Franchise Management
How does being part of a franchise help when the unthinkable happens and the whole country goes into lockdown?
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WHEN SUPPORT REALLY MATTERS obody had planned for this. On 28 February, a man many of us had never heard of, Dr Ashley Bloomfield, announced that New Zealand had its first confirmed case of Covid-19. By 21 March, we had 52 known cases and the Prime Minister announced a 4-level alert system. According to this, we were already on Level 2.
huge amount of advice and support on how to apply and how to pass on the funds to team members, etc. When they understood the process was actually very straightforward and not onerous at all, they were quick to complete the application.’ Brad was also impressed by how fast the payments were made, which helped reduce a lot of stress.
Just two days later, we had 102 cases and moved to Level 3, with just 48 hours’ notice that, from 26 March, the whole country was on Level 4 lockdown for at least four weeks. Only essential businesses would be allowed to open, and it soon became clear that the definition of ‘essential’ was tighter than many people expected. On 25 March many business owners went into work for the last time, not knowing when or if they would ever open again.
Rents
So what did franchisors do to help franchisees over this time? To find out, we talked to a range of franchisors from different sectors, as well as a franchise banker and accountant. Here are some of the highlights from our Helping Franchisees series – read all 10 case studies in detail at www.franchise.co.nz/articles/3161
Did any franchises remain trading during lockdown? While the definition of ‘essential’ was very tight, a number of franchises were able to trade during lockdown to a limited extent. Supermarkets – Pak’nSave, New World and Four Square – were the obvious exception, along with their suppliers such as Anchor, whose franchised distribution network was kept busy. A few work-from-home franchises such as Pukeko Rental Managers reported that it was pretty much ‘business as usual’ during lockdown, although they found themselves adopting new systems to enable property inspections to be carried out remotely. Commercial cleaning franchises continued to operate for essential businesses such as medical centres; franchises providing building security and safety services could also operate, while courier and freight services could deliver essential goods. Of course, business in all these sectors was still down considerably, with some franchisees doing perhaps 10 percent of their usual trade until the levels eased – at which point, they found themselves in huge demand. In other sectors, such as hospitality, there was no trade possible at all during Level 4. Franchisors scrambled to work out how best they could help franchisees.
Rents were a different matter. The reluctance of the government to introduce a code of conduct regarding tenant/landlord negotiations made for a very difficult environment (see page 16). In some cases, where franchisors themselves held the head leases, they were able to take on the battle themselves while suspending and reducing rents for franchisees. In other cases, they stepped in to help franchisees negotiate. Landlord responses ranged from excellent to tough to totally unreasonable – in some cases, they even sought to implement scheduled rent increases on 1 April, when tenants were unable to enter their premises, let alone trade. Landlords had their challenges too, of course, but it’s an area where many franchisees will be grateful for their franchisor’s support.
Suppliers Suppliers are a key part of any business, but the fact that franchises tend to have a few key suppliers means that franchisees benefit not just from more buying power but also more support when things go wrong. ‘We worked with major suppliers on payment terms and plans,’ says Brad. ‘We also emailed every possible supplier we could think of with recurring charges/subscriptions (POS, apps, payroll, music, printers/ copiers, leased vehicles, financed equipment, etc) for both ourselves and our franchisees and asked suppliers to assist by pausing/waiving payments. The response was generally very supportive.’ And that assistance extends to insurance claims, where applicable, too. In April, Vanessa Henry of Just Kidz reported, ‘We are assisting the Centres with their Business Interruption insurance claims, as well as helping them with wage subsidy requirements. Although our Centres are purpose-built they are not owned by the franchisees, so we are also supporting them with lease contracts and rent abatement negotiations with landlords. We understand the operation intimately so can also provide advice on stopping various service providers who are not required during the lockdown.’
Fees
Everybody’s first concern was money: wages, rents, supplies, fees, debts and all the other financial aspects of owning your own business.
Franchise fees were an obvious source of concern. Franchise fees don’t just represent profit for a franchisor; they also fund all the support services and staff who, during lockdown, were often busier than ever helping franchisees and planning for re-opening.
The Wage Subsidy Scheme was set up to alleviate some of these worries for staff and employers, and franchisors were quick to help franchisees apply for it. ‘The initial reaction of some franchisees was that they expected it would be so hard to apply for the subsidy that they just wouldn’t do it,’ recalls Brad Jacobs of The Coffee Club. ‘We gave them a
Where fees are charged as a percentage of turnover, as in many systems, the equation was simple: ‘Five percent of nothing is nothing,’ as Brad put it succinctly. In other cases, fees are collected as a mark-up on product supplied – same result, although franchises such as Anchor, who were trading in a restricted fashion, provided pricing support to
Staying alive
30
Franchise New Zealand
Winter 2020
Year 29 Issue 02
