Pandemic Testing the Franchise Spirit

The country’s economy suffered considerably with the outbreak of COVID19. It has affected all segments of people, especially the entrepreneurs who were the hardest hit with the lockdown.Let’s have a look at how the pandemic has impinged the Franchisor-Franchisee relation.

Franchising has brought about a sea-change in the Indian entrepreneurial spirit with the young blood preferring to minimise the business risk by investing in a tried and tested brand. However, the most essential aspect of franchising that has attracted entrepreneurs has been the dynamic relation between the Franchisor, the hand holder and the Franchisee, the dependent being novel to the process. In layman’s language this relation is basically of interdependence, where franchisor’s supply brand, training, systems etc and franchisees return it with capital, time, effort and so on. Regarding this Pushkaraj Shenai, CEO, Lakme Lever says, “The Lakmé Advisory Council, formed with our best performing franchisee partners every year, guides the strategy and execution plan for the business.” Adding more to the dynamics of this relation is Amit Tiwari, COO, Little Elly, “We at Little Elly value our relationship with our franchisees and strongly believe that growth will happen only through this bonding. We work as partners and handhold the franchisees to ensure they are profitable and grow as quickly as possible so that their investments are recovered soon. Little Elly has progressed due to the trust of our partners and we deeply value this relationship which has been built over 15 years.”

Howeverdue to the pandemic the dynamics made by franchisors for the benefit of both the parties were unintentionally disrupted with sales and services going down to zero of the franchisees, and his inability to pay royalties to the franchisors.

There were some brands which were impacted enormously like Starbucks Coffee Chain, which closed about 400 stores in USA and around 200 outlets in Canada. Another successful F&B brand, McDonald’s also closed about 200 stores in 2020. NPC International, the largest franchisee of Pizza Hut in USA, announced that it would close up to 300 Pizza Hut locations and sell the rest Pizza Hut business. Much closer to home, Arvind Lifestyle Brands, a wholly-owned subsidiary of Arvind Fashions (AFL) decided to terminate its franchise business with Gap Inc. Due to circumstances post the Covid-19 pandemic, both companies agreed that a mutual termination was in best interest.

For franchisors and franchisees, the pandemic has brought forth few challenges like:

Payment Structure: Franchisor-Franchisee relationship is largely determined by the various aspects of the franchise agreement,the payment structure being the most significant. Mostly franchisees need to give a fixed percent of their revenue to the franchisors, known as Royalty Payment. During the pandemic, revenues being down dramatically, affected both parties simultaneously.
Disruptions in Supply Chain: It is usually the franchisor’s duty to maintain the supply chain of all products and services to the various franchise outlets. During the last two years there were many disruptions in maintaining this supply, which affected the franchisees a lot.
Responsibility towards Employees and Customers: Lately, another liability of both franchisors and franchisees is to maintain safety protocols in the outlets to keep both the employees as well as customers as safe as possible during the pandemic. This accounts to an added responsibility in their relationship as it leads to the franchisors duty to put rules and regulations at place to maintain hygiene in all places.

Franchisors Take on COVID 19 Impact

As is well known the Beauty Salon and F&B sectors were the hardest hit during the pandemic. On this Pushkaraj Shenai of Lakme Salons shares, “Few of the biggest Challenges were fear of visiting salons, safetymeasures, travelling restrictions, Royalty Moratorium, Loan assistance and continuous staff training during lockdown. We re-opened the salon with the refreshed customer journey to ensure implementation of 55+ hygiene/safety measures making Lakme salons safer than home.”

Amit Tiwari, Little Elly shares, “Covid times were one of the worst ever and we did have tough time managing it. First and foremost was to move online, however we were prepared since we had our web apps and back-end tech support to seamlessly transit to the new ways of teaching. Then came Sustainance - with admissions dipping and rentals staying constant, some of our franchisees had to let go of their property. From our part, we gave rebates, deferred their renewal fees and extended the licences. We concentrated more on the Digital Way of marketing and that paid good dividends. We are happy that we have overcome this and some of our franchisees have actually grown and opened multiple centres.”

On the other hand, there are few sectors which did not feel the pinch so much. As in words of PawanGadia, Global CEO & Director at Ferns N Petals, “I would say market and economic sentiments do not really affect our industry. This is because whatever the situation is, Indian customers continue to celebrate various occasions and festivals. They give more mileage to emotional connect, expressing gratitude and good wishes over financial woes. However, we have noticed that the ticket size per customer is reduced, but numbers of customers are on an increase. Hence, it equalizes and the impact of downturn on flower and gifting market is almost negligible.” On maintaining relations with franchisees, he adds, “In the times of covid-19, the situation was difficult overall. During the tough times, we were in constant touch with our delivery partners through zoom calls, created helpdesk in case of emergency at the partner level as well. We also re-negotiated terms with landlords, provided franchisees with a robust technical support as and when required. The period of a complete lockdown motivated us to formulate strategies for future, like product innovation, best customer services, best retail practices and getting in touch with customers through the data available with us.”

To conclude we can say that the times were tough for entrepreneurs but as it is said ‘When the going gets tough, the tough get going’!