Franchising & You

by Simon Lord

last updated 24/06/2020

Simon Lord is Editor of Franchise New Zealand and has worked in franchising for over 35 years. Our thanks to everyone who contributed to the Helping Franchisees series online.

When Support Really Matters

by Simon Lord

last updated 24/06/2020

Simon Lord is Editor of Franchise New Zealand and has worked in franchising for over 35 years. Our thanks to everyone who contributed to the Helping Franchisees series online.

How does being part of a franchise help when the unthinkable happens and the whole country goes into lockdown? 

When Support Really Matters

Nobody had planned for this. On 28 February, a man many of us had never heard of, Dr Ashley Bloomfield, announced that New Zealand had its first confirmed case of Covid-19. By 21 March, we had 52 known cases and the Prime Minister announced a 4-level alert system. According to this, we were already on Level 2. 

Just two days later, we had 102 cases and moved to Level 3, with just 48 hours’ notice that, from 26 March, the whole country was on Level 4 lockdown for at least four weeks. Only essential businesses would be allowed to open, and it soon became clear that the definition of ‘essential’ was tighter than many people expected. On 25 March many business owners went into work for the last time, not knowing when or if they would ever open again.

So what did franchisors do to help franchisees over this time? To find out, we talked to a range of franchisors from different sectors, as well as a franchise banker and accountant. Here are some of the highlights from our Helping Franchisees series – read all ten case studies in detail here.

Did any franchises remain trading during lockdown?

While the definition of ‘essential’ was very tight, a number of franchises were able to trade during lockdown to a limited extent. Supermarkets – Pak’nSave, New World and Four Square – were the obvious exception, along with their suppliers such as Anchor, whose franchised distribution network was kept busy. 

A few work-from-home franchises such as Pukeko Rental Managers reported that it was pretty much ‘business as usual’ during lockdown, although they found themselves adopting new systems to enable property inspections to be carried out remotely. Commercial cleaning franchises continued to operate for essential businesses such as medical centres; franchises providing building security and safety services could also operate, while courier and freight services could deliver essential goods. Of course, business in all these sectors was still down considerably, with some franchisees doing perhaps 10 percent of their usual trade until the levels eased –­ at which point, they found themselves in huge demand. 

In other sectors, such as hospitality, there was no trade possible at all during Level 4. Franchisors scrambled to work out how best they could help franchisees.

Staying alive

Everybody’s first concern was money: wages, rents, supplies, fees, debts and all the other financial aspects of owning your own business.

The Wage Subsidy Scheme was set up to alleviate some of these worries for staff and employers, and franchisors were quick to help franchisees apply for it. ‘The initial reaction of some franchisees was that they expected it would be so hard to apply for the subsidy that they just wouldn’t do it,’ recalls Brad Jacobs of The Coffee Club. ‘We gave them a huge amount of advice and support on how to apply and how to pass on the funds to team members, etc. When they understood the process was actually very straightforward and not onerous at all, they were quick to complete the application.’ Brad was also impressed by how fast the payments were made, which helped reduce a lot of stress.

Rents

Rents were a different matter. The reluctance of the government to introduce a code of conduct regarding tenant/landlord negotiations made for a very difficult environment. In some cases, where franchisors themselves held the head leases, they were able to take on the battle themselves while suspending and reducing rents for franchisees. In other cases, they stepped in to help franchisees negotiate. Landlord responses ranged from excellent to tough to totally unreasonable – in some cases, they even sought to implement scheduled rent increases on 1 April, when tenants were unable to enter their premises, let alone trade. Landlords had their challenges too, of course, but it’s an area where many franchisees will be grateful for their franchisor’s support.

Suppliers

Suppliers are a key part of any business, but the fact that franchises tend to have a few key suppliers means that franchisees benefit not just from more buying power but also more support when things go wrong. ‘We worked with major suppliers on payment terms and plans,’ says Brad. ‘We also emailed every possible supplier we could think of with recurring charges/subscriptions (POS, apps, payroll, music, printers/copiers, leased vehicles, financed equipment, etc) for both ourselves and our franchisees and asked suppliers to assist by pausing/waiving payments. The response was generally very supportive.’

And that assistance extends to insurance claims, where applicable, too. In April, Vanessa Henry of Just Kidz reported, ‘We are assisting the Centres with their Business Interruption insurance claims, as well as helping them with wage subsidy requirements. Although our Centres are purpose-built they are not owned by the franchisees, so we are also supporting them with lease contracts and rent abatement negotiations with landlords. We understand the operation intimately so can also provide advice on stopping various service providers who are not required during the lockdown.’

Fees

Franchise fees were an obvious source of concern. Franchise fees don’t just represent profit for a franchisor; they also fund all the support services and staff who, during lockdown, were often busier than ever helping franchisees and planning for re-opening. 

Where fees are charged as a percentage of turnover, as in many systems, the equation was simple: ‘Five percent of nothing is nothing,’ as Brad put it succinctly. In other cases, fees are collected as a mark-up on product supplied – same result, although franchises such as Anchor, who were trading in a restricted fashion, provided pricing support to franchisees and promotional stock for resellers. 

But in sectors where a flat fee is the norm, it became more difficult. ‘When the lockdown was announced, we immediately suspended 100% of franchise fees to franchisees for April,’ reported Estelle Logan of V.I.P. Home Services. ‘That meant we took a big hit ourselves, but we wanted our franchisees to say, “Boy, we’re glad we’re with V.I.P.” It’s a matter of trust – we were all in this together.’ 

Many other fixed-fee franchises took the same approach, although situations differed. Other fees, such as those for IT services or marketing, were also often suspended, although in some cases marketing continued where franchises saw a need to maintain customer loyalty or the opportunity to build brand awareness ahead of re-opening.

Paying the bills

When it came to funding, banks – encouraged by government – were quick to offer a variety of solutions such as mortgage holidays, interest-only options on business loans and access to guaranteed business finance schemes. There were so many options that it was easy to get confused. 

‘This was an area where franchisors could be instrumental, as they understand their model and the cashflow requirements well and can share information with franchisees,’ says Daniel Cloete of Westpac. ‘It’s where being part of a franchise can really pay off for small business owners – they have the same issues. Westpac’s franchise managers were invited to talk on a lot of conference calls together with accountants, giving the facts, pointing out what was available and the implications of each option. There was also a lot of systemisation going on within franchises to help, say, make loans faster and easier to arrange.

‘It’s worth noting that franchise systems where there was already a culture of freely sharing financial information were in a better position to help. Online accounting with common charts of accounts is also a positive.’

Philip Morrison of Franchise Accountants was another advisor brought in by several franchises to help their franchisees understand the options available and their longer-term implications. ‘It was important to remind people, for example, that the Government-backed Loan Guarantee Scheme meant that the loan was guaranteed to the bank – it didn’t mean that you would be ok if your business was unable to pay it back,’ he says. ‘And we also spent a lot of time helping people to think about cashflow and doing things like smoothing tax payments to match. That’s where people could usefully spend their time planning.’

Tony Burnette of Exceed agrees. ‘As soon as we went into lockdown, I made various Zoom calls and made it a priority for all franchise owners to do a cash projection for 12 months, based on 4 months of no income. I needed to ensure they had enough to support themselves during this unprecedented time. I then worked with owners one-to-one to work through their personal circumstances.’

Keep talking

There’s an old saying that ‘franchising is being in business for yourself, not by yourself,’ and at a time when many individual business owners became scared, isolated or confused, regular contact between franchisors and franchisees made a big difference. 

Franchisors used a variety of online platforms to host regular video group and one-to-one meetings with franchisees on a regional or national basis, and with support team members working from home, too. Many have said that they found it an efficient way to share ideas and information, and that the enforced used of Zoom or Teams by everyone during lockdown had sped up the adoption of various new technologies. Some training has also moved to Zoom. While group meetings and one-to-one site visits are still important, online sessions enable more regular interaction, greater participation and can actually strengthen the culture of the franchise.

Part of strengthening that culture comes from the leadership provided by the franchise teams. During the regular PAFAT franchisor sessions run by the Franchise Association, several franchisors talked of the need to ‘control the narrative’ – to ensure that, despite the many alarmist news stories and social media nonsense, franchisees were able to rely upon a single source of factual information from the franchisor.

BurgerFuel created a Crisis Control Centre team which met every morning even prior to lockdown to filter fact from speculation, then created central communications for its brands to use internally and externally. In addition to the business side, some franchisors also addressed wellbeing and mental health of franchisees, recognising the dangers of isolation and stress.

‘We set up a register of our franchisees and who is in their bubble,’ said Estelle Logan. ‘This helps us to support not only the franchisee themselves but also their family and sometimes extended family. We also set up a “help me" line so franchisees who feel stressed, anxious, overwhelmed can just hit the Help Me Please button and we will help them or get them the help that’s needed.’

 V.I.P. also published a twice-weekly newsletter that included not just news and advice, but lists of jobs they could be doing right now – for example, equipment maintenance, scheduling and prospecting ­– and even activity kits and puzzles for the kids.

Thinking ahead

The ‘time off’ enforced by lockdown offered the opportunity for franchisees who are busy working ‘in’ their business to start to work ‘on’ their businesses, and this was encouraged by franchisors. Many offered one-to-one and group planning sessions, as well as refresher courses, training and upskilling sessions that would enable franchisees to offer new products or a wider range of services when they re-opened. Franchisee staff were also encouraged to complete training modules and learn new skills and procedures, which not only helped them stay busy but also kept them engaged.

Pukeko Rental Managers invited clients to be involved in Zoom focus groups that would help franchisees meet their needs even better in the future, while InXpress launched a guest speaker programme to help franchisees get closer to customers. Exceed’s message to its franchisees was, ‘Use this time to look hard at your business, leave no stone unturned and reset yourself as a franchise owner. This is the perfect opportunity to work on your personal development, your business objectives and your work/life balance.’

But what everyone was working on most was getting back to work when lockdown lifted, and that took a lot of planning. No-one knew what restrictions would be in place or what measures would be required, so a lot of the initial focus went on obtaining stocks of PPE, signage and social distancing equipment. 

BurgerFuel Group started working on this even before lockdown, first working out shut-down procedures then creating a booklet which detailed the rather more complex process of opening up again. This included new procedures for, eg. contactless pick-up and checklists for specific days prior to re-opening and on opening day itself, which were supported by specific Covid-19 e-learning training modules for all store staff. It was unfortunate, then, that BurgerFuel was singled out for comment when one crowd of over-eager customers on the first day failed to follow the clearly-marked distancing measures at one store, but procedures were quickly amended and security staff employed to keep everyone safe. People clearly missed their burgers!

Summary

The challenges posed by the pandemic and the measures taken to combat it have certainly not gone away. In some sectors, the bounce-back is already well under way, while other sectors will take a long time to recover fully. Along the way, there will be plenty of changes required.

The positive to come out of this is that many franchises have proved themselves to be well-led, responsive to change, quick to grasp opportunities and genuinely concerned about their franchisees, their businesses and their wider families. It was not a good time to be a business owner – but it was a lot better to be part of a caring franchise than being all by yourself as an independent.

If you are one of the many looking for a business opportunity right now, and you’ve found something that appeals, it’s worth asking what they did to support their franchisees during the Great Lockdown. Business isn’t always easy, so it’s good to know you have support you can depend upon.

Simon Lord is Editor of Franchise New Zealand and has worked in franchising for over 35 years. Our thanks to everyone who contributed to the Helping Franchisees series online.

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