Franchise network restructuring: Pressures, constraints and mechanisms

Abstract

Franchised businesses operate on the basis of granting individual franchisees trading rights to serve territories or market areas on either an exclusive or a non-exclusive basis. The design of these territories is generally undertaken during the roll-out phase of the franchise. However, these territories and market areas may become sub-optimal over time, necessitating restructuring. However, if the franchisor has granted exclusive rights to a territory then this is likely to involve a breach in the franchise contract. In cases where existing franchisees do not have exclusive territories they may nevertheless make a legal challenge to the creation of additional franchises on the grounds of encroachment. This paperwhich is based on a study of 40 franchisors in the UK -examines how franchisors go about network restructuring in constrained and non-constrained situations. Franchisors typically did not act on their legal rights, echoing findings of earlier franchising studies which reveal a divergence between contractual rights and operational behaviour. This focus on network restructuring also provides new perspectives on the reasons for ownership reversion and the growth of multi-unit franchisees.

Assessing the principles of spatial competition between stores within a retail network

“…Also, literature contains a fair amount of research around models to resolve these expansion conflicts. Cox & Mason (2009) investigated how a model can contribute in delineating store trade areas and geographic trade rights. Also, different expansion strategies can be crafted based on what objective the franchisees seek to maximize with their retail network configuration, like minimizing sales cannibalization or maximizing total market share (Current & Storbeck, 1994;Ghosh & Craig, 1991;Kolli & Evans, 1999;Plastria, 2005;Surez-Vega & Santos-Peate, 2014;Surez-Vega, SantosPeate, & Dorta-Gonzlez, 2012).…”

Growth, Uniformity, Local Responsiveness, and System-Wide Adaptation in Multiunit Franchising

“…The rapid growth of franchising worldwide is sustained by many franchisors expanding through a multiunit development strategy, a phenomenon which has recently gained increased attention in the literature (Bercovitz 2003;Cox and Mason 2009;Garg, Rasheed, and Priem 2005;Gruenhagen and Dorsch 2003;Gruenhagen and Mittelstaedt 2005;Windsperger 2010, 2012;Kalnins and Lafontaine 2004;Kalnins and Mayer 2004;Kaufmann and Dant 1996;Kaufmann, Donthu, andBrooks 2000, 2007;Vazquez 2008;Frazer 2003, 2006). Indeed, one of the misconceptions about franchising is that franchisees operate small "mom-and-pop ventures" (Blair and Lafontaine 2005), primarily developed through single-unit franchising (SUF).…”

Performance in Franchise Systems : The Franchisee Perspective

“…Franchisors, because of resource scarcity and to compensate for the lack of human capital in local markets, use franchisees (Cox and Mason, 2009). Therefore, human capital in a franchised outlet, especially in local markets, seems to play a significant role in a franchisee's performance.…”

“…The partners' objectives rarely concur in franchising, and may lead to conflict (Cox and Mason, 2009). Like all commercial transactions between two firms, a franchising system is not immune to from conflict or disputation (Spinelli and Birley, 1996), and conflict often appears in the franchisor and franchisee relationship (Herrington, 2005).…”

“…The 41 relationship between EO and performance is complex and context-specific Dess, 1996a, Combs andKetchen, 2003). In the context of franchising, franchisees do their business in different local markets, and franchise territories and market areas undoubtedly play a crucial role in the franchisee's performance and even the survival of a system (Cox and Mason, 2009). As relationships evolve, franchisees learn the franchisor's operational methods and strategies and they will find their strengths and weaknesses (Davies et al, 2011).…”