Why Some Franchises Are Thriving

The COVID-19 pandemic has created unprecedented challenges for the food service industry, including the thousands of fast-food and sit-down dining franchises operating in the San Fernando Valley area. These businesses’ ability to weather the pandemic storm – or not – has in large part rested on the dynamic between franchisors and franchisees.As one Chinese proverb puts it: “A wise man adapts himself to circumstances, as water shapes itself to the vessel that contains it.” What lessons can we learn from those food-service franchises that have successfully navigated the COVID-19 era? How did these enterprises overcome fear of the unknown and resistance to change in order to speedily adopt new and necessary ways of doing business?The answer, in many cases, is communication. Franchises that have survived and even thrived during the pandemic have enjoyed a markedly cooperative relationship between franchisors and franchisees.Wise franchisors did not impose changes to business practices unilaterally. Although they provided leadership over the adaptation process, they also listened to their franchisees and involved them in the decision-making process. Wise franchisees in turn trusted, or at least listened to, their franchisors. They agreed to and implemented changes to their standard operating procedures, in part, because their franchisors made them feel like active participants in the development of those new protocols. In these models of success, cooperation triumphed over conflict, and was likely key to each party’s survival.

All franchise agreements call for the franchisor to consult with, and provide support to, their franchisees. Some franchisors do so better than others. Notwithstanding franchisors’ efforts, there will always be some franchisees who contend that their franchisors are not providing enough support.

Nevertheless, during the pandemic, we’ve seen many franchisors step up to support their franchisees in new and unique ways. Some examples include: • Counseling on ever-changing health and safety protocols.• Making changes to their menus to remove slow-selling items and keep better-selling items that were easy and fast to prepare with existing restaurant equipment.• Adjusting inventory requirements as conditions warranted.• Modifying kitchen procedures to comply with government-mandated protocols without substantially affecting service.• Taking steps to maximize indoor and outdoor seating with physical barriers and the use sidewalks, streets and parking lots as outdoor dining areas.• Assisting franchisees with preparation of PPP loan applications.• Counseling on the manner of negotiations with landlords for rent abatement, deferment and lease modifications, and with lenders for abatement, deferment and loan modifications.• Designing and redesigning remote ordering, drive-thru, take-out and no-contact delivery procedures as they became the primary or sole source of revenue for the restaurants.• Expanding the use of technology to interface with customers on mobile apps and the Internet and improve operations in the restaurants.Once the pandemic is over, we can expect many of these COVID-19-related changes to remain as standard operating procedures. Franchisors and franchisees alike should consider these procedures – and the cooperative spirit that fostered them – as an unexpected benefit of the pandemic.

But we are not out of the woods yet. Unfortunately, the pandemic continues to disrupt the food service industry, along with the Valley economy and workforce. Additional adaptations at franchised restaurants will undoubtedly be necessary if they are to survive the rocky months ahead. Franchisors must continue to grant franchisees the flexibility to adjust their operative procedures to meet the daily realities of the pandemic. At the same time, franchisors should take steps to protect the value of their brands and maintain consistency in system standards to the maximum extent possible.

The next few months may require extraordinary measures and grit on the part of franchisors and franchisees. Let’s hope that the spirit of cooperation and adaptation that flourished amid the COVID-19 crisis will outlast the virus and strengthen the food-service economy long into the future.Barry Kurtz is a certified specialist in franchise and distribution law by the California State Bar Board of Specialization and he is the chair of the Franchise and Distribution Law Practice Group at the Lewitt Hackman law firm in Encino.