CASE STUDY

Case Study

Case Study

Why is it that Franchisors are so reluctant to negotiate their franchise agreements with new franchisees? Why is it that even if a franchisee hires an attorney often the Franchisor refuses to relinquish control or negotiate even the simplest or non-important point in the franchise agreement? What are they afraid of and why does this issue seem to be a sore point for Franchisor in-house counsel or attorneys on the franchisor's side of things?

First? you must realize that part of the reason for success in a franchise organization is the economies of scale from doing something very well and repeating that 100s or 1000s of times. So? if special exceptions are made for each incoming franchise then the Franchisor and the entire franchise system loses efficiency. Second? some states require that for the Franchisor to register in that state? they must offer the same deal to the residents of their state as the Franchisor does to everyone else. Third? a Franchisor must keep track of all the special deals they have made and this causes problems when implementing franchise system wide initiatives? thus? slowing the franchisor in the market place as the system adapts to challenges and opportunities that arise. Fourth? you must understand that other franchisees might get upset and feel that they did not get as good a deal if the Franchisor makes special deals for some and not others.

Now? with all that said? a new franchisee has a much better chance of negotiating changes in the terms of the franchise agreement when a Franchisor is just starting out or has under 50 outlets. Once the Franchisor reaches 100 outlets a franchisee should not readily expect any special negotiations unless the franchisee is buying multiple outlets or buying into a key location that the Franchisor ...