Brands in the quick service restaurant (QSR) industry – together with adjacent sectors such as coffee and convenience retail – have in recent years transitioned to structures that allow, in some cases, for the possibility of bad behaviours and toxic cultures to take root.
At the heart of the issue is the franchise model that the majority of QSR, coffee, and convenience retail brands have moved to. Today in the UK, 95% of KFC sites, 88% of McDonald’s sites, and more than half of Burger King sites are run as franchises. Nearly three-quarters of Starbucks sites are operated by franchisees, as well as most Nisa, Londis and Costcutter stores.
In many ways, the franchise model has historically been a “win-win” partnership. For entrepreneurs, franchising a brand presents a straightforward way to buy or grow a business. While running a franchise isn’t easy (and “winning” a franchise has become progressively harder as competition for the most lucrative franchises has increased over the past two decades), those lucky enough to secure sites get instant power of a global brand – and can immediately go to market with guaranteed footfall, a defined proposition, awareness and brand reputation.
Likewise, for global brands, a franchise model allows for a huge international footprint with minimal capital deployment. Brand owners can therefore operate with relatively light central overheads, allowing their corporations to be streamlined, agile, and more customer-centric. The complexities and challenges of day-to-day store operations are outsourced to franchise partners, each contractually committed to providing customers with a uniform brand experience and operating standards. What could possibly go wrong?
While there are some large-scale franchisees (Soul Food Group in the UK, for example, runs 400 Starbucks, KFC and Taco Bell sites), many franchisees are small or mid-sized businesses. In some cases, franchisees operate just one single site, a set-up common with brands more early in their franchising journey. Worryingly – and at the root of this issue – many of these smaller franchise operators can lack the operational sophistication of more established and scaled businesses.
Whilst there are many phenomenal franchise partners, some franchisees – particularly those operating a small number of sites – don’t have a single dedicated HR resource. Many lack their own rigorous training programmes, and do not have a solid system of checks and balances to hold managers to account, or processes to call out bad behaviour. As one very senior QSR CEO told me this week: “We need to trust our franchise partners, but some of them aren’t the most sophisticated of operators. Most of them don’t have HR teams, or the right set of skills and experiences to stamp out this type of behaviour.”
Against this backdrop, it’s not hard to see how abuses of power can take hold – especially in an industry that’s powered by such a young workforce. When speaking up could risk losing shifts, it’s not surprising that some young workers feel scared and inequipped to ask for support when they see or experience bad behaviour.
How did we get here? When franchise models were first established, global brands dedicated significant resource and expertise to supporting, mentoring and managing their franchise partners. Today, however, this level of oversight has diminished.
There are a couple of factors at play.
Firstly – particularly for listed QSR businesses – there have been huge cost pressures on central expenses in the past few years. As a result, over the last decade, we’ve seen significant cuts to the size and quality of operational support for franchise partners, despite continual expansion.
In many of the brands there therefore simply isn’t enough resource to hold franchisees to account properly. As another QSR CEO confided in me: “These types of abuses could definitely be happening within our franchise partners – but we would have no idea. Our franchise agreement would allow us to terminate a relationship with a franchise partner if we had evidence of any type of abuse, but even spot checks don’t really present a good picture of what is actually happening in each site.”
“These types of abuses could be happening within our franchise partners – but we would have no idea… even spot checks don’t really present a good picture of what is actually happening in each site.”
One QSR master-franchisee I was talking with over the summer outlined how they were only visited by their brand once a year – and no one from the brand ever went out to their stores in their market. Whilst I am sure this is an extreme situation, and I know most brands are more “present” with their franchisees, how can this brand claim to have oversight of operations in this territory? Brands must reinvest in their operational infrastructure, get much closer to their franchise partners – including spending more time in stores – and be better at “sniffing out” issues before they arise.
Secondly, as brands have moved to majority-franchised model, they are simply no longer academy schools for operational talent. Operations is a tough trade, and the QSR industry was once a net exporter of talent to the rest of the hospitality sector. But today, many QSR brands lack best-in-class operational talent, and therefore are starting to lack the internal skills and ability to hold franchise partners to account. Without upweighting and investing in their own operational talent, it is unlikely QSR companies will have the capability to properly hold franchisees to account in the future.
So what can be done?
Crucially, QSR brands must have greater oversight of their franchise partners. This means investing in more, high quality resources to better manage franchisees – and allowing for the added associated costs. As part of this, brands should consider having a greater presence themselves in stores, rolling out more robust whistle-blowing systems, and establishing direct channels of communication with shop-floor workers.
Brands could also consider upweighting their franchise partners – a journey that the likes of McDonald’s and Yum! started on many years ago. Brands could look to work with more corporate franchise operators, like SSP (which operates over 600 branded F&B and convenience outlets in travel outlets) or WH Smith (which operates M&S, Costa Coffee and Well Pharmacy stores). Service station groups such as Moto, Welcome Break and EG Group provide the right level of operational sophistication. Private equity funds as “master franchisees” also can be attractive partners – bringing systems and codes, and a track record of holding themselves, and therefore their investments, to a high standard. Bridgepoint, which is the master franchisee for Burger King in the UK, is a good example here. Working with corporate partners would, hopefully, guarantee that certain operating principles and standards are honored.
Lastly, brands could consider the unthinkable: to start operating more of their own sites again. Not only would this guarantee full control and allow companies to guarantee certain standards, but it would also rebuild the operational bandwidth and bench strength that QSR chains were once known for. This capability and operational muscle could then be deployed to run company-owned restaurants, and to govern franchise partners.
“Brands could consider the unthinkable: to start operating more of their own sites again.”
QSR brands carry huge weight and resonance with consumers globally – and the brands themselves are now worth billions of dollars. Most franchise partners seek to do the right thing by their teams and customers, and to adequately represent the brands they uphold. But it doesn’t take many bad apples in the franchisee community to destroy decades of brand and reputation building.