Gareth Parry
Franchise Consultant
Q How much should I invest, above and beyond my advertising fees, in order to promote my business locally?
Gareth says:
The advertising fund alone does not cover all the bases, so local store marketing is essential to the initial and long-term success of a franchise location. Reasonable franchisors recommend spending at least another four to seven per cent of gross sales on local promotional activities. In fact, most franchisors insist that franchisees spend marketing dollars locally as an obligation of their franchise agreement. Some smaller franchisors with fewer franchisees may substitute their own co-operative fund, with the insistence franchisees spend it locally, where it has the most direct effect. Franchisees in virtually all of the most successful franchise systems understand the importance of local marketing activity, whether traditional or non-traditional, and the importance of having a sustained local marketing program.
By Darrell Jarvis
Most brands need to continually improve and adapt to changes in the market in order to remain relevant and competitive. One would hope that changes initiated by the franchisor would be well thought out, well researched and adequately tested prior to roll-out to the field; this is not always the case. In some cases, franchisees may view the franchisor as being more concerned with driving sales (from which it earns its royalties) than with the franchisees’ bottom line.
Often, the cost of change will fall largely on the franchisees’ shoulders. Conflicts can arise when franchisees are required to invest in new equipment or processes to support the introduction of a new product or other change. While the franchisor will benefit from increased sales, franchisees only benefit if the change increases profitability. Depending on the timing of such changes, as a franchisee you may have a limited opportunity to earn back the full cost of its investment before its franchise term expires. Tension in a franchise system be exacerbated if the franchisor is constantly changing plans and directions to meet perceived competitive pressures or consistently rolling out untested plans to the field. Unplanned additional expenditures during the term of your franchise agreement, without the assurance of a return on investment, can cause stress to you and your relationship with your franchisor.
Over the past couple of years, many franchise systems have experienced flat or declining same-store sales. When growth and profitability decrease, issues and conflicts that might have been less important previously (when everyone was making money) become the focus of concern. Issues relating to encroachment, product costs and use of advertising funds can move to the forefront for franchisees.
Read the full article: The Freedoms of Franchising
Gareth Parry
Franchise Consultant
Q Do franchisees have a say in how advertising funds are distributed? Do we have any recourse if we feel the money is being spent unwisely?
Gareth says:
Franchisees generally do not have too much direct input when it comes to the administration of advertising funds, except for those systems in which franchisees have formed franchisee advisory committees (FACs) and steering groups. As the money being collected and spent in essence ‘belongs’ to the franchisees, most franchisors will provide you with details of how it is spent; an overview of such information is typically included in a franchisor’s disclosure document. Existing and prospective franchisees should pay careful attention to how the money is being spent in relation to the brand’s market positioning and perception, and in terms of physical point-of-sale (POS) materials being provided as part of the fund. One expense the fund should not be used for is the promotion of franchise opportunities on the franchisor’s behalf. Prospective franchisees should also pay close attention to the percentage of the fund swallowed up by administration costs. These funds should be managed conservatively, to ensure the majority of the fund is actually spent on marketing and advertising initiatives.
In attempt to capitalize on the growing take-out and delivery market, full-service restaurant (FSR) franchisor Boston Pizza has introduced a company-wide online ordering system for its 340 Canadian locations.
Dubbed in national advertising campaigns as ‘Finger Cooking,’ the system gives diners access to more than 100 menu items. Customers can also customize pizza orders by specifying the variety and thickness of crust they prefer. As part of the launch, the company also offered customers a free order of its Bandera bread with their first online order.
“Take-out and delivery is the fastest growing segment in the casual dining category,” says Steve Silverstone, executive vice-president of marketing, Boston Pizza International Inc. “We expect take-out and delivery orders to become yet another occasion for Boston Pizza fans to enjoy our food.”
Boston Pizza’s new online ordering service is designed to capitalize on the growing delivery take-out and delivery market.
By Shawn Saraga
This question needs to be asked before you enter into a franchise agreement. Most franchisors will ask you to pay the royalty on gross revenue; this means discounted prices will warrant a discounted royalty. This is common practice among franchisors charging percentage-based royalties and advertising fees. Franchisors that follow this practice should be able to show you a theoretical breakdown in costing.
While some franchisors offer royalty breaks on discount programs, these are rare and usually offered because a supplier may make up the difference to the franchisor (e.g. a rebate paid to the franchisor for running the promotion). If a franchisor is offering a royalty break, it can also be to help ease the pain of a deep discount to help promote the brand.
Some less compassionate franchisors will ask for royalties to be paid on the pre-discount price. This is a bad practice that can have a negative impact on your profit. When investigating a franchise, be sure to ask about the policy on discount programs and make sure it is in writing. If a franchisor chooses to charge you the full amount on discount programs, consider it a bad sign.
Gareth Parry
Franchise Consultant
Q What is the purpose of my franchisor’s advertising fund?
Gareth says:
Most franchisors operate a co-operative advertising fund into which all of their franchisees are obliged to pay a portion of their overall gross sales, normally in the range of one to four per cent. This fund is used in a number of ways, but primarily to promote and advertise the franchise brand in markets where franchisees operate. This method is more cost effective and has a bigger impact by pooling funds from all franchisees. Some funds are small, covering only small geographic areas; others are very large, covering national and even international markets. Some cover the basic costs of in-store advertising materials, such as menu cards, posters, menu boards and other ambient media. Advertising funds are generally administered separately from the franchisor’s royalty and income streams and are often placed ‘in trust,’ as the funds are not considered income for the franchisor.
By Peter Snell
With more and more provinces adopting franchise legislation, the franchise disclosure document has become an increasingly important tool for prospective franchisees. Over the next several issues of Franchise Entrepreneur, this column will take a closer look at this often mysterious and complicated document, examining the information it contains and what that data means to you.
A disclosure document contains a vast amount of information, giving rise to a host of future topics, such as earnings claims and projections; fees paid under the franchise agreement; the advertising fund; initial investment costs; annual operating costs; required permits and licenses; open franchise locations; and terminations, transfers and renewals.
To begin, this article will introduce the disclosure document, why it is required and the basic franchisor information it must provide to you. Remember, the following data should serve only as a general overview; be sure to seek your own legal and accounting advice when reviewing a disclosure document. Only then can you obtain the specific information and advice relevant to your particular circumstances.
Read the full article: Understanding The Disclosure Document
By Leonard Polsky
Defamation
This includes any social media communication subject to libel, which covers written acts of defamation (e.g. blog postings), and slander, which covers verbal or spoken defamation (e.g. a podcast or other online video). This can occur no matter how the message is delivered to the public. Even if you are using social media as a means of personal and informal communication, you and your employees can still commit acts of defamation, or improper comparative or misleading advertising. This occurs if any individual, corporation or other business brand, product or service are defamed or disparaged.
Employment law
Staff members’ use of social media to make comments about other employees they work with can potentially result in discrimination or harassment claims. Further, employees who use social media during their work time or using work computers are likely in violation of their terms of employment. Going forward, you and your employees need to understand that these uses of social media are inappropriate in the workplace. In fact, they may even be inappropriate outside the workplace, when references are made to the franchise system.
Third party liability
It is important to note that the acts of a franchisee’s employees can raise the potential for third party liability for both you and your franchisor (just as your actions can leave you and your franchisor susceptible to third party liability). This can arise through:
● defamation or other torts (acts causing damage to others), as explained above;
● contract or franchise disclosure laws, when misrepresentations or inadvertent earnings claims or financial performance representations are made in association with the franchisor’s trademark and franchise;
● infringement of the intellectual property rights of others, such as making use of or references to another party’s trademark, or importing others’ copyrighted content into a website or webpage; or
● other communications associated with the franchisor’s trademark.
Read the full article: Understanding Your Franchise Agreement: The Use of Social Media
Customers visiting their local Wendy’s now have four new meal-sized salad options to choose from.
The quick-service restaurant (QSR) chain, which originally launched its Garden Sensations line in 2002, introduced the new varieties this summer, promoting the change with an advertising blitz. Diners can now choose from the Apple Pecan Chicken, BLT Cobb, Spicy Chicken Caesar and Baja salads.
The offerings are designed to differentiate the chain from the competition by providing customers with “high-quality ingredients and interesting flavour combinations they would expect to find in a café or casual dining restaurant,” according to a recent press release.
Wendy’s also introduced new exclusive Marzetti’s dressings to accompany the salads, including Pomegranate Vinaigrette, Avocado Ranch, Lemon Garlic Caesar and Creamy Red Jalapeno. The chain also continues to offer its traditional garden and Caesar side salads.
By Leonard Polsky
Personal information privacy
There are two ways this issue is typically dealt with in standard franchise agreements. In some cases, the agreement will contain a section dealing specifically with compliance with privacy laws; in others, this is addressed in a general section stating you must comply with all applicable federal and provincial laws. As a franchisee, you must understand that personal information collected by your franchised business is protected, and cannot be disclosed via the use of social media, without the specific consent of the individual involved.
Advertising, marketing and promotion
Advertising, marketing and promotional programs and trademark usage are major components of any good franchise’s public relations. They are used for increasing customer loyalty, brand awareness and goodwill. An important element of these programs is consistency, both in terms of use and the messages conveyed. Your franchisor will want to maintain some level of control, in order to ensure this consistency across the brand.
As such, your franchise agreement will likely require you to obtain franchisor approval for all advertising, marketing and promotion of your franchised business, in association with the franchisor’s trademark and using its copyright materials. This approval is required regardless of where these activities are taking place, formally or informally, even by way of social media.
Read the full article: Understanding Your Franchise Agreement: The Use of Social Media
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