System Changes are Hard but are McDonald’s Franchisees ‘lovin’ it’?
Change can be hard under ordinary circumstances, but the execution of change across a franchise system presents its unique share of challenges and friction. For a brand to stay fresh, vibrant and competitive, a healthy amount of modification to the system is necessary. This could include renovations, refurbishments, new equipment and inventory to support new products and services and rebranding to reflect new logos and design and décor elements.
One of the largest appeals of the franchise business model is the investment in the judgment, knowledge, experience, supply chains, supplier relationships and purchasing power that comes part and parcel with a known and established brand, compared against the daunting task of starting a new brand and business concept from scratch. Necessarily inherent in that appeal, then, is a franchisee’s tacit acceptance of following the guidelines, requirements and system standards that a franchisor puts in place in order to maintain the strength of that brand and competitiveness in the marketplace.
Franchise agreements are drafted to reflect the right of franchisors to make these types of system modifications and the franchisees’ obligations to abide by them, including making the required investment to see them through.
Notwithstanding this fundamental element of the franchise business format and the contractual requirements to comply with it, in practice many franchisees will resist this change for any number of reasons – sometimes franchisees feel that the franchisor is trying to unilaterally amend the business terms of the franchise agreement in the guise of system changes, other times franchisees disagree that the changes are even a good idea but, above all, these changes cost money and franchisees do not always want, or are even able, to spend that money and on the franchisor’s timelines.
Bearing all of that in mind, it was big news for the franchise industry when McDonald’s recently announced that it would promise to pay up to 55% of the amounts required for its US franchisees to put some major new upgrades in place in its restaurants. Referred to as the “Experience of the Future” project, the plan would require every McDonald’s restaurant to install new self-ordering kiosks and table-locating technology for foodservice delivery. Those are big changes and, as a recent customer and user of the self-ordering kiosk, it must be said, unassailably cool ones too.
But the fact that these upgrades, renovations and additions are projected to cost between $150,000 - $700,000 USD per restaurant, this funding commitment from McDonald’s is a big deal. Some industry analysts have speculated that McDonald’s is making the investment in a bid to make sure that the changes are executed so as to improve on its customer retention. Others have speculated that the move was made to mitigate against any potential franchisee resistance which would slow the project down.
In any case, a commitment of this type and size is largely unprecedented in the franchise industry. It is far too premature to speculate whether this type of initiative could create a precedent within franchising, and of course not every franchise can claim to be the size and have the resources of McDonald’s, but it will be interesting to watch whether franchisees of other brands start to collectively demand that future changes be partially funded by franchisors.
Admittedly, while a terrific expression of support to franchisees, I am a bit loathe to conclude that this wold be a good development for the franchise industry. Investing in a franchisor’s judgment to make decisions to continually improve the brand and its distribution of goods and services to consumers does make up such a large part of the appeal of this business model. Conditioning the exercise of that judgment on funding assistance may not have the industry ‘lovin’ it’.
Chad Finkelstein is a franchise lawyer and registered trademark agent at Dale & Lessmann LLP (www.dalelessmann.com) in Toronto.