Your franchise system may need to evolve as your business becomes more complicated or the market demands change. This change may include: 

  • a new marketing approach; 
  • altering the core product range; or 
  • switching to a different software or accounting system. 

As a franchisor, you are generally the driving force behind these developments. However, you want to avoid any friction when trying to implement franchise system changes. This article will explain how you can successfully communicate and implement franchise system changes.

1. Research and Test Proposed Changes

You should avoid rushing when it comes to system-wide changes to your franchise systems. Instead, you should take your time researching and testing the likely impact of a proposed system change before rolling out the developments across your business. This step can help to avoid disputes while franchisees adjust. 

If you directly operate a flagship store or outlet, you may wish to consider running a test of the proposed change in your own store before asking franchisees to do so. This will help you communicate the benefits of your new marketing promotion or product by pointing to the results of your test.

It might not always be possible for you to test changes before implementing them system-wide. If that’s the case, you should consider carrying out market research or analysis relevant to the proposal. This evidence could help demonstrate to your franchisees that you have carefully considered the proposed changes.

For example, if you want to run a discount promotion for a particular subrange of products, you could research the impact of similar discounting strategies in other franchises. So you could look at McDonald’s ‘dollar menu’ or 7-Eleven’s $1 coffee.

This step won’t necessarily prevent issues from arising when you implement the changes. However, it can make your proposal more compelling to franchisees.

2. Conduct a Consultation Period with Franchisees 

You can directly gain the support of franchisees by consulting them before implementing the change. That way, franchisees can hear the proposal before they are obliged to put it into operation. Additionally, they can analyse your proposal’s compatibility with the day-to-day operations of their franchise.

Depending on the size of your franchise system, it may be appropriate for you to consult a sample group of franchisees rather than filtering through a massive amount of feedback.

The main benefits of engaging with this step are that franchisees:

  • feel as though they have been represented; and
  • can present insightful and practical feedback that will help you refine the system change.

3. Communicate the Change with Plenty of Notice

Avoid requiring your franchisees to take immediate action. Instead, communicate proposed system changes with plenty of notice so that franchisees can: 

  • ask questions about the implementation process; and
  • prepare their business to adjust.

For example, if you change your product range, franchisees may want time to sell their remaining stock rather than having to discard it.

4. Update Your Manuals

Make sure that you formally update your operations manual to incorporate any system changes. Ideally, you should distribute the relevant changes to the manual when you communicate the system change to franchisees.

An update to your franchise manual will be helpful if any disagreements relating to the system change arise. This is because some franchise agreements may not require franchisees to follow all written directions, but will undoubtedly mandate that they follow the manual.

5. Does the Change Involve “Significant Capital Expenditure”?

The Franchising Code of Conduct restricts franchisors from imposing significant capital expenditure requirements upon franchisees.

If your proposed system change requires expensive new equipment or renovations to the premises, it will likely involve significant capital expenditure. You are prohibited from obliging franchisees to implement such requirements, unless:

  • you have disclosed the changes in your disclosure document;
  • all or a majority of franchisees have approved the expenditure;
  • the change is required to comply with legislation; or
  • you have issued a written statement that justifies the expense as a necessary investment.

Key Takeaways

Although introducing franchise system changes can be difficult, there are some steps you can take to reduce friction amongst franchisees. You should: 

  • research and test proposed changes to improve franchisees’ confidence in your proposal;
  • conduct consultations with franchisees to benefit from their insights and create a sense of ownership;
  • provide notice of the change so they can prepare to adjust;
  • update your operation manual to protect yourself against disagreements and disputes; and
  • consider whether the proposed change involves significant capital expenditure.

If you are looking for advice for implementing franchise system changes, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Jonathan Muncey

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