Company Policy and Franchise Interest

Every organization of any importance sets policy goals for itself. This applies to public organisations, but of course also to commercial organisations. A franchise organization also periodically takes into account its position in relation to the competition and periodically determines in which direction it wishes to develop in the short, medium and long term. franchising policy.

Without the periodic review of policy described above, every organization, including a franchise organization, would become rudderless and would, in most cases, have few opportunities in the commercial playing field. Policy is therefore a necessary element in business operations. Although policy-making and implementation are in principle primarily commercial considerations, these concepts do have a legal component in franchise relationships. Where a “traditional” company mainly serves its own interests in its policy-making, and may for example have to deal with personnel changes (shrinkage/growth), a franchisor must take the interests of its franchisees into account when formulating policy. . In practice, this is sometimes forgotten. A recent concrete example of this is an organization that traditionally operated in the luxury segment of a certain industry. The stores of the franchisees were geared to this: not too large in size, luxuriously furnished and in locations that did not directly have the primary goal of reaching the general public. The method of advertising within this organization was also aimed at reaching a small, but select target group.

About two years ago, the franchise organization involved decided that it was in line with its policy to create volume growth. With this, the organization and its franchisees should therefore focus on a larger audience. The shops had to become larger and in many cases moved to locations that would more easily reach a larger audience, for example in shopping streets. Substantial investments were required from the franchisees in this context in order to be able to participate in this policy change. And thus it happened. Less than a year and a half later, however, the same franchise organization decided to return to the old model and, in fact, to focus even more on the luxury premium segment than before. All this was communicated to the franchisees, without them being able to do much about it. The result was that the franchisees in this case saw their respective turnovers and results plummet, while they had recently taken on substantial investment obligations. Several franchisees have ended up deep in the red. The franchisees involved blame this directly on what they consider to be the floundering policy of their franchisor. It is possible that the matter will lead to a substantial liability claim on the part of the franchisor involved.
The message of the above is that a franchise organization is of course free to shape its own future and to formulate a policy in this regard. However, extra care is required in this regard, since in many cases the franchisees are directly dependent on the policy pursued by the franchisor. Incorrect or careless application thereof can lead to serious business economic problems, as described above. In the event of important course changes within franchise relationships, it is therefore strongly recommended that these be shaped in direct consultation with the franchisees, whether or not in the form of a franchise council, and that the interests of the franchisees are always given serious consideration in this regard.

Ludwig & Van Dam franchise attorneys, franchise legal advice