Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / Why Franchisees Are Rejecting CEO Pet Projects
Transcript
- Lucas: So there's a scene that plays out in franchise systems all over the country, probably several times a year. The franchisor's CEO unveils a big initiative — a new loyalty program, a proprietary point of sale system, a redesigned store layout — and the room full of franchisees just... freezes. Luna: I've been in that room. It's not enthusiasm. It's more like everyone doing the math in their head on how much this is going to cost them. Lucas: Exactly. And that tension is the subject of today's episode. Because a growing number of franchisees are starting to say no — openly, collectively — to corporate pet projects that don't pencil out for their individual units. And the data backs them up. Luna: This feels personal. I mean, if these conversations have moved your work forward in some small way, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, absolutely. Low-key, listener support is why we stay ad-free. So thank you to anyone who chips in. Luna: Alright, so back to the pushback. What's the latest data showing? Lucas: The International Franchise Association put out a survey last quarter — I think it was March of this year — and 42 percent of franchisees reported that a corporate-mandated initiative from the last two years had a neutral or negative impact on their profitability. That's nearly half. Luna: Forty-two percent. That's huge. And I bet the ones that actually hurt profitability are the tech upgrades. Lucas: You're right. The most common culprit is proprietary technology. A quick-service brand I won't name rolled out a new loyalty app in 2024. The franchisor spent eighteen months and roughly twelve million dollars developing it. They mandated it across all U.S. locations. Luna: And what did the franchisees see? I'm guessing not a bump in traffic. Lucas: Correct. Same-store sales for the first six months after rollout were flat. But each franchisee had to pay an average of forty-eight thousand dollars for the hardware and installation — tablets, terminals, network upgrades. That's a direct hit to the P and L with zero revenue lift. Luna: Forty-eight thousand per unit. For a ten-unit operator, that's half a million dollars. That's not a tweak, that's a new car for every location. Lucas: Right. And the worst part is, the app didn't even integrate well with the existing back-end systems. So franchisees also absorbed extra labor costs — about six hours per week per store — to manage glitches and train staff. Luna: I want to hear about the franchisees who pushed back. What does that look like in practice? Lucas: There's a great example from the same industry — different brand. A group of about fifty multi-unit operators in the Southeast got together informally and agreed not to install a new point of sale system the franchisor was requiring. They argued the system was redundant — they already had a perfectly good third-party POS that cost half as much. Luna: So they just refused? Did the franchisor threaten to terminate their agreements? Lucas: In this case, the franchisor backed down. Because the group represented over three hundred locations and the franchisor knew that enforcing the mandate would trigger mass litigation and likely a mutiny. They agreed to a pilot instead — just ten locations tested the new system for six months. Luna: And what did the pilot show? Lucas: After six months, those ten stores reported no improvement in transaction speed or accuracy. Customer satisfaction scores were unchanged. So the franchisor quietly shelved the mandate. The franchisees saved themselves a collective — I calculated this — about fifteen million dollars in unnecessary hardware costs. Luna: That is a staggering number. And it shows what collective action can do. But not every franchisee group has that kind of leverage. Lucas: That's the key point. The fifty-unit block had both scale and a unified voice. A single-unit franchisee trying to push back alone is in a much weaker position. The franchise agreement almost always gives the franchisor broad discretion to require operational changes. Luna: So what's the smart play for an individual franchisee who gets a mandate they think is a bad idea? Lucas: First, don't go rogue. Instead, organize. The IFA actually has resources on forming what they call franchisee advisory councils. If you can get even five or ten other owners in your region to agree that the initiative doesn't pencil out, you have a stronger case. Luna: And you can present data. Not just opinion. Lucas: Exactly. The franchisees who won that POS battle came with a spreadsheet showing the total cost per unit, the projected break-even point based on the franchisor's own optimistic assumptions, and the actual performance of the existing system. They made a business case, not an emotional argument. Luna: That's the kind of thing that gets a CFO's attention. Numbers they can't argue with. Lucas: And there's a flip side here: some franchisors are actually getting better at this. The smart ones are moving toward a test and learn model. Before rolling out a new initiative system-wide, they pilot it in a controlled group of franchisee-owned stores, collect real P and L data, and adjust before mandating. Luna: Give me an example of a franchisor doing it right. Lucas: There's a fast-casual chain based in the Midwest — about two hundred locations. They wanted to introduce a new kitchen display system to reduce order errors. Instead of forcing it, they recruited fifteen franchisees to test it for a quarter. The pilot showed a twelve percent reduction in errors but also a slight increase in prep time. Luna: So they had a trade-off. Lucas: Right. They went back, refined the software, and only then rolled it out. The franchisees who participated got a discount on the hardware because they helped beta test. That builds trust. Luna: That is so rare. Most franchisors just assume their idea is great and everyone should love it. Lucas: And that assumption is expensive. I saw an analysis from a franchise consulting firm — Franchise Grade — that looked at thirty corporate-mandated tech rollouts between 2022 and 2025. The ones that were piloted first had a seventy percent adoption rate with positive franchisee sentiment. The ones that were mandated from day one had a forty percent adoption rate with active resistance. Luna: So the data is pretty clear. Pilot, listen, then mandate — if you must. Lucas: Exactly. And the best franchisors are also starting to tie mandates to performance. If the initiative actually drives revenue, they structure the cost-sharing so franchisees don't bear the full burden. A fifty-fifty split on the first year's hardware cost, for example. Luna: That changes the math completely. Suddenly it's a partnership, not a tax. Lucas: Right. So the bottom line for franchisees is: don't assume you have to accept every mandate. Understand your franchise agreement, know what's negotiable, and find your allies. For franchisors: if you want franchisees to adopt your pet project, prove it works on their P and L first. Luna: I think that's a healthy place to leave it. Next time, maybe we look at what happens when franchisees decide to buy out their franchisor entirely. Lucas: Oh, that's a good one. The franchisee-led buyout. I know a case in the pizza space that went that way. We'll save it for next time. Luna: Perfect. Thanks, Lucas. Lucas: Thanks, Luna.