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Bulletin | Covid-19

Beyond COVID-19: The Squeaks and Challenges of Reopening and Resumption of Business

Fasken
Reading Time 6 minute read
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Franchising Bulletin

As many experts have predicted, reopening and resumption of business following a crisis is, in many ways, a much more complicated step than closure and containment.

This is as true for businesses, including franchise networks, for which the reopening and resumption of business is a much more delicate and complex operation than was the closure for some and the restrictions (of clientele, operating methods and business hours) for others.

The mandatory temporary closures and restrictions and conditions for those businesses that remained open were imposed by government authorities in a crisis.

Both franchisors and franchisees had no choice but to deal with these rules and adapt to them as best they could.

In addition, and this is important to reduce resistance to change, everyone (or almost everyone) understood the reasons and urgency of these restrictions and rules.

After a certain amount of chaos in the first days of the crisis, most franchise networks quickly took the necessary steps to adapt to this new reality.

Reopening and resumption of business is also subject to a series of rules imposed by public authorities to which franchise networks must, once again, adapt.

For a franchisor, this new phase of the COVID-19 crisis, however, raises two other important challenges: (i) the changes required to the business model and operating processes of its franchise network in order to comply with the new rules imposed by public authorities (which entail both additional costs and certain limitations on the ability to generate revenues) while maximizing the chances for the franchised businesses to return as soon as possible to profitability, and (ii) the implementation of a return to full operations in a largely modified business context (particularly in terms of consumer habits).

It is also necessary to change certain habits and ways of doing things acquired during the period of closure or restricted operations.

As with the rules of containment, closures and limitations of activities, franchisors and franchisees have no choice but to comply with the health protection rules issued by public authorities.

However, and contrary to what happened during the containment and forced closures in March, we are still witnessing, in this phase of reopening and resumption of business, some questioning and even some recriminations (for example, from restaurateurs and bar owners), which can be explained, in part, by the fact that the reasoning behind the phases and stages of reopening and resumption of business is less clear to many than the reasoning for the initial containment, forced closures and restrictions at the beginning of the crisis.

Similarly, franchisees are now questioning certain standards, rules and guidelines issued by the franchisor itself, in particular those aimed at ensuring a rapid return to full operation of the franchised businesses.

Barely more than a month before the gradual reopening of businesses that had to suspend their activities during the acute phase of the pandemic, some franchisors are therefore already facing resistance, even opposition, from some of their franchisees to the return to normal and to the new operating standards put forward by the franchisor to promote the return to profitability of franchised businesses.

The media recently reported on the resistance of the franchisees of a large U.S. fast-food franchisor to the re-establishment of the full menu at their franchised restaurants that had been limited during the period of mandatory closure of their dining rooms, as well as another large franchisor whose franchisees are opposed to the resumption of a major pre-crisis promotion.

Closer to us, we have recently witnessed resistance from franchisees to the re-establishment of pre-crisis days and hours of business and to the expansion (to pre-crisis levels) of the range of products and services offered by the franchise network.

One of the reasons cited for this resistance is the tremendous increase in online sales (and phone orders) during the crisis, which has led many to fear that many customers will not be there when their stores reopen.

Fortunately, initial feedback from several industry sectors indicates that, except for tourist sites and maybe for shopping malls, customers are returning quickly. Several franchisors are even reporting higher per location sales than for the same period last year. Despite this, great challenges still await several franchise networks on their way back to profitability.

Among other things, a new balance will have to be struck between, on the one hand, sales and transactions made in whole or in part online and, on the other hand, in-store sales.

Behind the arguments invoked to oppose a full return to pre-crisis activities and the franchisor's new standards, what many franchisors are now facing is a classic case of resistance to change, which is exacerbated by a climate of insecurity and uncertainty as to the short, medium and long-term future, by the loss of income suffered during the crisis and by various problems related to the return to work of many employees of franchised businesses.

We have discussed these challenges, as well as various methods of minimizing resistance to change (which is quite natural) within a franchise network in our Franchise Bulletins entitled How to Better Manage Resistance to Change in Your Franchise Network and Beyond COVID-19: From Resistance to Change to a Culture of Proactively Seeking Change within Franchise Networks, which we invite you to read or reread.

In the post-COVID-19 world, the return to full operations and changes within a franchise network are becoming, for many networks, a key condition for their sustainability in this new environment.

What to do in case of opposition or resistance, active or passive, to the return to full operation of the franchised businesses or to one or more of the new rules and standards put forward by the franchisor?

First of all, it is important to act quickly.

The longer such a situation persists, the more it will be difficult to rectify it.

The franchisor must therefore rapidly demonstrate its leadership of the network and maintain consistency and uniformity among the franchised businesses.

At this point in time, many markets are in a phase of both significant and very rapid change, at the end of which there will be new leaders and businesses that will have lost market shares.

A franchisor must therefore quickly ensure that its network offers its customers a range and availability of services and a purchasing experience that meet their expectations. It cannot allow anarchic or chaotic decisions or actions on the part of franchisees.

Second, it is important to remember a fundamental principle (which we have discussed in more detail in our two Franchise Bulletins mentioned above) in change management: we are much more resistant to change that is imposed on us than to change that we have actively participated in.

In this regard, we also invite you to read or reread our newsletter entitled Beyond COVID-19: A Different World and Improved Collaboration Between Businesses and Within Networks which contains several tips for engaging and involving franchisees in franchisor decisions.

Third, here are three tips regarding change within a franchise network:

1. Always give priority to the interest of the network as a whole over the interest of one or other of its members (franchisor or franchisees).

2. Avoid surprising your franchisees.

Surprise is a factor that increases the risk and the level of resistance to change.

Conversely, predictability is a factor that promotes trust.

It is therefore a good idea to prepare the franchisees as early as possible in relation with expected upcoming changes;

3. Clearly explain to the franchisees, ideally before their implementation, the reasons why the franchisor is making changes that affect them.

The better a change and the reasons behind it are understood, the less will be the resistance to it.

It is also much easier to explain a change before implementing it than to justify it afterwards.

Fasken has all the expertise and resources necessary to help you better manage your communications with your franchisees and to draft agreements that are complete, adequate and, even better, well adapted to your objectives, needs and resources, in order to properly protect your rights while avoiding potential pitfalls.

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