Are Fast Food Franchisors' New Strategies Paying Off or are They Alienating Franchisees?

Food-service franchises are struggling right now with flat or declining sales. In an effort to boost business, franchisors are trying just about everything — premium items, discount items, new hours, brand and store makeovers and more. But whether it’s new menu items, new promotions or a whole new look for the restaurants, these tactics have one thing in common: They typically require franchisees to spend money — sometimes, lots of it.

Is it worth it? Recently, Burger King announced plans for a massive makeover of its 12,000 worldwide locations. The new interiors will include red flame chandeliers that rotate, menus on bright TV screens and an industrial look with brick walls and corrugated metal. In an AP report, BK Chairman John Chidsey described the look as contemporary, edgy, futuristic and upscale. Experts say the redesign is an attempt to attract more sit-down customers and lure diners away from the fast-casual chains that have cut into quick-serve restaurants’ business.

The new look will require franchisees to spend from $300,000 to $600,000 per location.

Burger King says it’s worth it because the new design, dubbed “20/20,” is already in place at 60 locations. Sales at the remodeled stores have increased 12 to 15 percent; locations that were torn down and rebuilt saw increases of up to 30 percent.

On a related note, just this week Burger King was sued by a large group of its franchisees who objected to the company’s $1.00 double cheeseburger promotion, claiming they're losing money on the deal.

I’m a huge proponent of the concept that you have to spend money to make money — and that marketing is crucially important in a recession. Still, you can see why franchisees would be reluctant about the new look. Even for a successful location, how easy is it to get financing for a $300,000 to $600,000 rebuild these days?

On a similar note, the Wall Street Journal recently spotlighted Mike Wright, a McDonald's franchisee in Florida who wasn’t happy when he found out earlier this year that it would cost $125,000 or more for each of his seven locations to retrofit to serve McDonald's new McCafe espresso-based coffee drinks. After franchisees fought back, McDonald’s dropped the remodeling requirement, but still urged franchisees to buy the equipment to serve the drinks ($14,000 per location).

In the article, Wright points out the importance of fitting the menu to the region. It’s tough to sell coffee drinks in rural Florida, he says. Similarly, while the Burger King makeover — aimed at the company’s core customer of young males — might appeal to that group and help Burger King compete with fast-casual restaurants, it might backfire in other ways. A suburban mom who takes her young children to Burger King for the kids’ meals or kids’ play area might be turned off by the more “nightclubbish” ambience of the new look.

I think what it boils down to is the importance of common sense and keeping an open mind. Franchisees can’t reflexively say “No” to every new idea because it’s going to cost them money. At the same time, franchisors can’t robotically force every franchisee to comply with something that won’t work for them.

Ideally, franchising can combine the best of both worlds: a strong brand, plus a franchisee’s knowledge of his or her specific market. If marketing moves are made with awareness of each franchisee’s specific issues, they’re more likely to pay off for everyone involved.