ABA Forum on Franchising on LinkedIn: Annual Meeting Highlight: Intensive 3: Multiple Voices at the… (2024)

"🚨 Beware franchisees operating under a terminated license! 👀 A former Bonchon franchisee learns this the hard way. Here's a rundown of what happened. 📝 Four previously functioning Bonchon franchise units found operating even after franchise termination. This triggers a flurry of legal filings and suits. 🌪️ A federal judge had his gavel come down 🔨 on four rogue outlets in Northern Virginia. All these were under the control of one Ryan Ham, a previous franchisee who first signed up with Bonchon in 2013. Fast forward to 2015 and 2020, he secures rights for more outlets in different locations. 🏪 But in 2022, the franchisor sniffs out undercover operations by Ham. A competitive 'bbq chicken restaurant' in Falls Church, Va. 🍗 A clear violation of the franchise agreement! Ham's franchisee status swiftly terminated. ❌ Despite extensions to sell properties and cease the use of trademarks, the contradicting actions of Ham lead to further complications. Even after termination, the outlets continue to be operational under the Bonchon brand. 😱 Enter Bonchon International Inc., the U.S. arm Bonchon USA Inc and Bonchon Franchise LLC. 🏢 They step in and file a lawsuit against these operations. The charges? Trademark violations, breach of contract, and unfair business practices. 📚 August swings by with a preliminary injunction from a U.S. District Court judge. The order? Close the restaurants by August 10 and completely break ties with Bonchon by August 25. This extends to the restaurant aesthetics and their representation on delivery sites like Uber Eats and DoorDash. 🚚 These unfolding events serve as both a cautionary tale and a reminder. 👈 Comply with franchise agreements or face legal consequences. ⚖️ What's your take on this? Are you a franchisor or franchisee who's faced similar challenges? Let's start a conversation! 🗣️ Share your experiences. #franchise #franchising #bonchon

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Franchise advisory councils (FACs) foster trust and collaboration within franchise systems. Explore how these councils benefit franchisors and franchisees alike. https://buff.ly/3WKrptM#CommunityFranchising #FranchiseInsights #FranNet

🔍 Understanding Your Franchise Agreement: A $31 Million Lesson from Popeyes 💸 In the world of franchising, the devil is often in the details 👹 A recent jury decision underscores this point dramatically, awarding a former employee of a Dallas-based Popeyes franchisee, Sun Holdings, nearly $31 million in damages 💰 This outcome serves as a potent reminder 🔔 of the critical importance of understanding and complying with your franchise agreement and its key terms. Jerry Stockton, the former employee, claimed entitlement to a share of the restaurants' profits, a claim that led to a substantial compensatory and punitive damages award. This situation highlights several key lessons for franchise operators: Clarity in Agreements 📑: The dispute centered around a "confusing" section of the Popeyes franchise agreement regarding profit sharing with a "key operator." This confusion underscores the necessity of ensuring that all terms in franchise agreements are clear and unambiguous to all parties involved. Compliance is Key 🔑: Compliance with the agreed-upon terms is not optional. It's essential to not only understand your obligations under the franchise agreement but also to follow through on those obligations. Failure to do so can lead to disputes that may result in significant financial penalties. Legal and Financial Implications 💼💰: The substantial award in this case illustrates the severe legal and financial implications of disputes arising from franchise agreements. It's a stark reminder that the cost of non-compliance can far exceed the costs of ensuring agreements are clear and obligations are met. The Importance of Legal Advice 🧑⚖️: This case also highlights the importance of seeking legal advice when drafting, reviewing, or amending franchise agreements. A franchise attorney can help clarify the terms, ensure compliance, and advise on potential risks and how to mitigate them. For franchisees and franchisors alike, this case is a wake-up call 🚨 to closely examine and understand the agreements that govern their operations. Ensuring clarity, compliance, and seeking legal counsel can help avoid costly disputes and ensure a prosperous and mutually beneficial relationship. Let's take this as a learning opportunity 🎓 to reinforce the importance of meticulous attention to our franchise agreements. The stakes couldn't be higher, as demonstrated by the recent $31 million jury award. Don't let confusion or misunderstanding dictate your franchise's future. Ensure your agreements are crystal clear and that you're in full compliance, safeguarding your business against unforeseen challenges. #franchise #franchising

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In franchise law, the recent turbulence in the Papa Johns franchise system offers a textbook example of how NOT to win the consent of franchisees for substantial system-wide changes. To paraphrase, Papa Johns spent a large portion of the previous year persuading its franchisees to reroute an additional 1% of their sales to the central marketing fund in place of a 3% contribution to local advertising endeavors. While on the surface this might appear to be a beneficial trade-off, it signifies a seismic shift of control over marketing initiatives from franchisees to the franchisor. This change leaves local marketing co-operatives in the lurch and diminishes franchisees' ability to influence their local markets. Nevertheless, many franchisees accepted the proposal, drawn by the promise of substantial growth spurred on by the bolstering of national advertising efforts and the promise of exciting new additions to the menu. This was meant to kickstart a sales revival following the distress of pandemic-induced downturns. However, in a shocking turn of events, several key executives, including the international head, CFO, and ultimately the CEO, Rob Lynch, exited the company. This rapid succession of departures has cast a pall of uncertainty and disillusionment on those who had hoped for more stability in the aftermath of the proposed changes. And while Papa Johns unveiled a fresh marketing slogan and a new product offering, the franchisees find themselves facing the question of whether this will result in a return that justifies the relinquishment of their local marketing autonomy. With the pizza industry already fiercely competitive and the added pressure of the ongoing global COVID-19 pandemic, the lesson to be learned here for franchisors is twofold. First, maintaining a stable, transparent leadership team is paramount, especially in the face of significant changes. Second, before attempting to precipitate major system alterations, ensure franchisees' concerns are addressed comprehensively and, most importantly, that they genuinely buy into the vision. I advise franchisors to make sure they have a thorough understanding of their franchisees' needs and concerns before implementing major changes. Franchisees are more than just stakeholders; they are partners and their voices should not be taken lightly. What are your thoughts on this issue? #franchise #franchising

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I believe this represents a positive step toward elevating the integrity of the franchise brokerage industry, particularly in that it requires franchise brokers to offer transparency about their representation, compensation, and qualifications. Good franchise brokers offer significant value to aspiring entrepreneurs and franchise seekers by helping them cut through the clutter, misinformation, and countless lead portals scattered over the internet. Regrettably, there are bad actors in the field. Hopefully, changes like this will weed them out.And, hopefully, California's legislation will serve as a model for other states to follow...or maybe even a national disclosure requirement.What changes would you like to see in the franchise selling space?

Navigating the Perils of Neglected Royalties and Performance Quotas Consider the recent case of Pizza Hut, a colossal name in the pizza industry and its once star franchisee, EYM Pizza. As a franchise attorney, I find this scenario is a great example for aspiring franchisees. EYM Pizza, previously operating 140 Pizza Hut locations across five states, grapples with allegations of underperformance and royalty-payment negligence. A quick turn of events, highlighting the importance of honoring commitments outlined in a franchise agreement. Last year, as EYM attempted to sell its restaurants, it was unsuccessful due to economic fluctuations and the unsparing impact of the pandemic. The potential buyer withdrew the $89 million offer, representing the harsh reality of a stagnant acquisition market. In response to the allegations, EYM points out the performance of its franchisor, Pizza Hut, and brand recognition issues. However, as franchisees, we need to hold ourselves accountable first. Pizza Hut presents evidence of EYM's systemic underperformance, failure to meet development commitments, and a landslide 12% failure rate in inspections. The pinnacle of tension arises when EYM falls behind on royalty payments - a grave mistake for any franchisee. Despite attempts to sell the business, their negligent past hinders any progress. This case underlines two critical cautionary points for franchisees - honor your performance quotas and never neglect your royalty payments. It may seem tempting to fudge the numbers and cut corners during challenging times like the pandemic, but this is a grave mistake. Such negligence can result in the termination of the franchise, legal disputes, and a potential blow to your reputation, making it harder to do business in the future. It's a harsh reality but a necessary reminder to prioritize your commitments as a franchisee. Times of crisis are not an excuse to neglect obligations but a test of resilience and innovative thinking. As we eagerly await the fate of Pizza Hut and EYM Pizza, let this be a reminder of the importance of adhering to the stipulations of your franchise agreement. Missteps can lead to a downward spiral, causing far-reaching repercussions for your business. #franchising #franchise

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Customized one-on-one, franchise team coaching, audit workshops, mentoring, strategy and game theory, offered by Franchise SalesCraft™ to CEOs and senior franchise executives across Asia, APAC, and the Middle East have served them (and us!) very well this year.Most franchisor-clients have expanded their multi-unit reach as a result of our unique franchise advisory services and experience or, at least now, have a better understanding of the dynamics involved in international franchise growth.Those who haven't yet fully heeded our advice still believe their best efforts and use of resources (assuming they have plenty to spare) are to:🤔... expand 000's of miles away to faraway continents with little or no strategy, direction, or local support🤔... expend extraordinary amounts of capital, talent, and system capabilities to test their brands in unknown markets🤔... stick to mapping or territorial methodologies copied from failing franchise brands, and have now stalled in their own growth trajectory due to franchisees' 'overcrowding' complaints, lack of support or claims of 'inherited' exclusivity, misunderstood or 'handshake' agreements, and diminishing/unfulfilled relationships 🤔... construct unrealistic development schedules ('DevScheds') with undercapitalized, overdiversified, overstretched, and under-resourced Master Franchisees which simply couldn't or wouldn't be achieved🤔... scramble to transfer/sell franchisees' failing units to other operators or retain them by 'hook or by crook' so as not to expose poor governance practices🤔... explain to their Boards, VC or PE investors, or family partners, or rationalize with, or self-pity alongside their managers (aside from scolding them!) why they won't hit their 2023 "O2S" (Opens-to-Sales) targets🤔... publish extraordinary claims of (unverifiable) franchise sales and successes to attract unsuspecting investors ('Caveat Emptor', I say, all day long!)🤔... drive their businesses solely by ego rather than by strategy, data analytics, research, and professional guidance, or🤔... fail to understand the old rhyming Russian proverb - "Doveryai, no proveryai"(доверяй, но проверяй) meaning 'Trust, but verify' - which I learned during my field operations years in Moscow Russia in the early 90's🤔... All of the above, and more ...Connect with Franchise SalesCraft™ to explore how focused decision-making protocols, franchise governance systems, design and structure, lead generation, sales, CRM reporting, and operational integrity across global markets can achieve your dreams in 2024.Sound 'on'. 🎶✍📖

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"Fascinating Secrets of Selecting the Right Franchisor"Franchisor's Reputation: Behind the allure of a successful restaurant franchise lies the crucial factor of the franchisor's reputation. A franchisor's track record, management style, and commitment to quality play pivotal roles in determining the franchise's potential for success.Initial Investment and Ongoing Costs: While the initial investment might grab headlines, it's the ongoing costs that truly reveal the financial dynamics of running a restaurant franchise. From royalty fees to marketing expenses, understanding the full spectrum of financial commitments is key to long-term profitability.Franchise Agreement and Terms: Deep within the stacks of legal documents lies the franchise agreement, a labyrinth of terms and conditions that can make or break a franchisee's dreams. From territorial rights to renewal clauses, every aspect of the agreement demands meticulous scrutiny before signing on the dotted line.Performance of Existing Franchisees: The success stories (and failures) of existing franchisees serve as invaluable insights into the realities of running a particular restaurant franchise. Analyzing their performance metrics, operational challenges, and growth trajectories can provide a roadmap for aspiring franchisees.Location Selection: Behind every bustling restaurant franchise is a carefully chosen location that seamlessly blends visibility, accessibility, and demographic appeal. Understanding the nuances of site selection, including foot traffic patterns and competitive landscapes, can significantly influence a franchise's bottom line.Exit Strategy: Amidst the excitement of starting a restaurant franchise, few ponder the possibility of an exit strategy. Whether it's selling the franchise, passing it down to family, or gracefully bowing out, having a well-defined exit plan ensures a smooth transition when the time comes to move on.Legal and Regulatory Compliance: Navigating the labyrinth of legal and regulatory requirements is a perpetual challenge for restaurant franchises. From food safety standards to employment laws, staying abreast of the ever-evolving landscape of regulations is essential for safeguarding the franchise's reputation and viability.#Franchise #Franchising #Business #Restaurants #franchisor

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My colleague Mark Kirsch was recently quoted in an article published by @1851 Franchise titled "Top Insights for Franchisees to Successfully Navigate the Franchise Renewal Process.” Mark discusses the importance of franchisees being proactive long before the renewal date approaches. For more insights on the renewal process, read the full article here: https://bit.ly/4c7zoFO#FranchiseRenewal #Process #1851Franchise

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Bringing Franchisees on Board for Major System Overhauls: A Lesson from Burger King As a franchise law attorney, I find Burger King’s recent and ambitious strategy to be a robust case study for franchisors. It underscores the importance of securing franchisee buy-in when undertaking major system changes. Burger King has allocated $300M for their 'Royal Reset' renovation mission. The fast-food giant is betting big on the idea that a fresh, modern ambiance will draw in more customers and boost sales. However, it’s not lost on them that these makeovers can be costly for franchisees, with high interest rates and likely temporary closure of outlets. How is Burger King ensuring franchisee commitment? They're introducing incentives that ease the financial risk. Their approach rests on two strategies. First, Burger King is proposing a royalty relief plan, allowing franchisees to select how much of a discount they receive on the royalties they pay the company. This move is designed to offset some of the renovation costs and could be a significant advantage for franchisees. Secondly, the company is offering a cash back incentive. Franchisees who opt in to remodel their locations will receive cash once construction is finished. This is similar to the 'tenant's allowance' commonly found in commercial lease agreements. This move is to financially motivate them to invest in the makeover while easing the fiscal burden. But securing franchisee buy-in requires more than financial incentives. Communication is vital. To effectively sell the remodel strategy, the company’s executives are hitting the road. Starting this month, a roadshow across the U.S. is scheduled, aimed at pitching the remodeling strategy to franchisees. Maintaining an open dialogue, explaining the benefits of the changes, and demonstrating the company's commitment to supporting the financial burden, aids in getting franchisee buy-in. Burger King’s approach serves as a valuable lesson for franchisors across industries: it is possible to pursue ambitious system-wide changes if they are careful to balance franchisee concerns with the wider business goals. Remember, the key lies in engaging franchisees, each step of the way. #franchise #franchising #burgerking

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