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They’ve Got Your Back - The Trend Towards Quasi-Franchising
March 23, 2015
At its core, franchising has been about delivering an identical and predictable customer experience at each store. Consumers know what to expect when they walk into a McDonald’s, a Denny’s, or a Dunkin’ Donuts. Franchisees bank on that predictability to provide them with a steady stream of customers. It works and has worked for a long time. However, times may be changing.
It seems that as they’ve grown as consumers, many from Gen X and Gen Y now seek an alternative to the comfort their parents and grandparents found in the uniformity of all Arby’s or Residence Inns. At the same time, as Gen X and Gen Y come of age as entrepreneurs, they increasingly bristle at the idea of running indistinguishable businesses. They want to incorporate their unique ideas into viable enterprises. The current franchise model frustrates these new entrepreneurs, since the model depends on invariability. In recent years, more and more entrepreneurs have sought greater autonomy from headquarters. Brand name establishments, it seems, may be falling out of favor. To see this trend play out, you need to look no further than the proliferation of craft beers sitting next to the titans of the marketplace. Budweiser and Miller may still dominate the shelves, but right next to these stalwart brands are locally made craft brews embraced by a generation of younger consumers.
To meet change with change, the franchise community is developing what many are calling a “quasi-franchise” model. The next time you stay at a cozy inn enveloped in local charm, or eat at a quaint little neighborhood restaurant, serving locally sourced food and bearing a name you have never seen before, ignore the front of the house and look at the back; while you would never know or suspect it, you may still be staying at a franchise hotel or eating at a franchise restaurant. In the new world of quasi-franchising, the franchise will be found behind the scenes, with the corporate franchisor providing services ranging from simple marketing assistance to full back-office management operations, including the hiring, training and management of staff that follow the established set of corporately developed and streamlined procedures that make franchising so successful.
Both sides can win in the brave new quasi-franchise world. Franchisors will be able to harness the buying power of the consumers who have grown tired of the sameness in the market. They will also have access to the new generation of business owners who are looking to enter the market quickly and efficiently with their own vision, but who need a way to access the support for that business that can be very difficult to build from scratch. Franchisees can launch businesses that fit their own aesthetic more quickly and efficiently, knowing they have the support of a fully vetted support staff. The corporate structure provided by the franchisor provides the franchisee with an operational safety net, making their dream achievable.
Franchisors have used mass replication to achieve efficiencies unavailable to most non-franchisee businesses. On the flip side, entrepreneurs have faced steep barriers to entry in trying to launch a business. The quasi-franchise model allows these two segments of the business world to join forces and move into new markets where opportunity exists, but where traditional homogeneity is no longer preferred. It is too soon to tell whether this next generation of the franchise model will thrive, but for now, it seems that this hybrid innovation might be the solution to one of the more intractable issues facing the franchising community.
If you have any questions or need additional information regarding this, please contact Debra E. Scribner in our Lending & Commercial Finance Group.
This Alert is provided for information purposes only, and does not constitute legal advice. According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2015 Posternak Blankstein & Lund LLP. All rights reserved.