Franchisees like many other business owners have to navigate the uncertainty of COVID-19, and its effect on businesses. Business owners are dealing with challenges such as meeting payroll, loss of revenues going, managing employees, pivoting to other revenue streams to keep their business going.
In addition to managing all of the above, franchisees have to navigate two additional factors that many business owners don’t have to worry about.
1. Royalty fees
2. Advertising fees
A royalty fee is an ongoing fee that franchisees pay to the franchisor. This fee is usually paid weekly, monthly or quarterly; and is typically calculated as a percentage of gross sales. The average franchise fees range between 5-9%. However, depending on the franchise business model, the fees can go up to 30%.
The average advertising fee ranges from 3-5%. The advertising fees pay for ad campaigns to promote the franchise on three levels; National, Local and Regional.
Franchisees are concerned about of running out of cash. They are worried about their employees and possible exposure to the virus. There are a lot of unknowns about when some stores will reopen.
Government Rent Relief
Employee wages and rent are the two largest expenses for franchise owners.
In Canada, the federal government intends to introduce the Canada Emergency Commercial Rent Assistance (CECRA) for small.
businesses who are facing economic hardships and uncertainty during the COVID-19 pandemic.
The program will seek to provide loans, including forgivable loans, to commercial property owners who in turn will lower or forgo the rent of small businesses for the months of April (retroactive), May, and June.
Implementation of the program will require a partnership between the federal government and provincial and territorial governments, which are responsible for property owner-tenant relationships.
In spite of the rent assistance program, most franchisees are not in a position to personally negotiate their own lease with their landlords.
Franchisees typically sign a sublease, and the franchisor is the one who negotiates directly with the commercial property manager. So, it will be at the discretion of the Franchisor to pass down any relief to the franchisees.
How Some Franchisors are Helping Their Franchisees
Qdoba, a quick food service restaurant that specializes in Mexican cuisine, has postponed franchisees’ royalty payments. That equates to 380 plus owners’ weekly royalty payments to provide immediate financial relief.
Subway, one of the world’s largest restaurant chains, is reducing royalty payments by 50% for their franchisees.
McDonald’s, the largest franchisor in the world, is considering rent deferrals, for its operators.
Church’s Chicken is deferring 50% of their royalties and ad fun contributions for one month.
Although there are challenges for franchisees during the pandemic, those who survive will see more favourable locations and more accommodating landlord.
What are your top challenges as a franchise or business owner during the pandemic?