Changes: Cooperation Rather Than Conflict

The COVID-19 pandemic forced food service franchisors and franchisees to adapt their business models and operations procedures and work together to survive during these unprecedented times. People generally resist change because they fear they will not be able to adapt to the new ways and would rather stay in their comfort zone than take steps into the unknown.

However, as the Chinese proverb declared, “A wise man adapts himself to circumstances, as water shapes itself to the vessel that contains it.” Franchisors and franchisees therefore had to take action.

Rather than imposing changes unilaterally, wise franchisors increased their communications with their franchisees and led the way with proposed changes. Wise franchisees trusted, or at least listened to, their franchisors and made changes to their standard operating procedures, in part, because franchisors made their franchisees active participants in developing and buying into the changes to be made. In those cases, cooperation rather than conflict may have very well been the key to each party’s survival.

One of the primary challenges for both franchisors and franchisees in good times, as well as bad times, is to provide their customers with a consistent brand experience at each of their units. This concept was tested in hundreds of different venues and times during the past eight months and, in some instances, was difficult or impossible to achieve.

Differing state and local laws and regulations imposed the obligation on restaurant operators to protect the public from avoidable risks of illness or death from the reopening of their closed restaurants for dine-in guests and from the increased takeout and delivery services they provided for their customers. This obligation coincided with the duties required of franchisees under their franchise agreements to implement changes to their systems as directed by their franchisors and to comply with applicable law.

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, some franchisees contend that their franchisors fail to provide meaningful support. Nevertheless, during the pandemic, we observed franchisors assisting and supporting their franchisees by implementing new tools and methods, including the following:

• Counselling 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.
• Counselling 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.
• Implementing timely and successful pricing, marketing and promotional programs to retain their customer base and bring new customers into their restaurants.

Following the return to normalcy, many of the COVID-19 changes likely will become standard operating procedures. Franchisors and franchisees alike should consider them as unexpected benefits of the pandemic.

Unfortunately, the pandemic continues to disrupt the food service industry and additional changes for franchised restaurants will probably be necessary. Franchisors should continue to understand the need to grant franchisees flexibility to adjust their operations procedures to meet the daily realities of the pandemic. At the same time, franchisors should take steps to protect the value of their brand and maintain consistency in system standards to the maximum extent possible. This may require extraordinary measures and may entail additional changes as circumstances dictate. One would hope that the cooperation that led to the development and acceptance of the 2020 COVID-19 changes will continue in the future.

Barry Kurtz is the Chair of our Franchise & Distribution Practice Group, and a California Bar Certified Specialist in Franchise & Distribution Law.

This information provides an overview of a specific developing situation. It is not intended to be, and should not be construed as, legal advice for any particular fact or situation.