The research shows the involvement of third parties (such as franchise brokers) in the recruitment of franchisees appears likely to generate unrealistic expectations on the part of franchisees and should be carefully managed by franchisors.

After working as a representative for a large supplier to many foodservice and FMCG franchise systems, I think that the role of the suppliers could be further investigated.  My employer has a focus on “getting what we pay for” and I am sure that by policing compliance to trading terms, the supplier can often act in a way that might appear to the franchisee as an extension of the franchisor.  In the area of compliance, at least they have similar goals.

Franchisors often negotiate supply agreements on behalf of their franchisees and some, but not all systems get paid a rebate based on group sales.  This creates a scenario where the franchisor becomes interested in ensuring that they maximise their revenue from supplier rebates, perhaps at the expense of the overall system or even the needs and wants of the franchisees.  Remember also that most franchisors in this sector also charge royalties based on sales.

I remember dealing with one outlet that was actively resisting a change in the system’s preferred supplier from the market leading supplier to the second placed one.  The franchisee’s opinion was that while the new arrangement was significantly cheaper from a cost perspective, the decrease in sales volume wouldn’t cover the difference in their earnings.  The franchisor actively discouraged them from them sourcing products from the previous supplier, and while it was never explicitly said, it was implied that the franchisor was endeavouring to maximise their supplier rebates.

Both the franchisee and the franchisor were being quite reasonable in their desire to improve their individual profits, but I do wonder if the supplier’s rebates made up for the decrease in royalties from sales?  Was the extra money worth the conflict?

It rasies the question also of what the role of the franchisor is.  Are they there to maximise their profits directly, like in the case of the supplier rebates? Are they there to increase their profits indirectly by building value in the system and generating additional sales for the franchisees?