A recent Wall Street Journal article described several conflicts between Burger King and its franchisees. In one of these disagreements, three franchisees sued Burger King over the franchisor’s effort to get them to keep their outlets open later at night.
While the courts will have to decide the legal question of whether franchisors have the right to mandate franchisees’ hours, the case points to a bigger problem. Many franchisors and franchisees don’t seem to understand why they often end up in conflict.
The economics behind the conflicts
The basic economics of the franchise arrangement is behind many franchisor-franchisee disputes. Franchisees run outlets according to systems sold to them by franchisors. Under the standard arrangement, franchisees pay franchisors a royalty of a few percent of their gross sales for access to an operating system and a brand name, which is how franchisors make money. Full article.
