing initiatives

Dovetailing with number 2 is the essential need to provide clear results to franchisees on performance of their digital assets and marketing initiatives. There are some fantastic tools to manage this and they must be exploited. One such example would be the results of an EDM or SEM campaign.  How can these be done on an individual customised franchise by franchise basis? Are they getting geographically targeted SEO campaigns and demographically targeted social media campaigns? Franchisees need the option to engage the absolute cutting edge of digital marketing campaigns.

The digital arena can lead the transformation to help those at the bottom

We think it’s fair to say implementing these three steps could be a solid start in redressing the power imbalance in some franchisor-franchisee relationships. They could help in some ways towards dragging a dated, sometimes loaded relationship into 2019. And there’s no doubt about it: the benefits of a fairer and more balanced relationship would trickle down to those who have often suffered the most in many of these cases – the employees at the bottom.

Countless stories have emerged and continue to emerge in which franchisees have been resorting to wage fraud, worker exploitation and even threats of deportation. Frequently on an industrial scale. Of course greed was a factor, and their behaviour should not be justified or excused, but all too often it was simply what they had to do to survive under the heavy demands as a franchisee. Some franchisees lost their homes, some lost their marriages, some lost their life savings.

The franchising inquiry is one that has captured the nation’s attention in a maybe unexpected way.  Franchisors will be waking up to how the situation looks: in the worst examples like another brick in the wall of the big guy exploiting the little guy. And the little guy in turn exploiting their workers. No doubt many ethical, even-handed franchisors will worry about being tarred with the same brush as the likes of Dominos and 7-11.

It’s an ugly underbelly of our country many of us would never have come into contact with, but we can no longer ignore it now. So, as the Government thinks about the best measures it can take to tackle a situation with parallels to the banking  misconduct crisis, the digital space should step up and take the lead as a catalyst for full transparency. The spotlight is going to be shining on franchisors and franchisees nationwide over the coming years, and the digital space should be pushing the transformation to full transparency in operations.

If you’re a franchisor looking to optimise and would love to have the tools to be transparent about your marketing expenditure and results with your franchisees – call us for a chat on how we can do this together.