During this time, there are any number of points of significance for franchisees and franchisors alike to consider. Therefore, here we present 8 Survival Guide for Franchisors amidst COVID-19.
During this time, there are any number of points of significance for franchisees and franchisors alike to consider. Amidst the ongoing crisis, development teams across franchising are scratching their heads and thinking, ‘What now?’ And, more importantly, ‘What do we do?’
Therefore, here we present 8 Survival Guide for Franchisors amidst COVID-19:
Franchisors should communicate on a daily basis to their network. This is the most important thing to do in times like this and do it efficiently.
Franchisors should consider ideas from franchisees that might help the entire franchise system. Through franchisees, they can know what their revival plan is, and how you can create a collective plan from your network and then help them implement it.
Work with franchise advisory council or franchisee association to facilitate communications with franchisees.
Points to consider on how do you do RTR to fix each franchisee…
1. Establish a COVID Task Force – Identify principal classes of threats as the market opens up post-COVID-19.
2. Review the franchise’s supply chain & other 3rd party contracts – Exposure to supply chain and Impact of Force Majeure Clause with other third party agreements.
3. Look after your franchisees – Review contacts and set up a contingency plan. Also, choose between receiving royalties and retaining franchisee.
4. Ensure that franchisees look after their employees – Play a leadership role in maintaining communication with the channel.
5. Ensure that franchisees take steps to ensure that they have sufficient liquidity – Identify appropriate models, benchmarking KPIs, and likely trigger pints.
6. Protect the franchisees’ customer base – Focus on hygiene and develop omnichannel presence through a tie-up with existing players in other channels.
Franchisors' focus should be on getting immediate cash-in once the lockdown opens up. They have to think about what kind of promotions they want to run and what kind of offers they want to give. Despite a market shrink that is about to come, there will be a buyer for everything.
Cash Flows can be approved by 3 approaches:
1. Negotiate with creditors to get favorable payment cycles.
2. Work with debtors to ensure faster collection.
3. Build Volume – Offers and promotions to attract customers, tap into new segments, first-time users.
You have to look if you can collaborate within your network. At this stage, collaboration is very important, either within your network or with your competitors.
Franchisors hold the power to innovate and adapt practices to respond to market conditions. They hold the power to adopt and execute these system changes to help the franchise system pivot in a direction that will allow the business to remain relevant, competitive, and affordable.
All have to understand that neither party can accomplish this alone, each party is dependent on the other.
Fresh talent will come in the coming months in the organization so you have to think that how you can make this talent multi-tasking. Also, the training of a franchisee will be extremely important. You can invest this time to drive manuals of your organizations, define every process in your system, and train on the basis of that.
Franchisors must create benchmark criteria around 5-7 critical aspects from a franchisee like education, experience, exposure, financial bandwidth, operational skillset, marketing understanding, etc. Franchisors must also consider whether the business needs an operator or an investor franchisee.
Franchisors must focus on a detailed training module that can be split into 2 phases, which include the franchisor office and franchisee site.
In order to drive efficiencies in your network, follow these steps:
1. Review and adjust distribution strategy to focus more online.
2. Adjust the supply chain and distribution strategy.
3. Hold new initiatives planned for the 2020 review.
4. Reduce spends on media and research.
5. Cut on discretionary brands like entertainment, travel, training, etc.
6. Reprioritize production capacity to most needed product categories.
7. Adjust innovation strategy.
8. Postpone recruitment and organizational restructuring.
PLAN – Ensuring sufficient liquidity for franchisees.
DO – Engage with banks and other lenders, protect and prioritize key suppliers, stock-in-trade and receivables, careful on overpaying duties and taxes on purchases, leverage any financial support by governments.
CHECK – Prepare short-term cash flow forecasts and reviews regularly. Also, hold regular meetings on the financial position of the business.
ACT – Improvise and make subtle changes in the approach to achieve perfection.
High royalty severely acts as a deterrent to the profits for the franchisee during COVID-19 pandemic and consequent sales decline.
Franchisors should be aware of the risk that a number of their franchisees work together to justify a mass walk-out on the basis of force majeure. Brand owners may forego or defer receiving royalty payments.
Some franchisees may look to invoke the force majeure clause in its franchise agreements. They could offer flexibility on payment terms as it is rarely in their interest to force franchisees into bankruptcy.