Learning from this franchise failure

This national news story shone a light onto how and where things can go wrong in your franchise business investment.

A story on News.com.au detailed the unfortunate failure of two Baskin-Robbins franchises in QLD. From the details covered in the story from both the franchise owners, and Baskin-Robbins, it appears that multiple factors were in play.

For the purposes of understanding the issues that can emerge in buying and operating franchise, we focused in on three (3) core issues as we saw them around this franchise failure to emerge as told from the story.

Stores run under-management

The stores were run under management by the franchise owners. This means that the franchise owners were not full-time in their businesses, and had staff (and I assume), managers running each business. This is a 'normal' thing broadly, and really is the dream of just about any business owner.

The Baskin-Robbins system allows for stores run under management. However, in an 'under-management' business, problems of under performing sales are magnified when the owner is not actually operating the business daily. How can you truly address things if you are not there? 

It's not to say running a business under management is bad, and even if you are there, can you fix it? But, it's just made more challenging if sales are not where they need to be.

Promises of certain sales levels in the business

This is an age-old issue in franchising. People buy into franchise systems and are confused in believing that sales projections based on historical performance at other locations are promises for what their specific location will make. 

In this case, the franchise owners allege that they were promised sales performances that the businesses did not achieve which they franchisor refutes. I can't speak for Baskin or anyone in this case - only what is quoted in the story.

In my experience, it is not common at all for franchises to promise anything. And if someone is literally promising sales numbers, do the following as a basis;

  1. Get it in writing,
  2. Get independent 3rd party financial advice on the numbers (you always should anyway),
  3. Be comfortable yourself with any numbers.

The beauty of a franchise is it has historical performance indicators from 'like' businesses in 'like' locations (if the network is of a decent size). With those historical indications, it assists in forecasting or projecting sales figures. 

BUT, don't confuse these with PROMISES of sales.

Unless they are confident to back it up and put their money where their mouth is - nobody should be promising anything.

2Mins 7 Sec Baskin Robbins Story

Changes to the franchise system impacted on the locations

The franchise owners in this instance claim that changes made to the system played a key role in them being unable to make the business' profitable. Baskin refutes this claim saying essentially that the changes have been for the betterment of the system and have been for the benefit of their franchise partners. 

Regardless of this particular instance, it is certain that in a franchise system, you will have change during your tenure. You should expect and demand change, as if your franchise doesn't change at all over a 5 year licence period for example, then you'll likely have fallen well-behind the rapid modern marketplace.

You need your franchisor to be pushing the envelope while balancing all stake-holder needs. Not an easy thing to do.

In my view, one of the most important attributes of a good franchise network is one with open and productive feedback structures for franchise partner input into change in their system. These are commonly called;

  • Franchise Advisory Councils,
  • Franchise Councils,
  • Merchandising Councils, and so on.

This would be a key feature I'd be looking for in any franchise to be part of.

To understand more of the details, you can read the original story HERE