Franchisors vs. Franchisees: A Kink in the Chain

The franchising industry is now increasingly under fire as investigations continue to expose the deceptive behaviour of some large franchise groups, which begs the question; how does the franchising industry move forward from here?

At the heart of the problem is a power imbalance. There appears to be a lack of necessary communication between store “owners” and head office, meaning disputes are not settled and many franchisees are left feeling exploited by their franchisor.

The issue here is that Franchisees are then left to their own devices, and often it is the workers who must pay the price. In some cases, store franchisees cannot afford to pay their workers, meaning that these employees are expected, or even forced, to work for well under the minimum wage.

But wait- there’s more; particularly when it comes to students on visas. These students employed by franchisees are often made vulnerable by being pressured to work hours well beyond the 20 hours that their visa allows, with the threat of losing their job if they don’t comply.

This kind of worker exploitation if what many are now calling ‘modern slavery’. The government is now proposing the introduction of a Modern Slavery Act (MSA) in Australia to reduce exploitation in the workplace- but this is not the only solution.  

Whilst the MSA will raise awareness of many cases buried by franchisors, awareness should start at the very core of the business model. Companies will need to revise, and if necessary, change, their financial model and communication channels within the franchise network to support affected franchisees.

The Sydney Morning Herald found that Caltex will bring all 810 of its Australian petrol stations under company control by 2020, which just goes to show how it is possible for an internal strategy review to bring about change, even if Caltex claimed that this change had nothing to do with underpayment issues. The issue here, however, is that this change will affect many of its franchisees, who will require transition support and employment in the aftermath of this shift.  

So, what does all this mean?

It must be remembered that franchisors have a responsibility to support and guide their franchisees, both on a financial and operational level. If a franchisee is not being supported by the franchise network, this is where issues will inevitably arise for workers.

It must also be remembered that franchisees need to accept responsibility before entering into a franchise agreement, and that each franchising system and associated business model is somewhat unique within the industry.

But is the model sustainable, or will we be seeing more franchisors eventually ‘doing a Caltex’ by putting an end to their franchising efforts? It will depend on each company’s specific business model and cash reserves to determine how the relationship between franchisors and franchisees will move forward in the future.

We will be revisiting this topic later to discuss in further detail how this relationship can change based on the franchisor’s business model and strategy.

Until then,

Disrupt Retail