Profitable demise warning for franchises

The recent collapse of coffee and chocolate chain Oliver Brown carries an important warning for franchises.

The cause of the demise of this seemingly profitable business could affect any franchise – litigation.

A shareholder dispute led to litigation consuming the company’s resources and the same can, and has, affected franchises.

Franchise conflict research

From our research we know that often older and larger franchise systems tend to have higher levels of disputes, some of which evolve into litigation.

Although larger systems may be better able to withstand the drain on resources, in particular on finances that litigation causes, it does distract the franchisor from focusing on strategies for growth and competitiveness.

And that’s not to say smaller or younger systems aren’t immune from disputes – a dispute can arise in any franchise.

The actual nature of franchising, where both franchisee and franchisor are co-dependent for the success of each other’s business, means conflict is inevitable, and some conflict can actually be healthy.

Challenging of particular systems or procedures in some cases can lead to process improvement (but not always).

The research also reveals that generally the longer a franchisee is with a system the more likely issues will arise.

Franchise conflict resolution

When conflict does arise in a franchise relationship it’s important both parties seek to resolve the issue as quickly and efficiently as possible.

Whether a franchisor or franchisee, it’s in your best interest to voice your concerns as soon as they arise.

The sooner an issue is addressed the greater the chances an amicable outcome will be reached.

This has been recognised by the Office of the Franchising Mediation Adviser (OFMA), who last year introduced new early intervention services, where either party can have a free phone consultation with the OFMA to discuss options and the best way to proceed when an issue first starts to arise.

The research reveals not all disputes are over business profitability either, with franchisees often valuing relational satisfaction higher than monetary value in the franchise relationship.  Learn more about this new franchise research here.

Understanding the franchise relationship and early intervention strategies will help ensure litigation doesn’t cause the demise of your profitable franchise.