The #1 business risk is franchisor opportunism: the self-interested exercise of contractual discretion via deceit. This one risk comes cloaked in hundreds of types.
Systemic Factors: At one time, franchisees were granted a geographic monopoly but that ‘s history, mostly. Franchisees own the majority of the assets but franchisors control the use/exit of this capital. Franchisors take $ from the top; franchisees only from the bottom. Pre-sale due diligence is irrelevant because the franchisor reserves the right to unilaterally change the model. Sunk cost chains draw off-balance sheet capital in from all s0urces of “love money”.
High-end, branded roach coaches will be franchisors’ new crack cocaine:
- lower capital barrier to sales (easier financing),
- boost total market retail sales (royalties/ad fund %),
- product sales margin increases (tied buying provisions),
- same control via central commissary innovation and tied buying to outfitters,
- 100% flexibility (scaled territories),
- streamlines process when an intentional insolvency is chosen,
- centralized social media promotion, and
- margins by contracting with a secondary space rental company (more than make up for franchisors giving up hefty lease margins).
Benefits for traditional mom-and-pop investors?
At best, a generous offer from your franchisor for you to buy 3 new trucks to replace your outdated bricks-and-mortar store.
I would suggest that billions of $ existing franchisee-owned assets just shrunk. Permanently. Never to return.
Think: Dunkin’ Donuts, Tim Hortons, Quiznos on wheels.
- Food trucks are rolling into the mainstream: Restaurant chains such as Sizzler and Subway are joining the parade of roving gourmet kitchens that started with Kogi two years ago., Sharon Bernstein, LA Times
- Streetza Pizza Social media, event planning.
Thanks for the tip, Michael.