Why Aren’t More Franchisees on Company Boards?

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A blog post on the Nation’s Restaurant News site has raised a great question: “Franchisees spend a lot of time and energy, and their own money, investing in a brand. So why aren’t more of them on company boards?”

As NRN’s Jonathan Maze noted, franchisees’ interests are not always the same as franchisors:

“…franchisors make their money from franchisees’ top-line revenues because they take a percentage of those revenues as royalties. Franchisees prefer making a profit. And they prefer simpler operations. Those can go against what a brand might want.”

As we reported, this summer restaurant chain Famous Dave’s added California franchisee Anand Gala to its board. “As more brands move to an all-franchise model they have very little skin in the game,” Gala told NRN recently, explaining the importance of the franchisee perspective. Continue Reading

McDonald’s Ever-Changing Customization Plans

mcdonald's arches sign

In the latest of a series of customization reversals, McDonald’s launched “Taste Crafted” burgers in over 600 Southern California restaurants in December. The move comes barely two months after the company announced it would retool and rename the program “Chef Crafted” because “the original name ‘TasteCrafted’ did not resonate with consumers.”

Both Taste Crafted and Chef Crafted offer consumers a limited selection of buns, toppings and proteins to mix and match. In late September the company said it would test “Chef Crafted” in 200 stores while “a few locations” would still offer Taste Crafted.

The fate of McDonald’s more ambitious burger customization scheme, “Create Your Taste,” is unclear. It offers dozens of ingredients and hundreds of combinations of bun, meat and toppings, ordered on a kiosk screen and delivered to the table. McDonald’s has implemented Create Your Taste throughout Australia and had announced plans to introduce it in up to 2,000 U.S. stores in 2015. Many franchisees balked at the $125,000 price tag and additional operational complexity of Create Your Taste. McDonald’s backed off the goal of 2,000 Create Your Taste locations, saying that “we’re not going to set a specific number in the U.S.

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Report: Most franchisors don’t disclose franchisee expenses

Report: Most franchisors don’t disclose franchisee expenses

The vast majority of franchisors fail to reveal any franchised unit expense information in their Franchise Disclosure Documents, according to a new report by independent market research firm FranchiseGrade.com. Franchise Grade also finds that healthy franchise systems are more likely to make at least some disclosure about their system’s financial performance than unhealthy ones.

Franchise Grade reviewed financial performance representations in Item 19 of the FDD for 1,880 franchisors, broken down into 1,027 “healthy” systems and 853 “unhealthy” ones using a proprietary benchmark. The report found that 82 percent of the healthy systems and 91 percent of the unhealthy systems made no disclosure of unit expenses.

Without expense data, it is virtually impossible for a prospective franchisee to project how profitable a franchise will be and thus whether investing is worth the substantial risk. This parallels the analysis in a petition filed with the Federal Trade Commission, which found that 10 of the 14 leading systems surveyed provided no information on franchisee expenses in Item 19.

Some of the expense information franchisors do provide is inadequate for prospective franchisees. For example, McDonald’s Item 19 provides no data on rent,

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McDonald’s pushes new version of dollar menu

mcdonald's sign

McDonald’s is bringing back a version of the dollar menu, which the company abandoned in 2013 after years of franchisee complaints that it was unprofitable. McDonald’s says franchisees “voted” to approve the new McPick 2 promotion, which starts January 4 and offers any two of a selection of four menu items for $2.

McDonald’s said McPick 2 “gained a ‘high majority’ of franchisee votes, although it declined to provide details,” according to the Associated Press. “When asked whether franchisees in regions with higher costs such as New York might lose money on the offer, [company spokesperson Deborah] Wahl said the deal is designed to drive customer traffic into stores.”

But will driving traffic through a program like McPick 2 be good for franchisees? As Nation’s Restaurant News has reported, many franchisees believed that the traffic driven by the earlier incarnation of the Dollar Menu was not profitable for them and that they would have been better off without it.

McPick 2 will run for about five weeks, and local markets will be able to extend the platform.  It comes on the heels of the “Dollar Menu and More,” which McDonald’s launched at the end of 2013 and which reportedly confused consumers with its many different price points.

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