Op-Ed: Open Letter to International Food Franchisors

A UAE-based specialist shares his views on the franchisor-franchisee relationship from the perspective of a Gulf-based investor.

By Sanjay Duggal

Editor’s Note: A version of this letter originally appeared online. The commentary expressed solely reflects the views of the author.

I represent the collective voice of many in my region who have invested in franchise concepts, and of many others who are keen, yet cautious about doing so. At the outset, please accept my heartfelt gratitude to your community, without which countless brands and new experiences wouldn't have made it to this region. I salute this extraordinary business of franchising, that allows one to tap into vast bodies of knowledge acquired over extended periods of time.

Without local money, resources and commitment, franchise companies would not be able to extend brands to far-flung territories such as the Arabian Gulf. By design, this should make franchising the quintessential “mutually beneficial relationship,” but sometimes, it’s easy to be a little skeptical. From my perspective, there remains scope for improvement, especially in the gray areas outside the domain of agreements.

My privacy and confidentiality are as important as yours: You have spent years honing your systems and the need to diligently protect them is understandable. But while I’m supposed to sign two, sometimes three different non-disclosure agreements even for standard preliminary information, you need to know my detailed history right off the bat. This lopsided approach subliminally declares that your concerns are more important than mine.

Show the homework, please: When you ask for a commitment to, say 15 stores over the next 10 years, please convince me that there’s a thoroughly researched reasoning behind it, and not just, for example, using Google to divide the population by multiples of a hundred thousand to arrive at the number of stores for my territory.

All franchises aren’t created equal: Please refrain from insisting that if Competitor X opened 35 stores in five years, less than half of that in double the time is very reasonable. Brand X has six region-based support personnel on its payroll, and has spent $3 million on local R&D. I might like your brand because it suits my specific needs, but I’m also aware of its limitations. So, let’s view our arrangement through the subjective lens of reason.

My day is your night: The majority of franchise businesses are based in North America, which essentially reverses the time of day in our respective geographical territories. My weekend is Friday-Saturday, while yours is Saturday-Sunday. With a collective three-day weekend, and a day-night difference to boot, our communication is undeniably compromised. If need be, I'll still call you at two in the morning, or even during my son’s birthday party. Would you? I appreciate that in your business culture, working beyond a stipulated time is avoided unless critical. But when you accepted that hefty fee for my territory, you should have anticipated potential barriers that are so fundamental to this relationship. Meeting half way to overcome this time hurdle is a reasonable request.

Be realistic on the marketing contribution: While you taught me to make and sell a mean burger, it’s likely that no one in my market recognizes your logo. And that’s OK, as I paid several zeros less than my friend did for a globally recognized brand. Without local brand equity, I have to build the brand myself. When you insist on charging 2 precent or 3 percent for generic marketing, I feel that I'm being used to amortize costs that were primarily incurred in your home territory. I'll happily spend the amount locally, but shouldn't be paying to promote awareness of a relatively unknown brand.

Be rational about “once bitten, twice shy”: In some cases, you had a previous experience wherein things didn’t work out as expected, and you had to make a reluctant exit from the region. Then, armed with a new strategy, you return a few years later and sign up with someone else to begin the revitalization of your brand. Just because you’ve emerged wiser from the ordeal, don't come down twice as harshly on the new investor.

There should be nothing arbitrary about a field visit: Please ensure that when your support staff visits my territory, they’re not just ticking a box on their hectic travel schedules, and have a specific, value-based agenda to share ahead of time.

Show me the money: Section 19 of the U.S. Franchisor Disclosure Document stipulates that it isn’t mandatory to disclose your earnings. But it isn't prohibited either. The U.S. Federal Trade Commission allows it. I'm assuming you’re a successful brand and unless you’re afraid of shattering my illusion, I don’t see why you can't provide full insight into the numbers.

Keep me in the corporate loop: My agreement is a marriage of sorts. When your CEO is forced out, or a merger or acquisition is imminent, it impacts the future of a brand that I have bought into. Therefore, it would be appreciated to getting the information directly from you, as opposed to say, the Wall Street Journal.

Be reasonable in making location demands: There are concerns about franchisors who insist on prohibitively priced A-plus locations. With the expansion of cities, food and beverage retail is becoming more localized. So rather than urging me to risk my money on expensive real estate, I encourage you to offer multiple-store-format options and develop specially adapted ones if needed.

Dare to look beyond the big boys: Those of you with more desirable brands tend to choose high-profile regional franchise partners. There are many lesser-known, but extremely competent, well-capitalized groups who would likely do greater justice to your brand. Moreover, they would appreciate the opportunity, and you would be more than just another feather in their cap.

Don't mistake nice for naive: Rooted in traditions of hospitality, people in this part of the world tend to be gracious and non-confrontational. However, the niceness is occasionally misunderstood for naivete, which is reflected in the negotiations and terms that are sometimes presented to us. Please respect my intelligence, and I will be far more inclined to do business with you.

I thank you for this opportunity to express our collective concerns and hope for a more open-minded, empathetic approach in the future. In the true spirit of franchising, I promise to meet you half-way.

Footnote: Some readers, especially conscientious franchisors, might perceive some of my views as biased or cynical. But far from being an anti-franchisor tirade, this is an ardent appeal for fairness and balance in the franchising equation. And by that, I mean fairness for both sides. 

Sanjay Duggal is a CEO, Investment Advisor, and Troubleshooting Specialist for the food and beverage/franchising industry in the United Arab Emirates.