The Hustle

The pandemic is straining the franchisee-corporate relationship

With margins down during the pandemic, franchisees are fighting back against onerous corporate costs.


December 3, 2020

Franchises are an American staple.

Born out of a network of sellers that peddled the Singer sewing machine in the late 1800s, the modern-day franchise model became popular after World War II.

However, according to the Wall Street Journal, the (relatively) happy marriage between franchisees and corporates has frayed during the pandemic.

Wait, how do franchises work?

Small businesses and their corporate parents have traditionally run on the ol’ “you pat my back, I’ll pat yours” mantra.

And it’s worked.

As of 2019, there were 774k franchise establishments employing over 8.4M people in the US, with 55% of hotels (e.g., Econolodge) and 84% of chain restaurants (e.g., McDonald’s) using the model per WSJ.

Here’s the swap:

The pandemic has strained margins…

…and the royalty fees are a huge drain on a franchise’s monthly revenues.

For context, this is what a McDonald’s franchisee has to swallow:

Corporate is also adding more costs for franchisees in the form of big cleaning bills and hefty promotional discounts.

It’s not all doom and gloom

Some brands (e.g., Dunkin’, Subway) are deferring royalty payments.

Others have capitalized on the lockdown, using a tech overhaul and unexpected demand to drive business.

“I get that franchising isn’t a democracy,” says one Subway franchisee who fought back against an unprofitable 2-Subs-for-$10 promotion. “But at the same time, it’s not a dictatorship.”

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