What can go wrong in franchising?

in association with Lloyds TSB

Business specialists have recorded five key reasons why a franchise may fail. These are not generic business problems, but specifically related to franchises:

Business fraud
For example, using celebrities to attract franchisees to systems that were not well-founded – as happened in the US during the 1960s and 1970s.

Intrasystem competition
This occurs when outlets are located too closely together – or company-owned outlets are too near franchised outlets. The result is that each outlet cannibalises the other’s sales, although the franchisor may only see this as a way of earning the maximum level of royalty income, ignoring the long-term effects on the system.

Insufficient support
If too little is invested in supporting franchisees – with pre-opening programmes, management assistance, advertising and so on – the outlets may simply wither away.

Poor franchisee screening
A mismatch between the criteria required for success and the qualities of franchisees actually recruited. Sometimes this arises because a franchisee wants to maximise their initial fee income.

Persistent conflict between franchisor and franchisee
Faults can arise on either side – inconsistency of support by the franchisor, or inattention to product or service quality on the part of a franchisee.