FRANCHISE: Why ethical franchising is a stepping-stone to success

Success in franchising hinges upon Ethical Franchising principles by concerned parties.

First, the Franchisor. Africa is quickly becoming a dumping ground for ‘franchises’, driven by lack of legislation (the World Franchise Council-WFC- Model Law advocates for basic legislation) or strong franchise associations (except South Africa and Egypt) which enforce Ethical Franchising as enshrined in the WFC Code of Ethics which member associations embed in their operations and to which association members subscribe. Throughout East Africa, new franchisors with barely proven concepts are granting “franchise rights” to unsuspecting “franchisees”. As franchising is driven by foreigners, they are doing what they cannot do at home where franchising regulations are solid. Even in instances where short-cuts to some franchising basics are acceptable in those home markets, this is because over the years, these markets have behaved in certain ways that support such action. Records on franchise development market trends are inexistent here, hence by offering unproven concepts, such “franchisors” act unethically. Good concepts are known to fail, even successful franchise brands fail (South Korea’s largest coffeehouse chain, Caffé Bene folded recently). By investing in an unproven concept, franchisees are exposed to BIG risks of business failure. Even if the franchise succeeds, the franchisor can’t reward franchisees who proved his concept-read exploitation.

Second, the Franchisees. Like any other contract, the underlying principle in a franchise agreement is Good Faith. Franchisees acknowledge that the franchisor spends valuable time, energy and resources developing their concept and availing it to help them achieve personal and financial goals, which would be more difficult if they started from scratch or would take longer to achieve. Franchisees therefore bind themselves to operate as per franchisor’s instructions, in good faith, always defending the interests of the franchise network. A franchisee who deviates by lowering brand standards or introducing own innovations outside the agreed procedure acts unethically. Some of such actions include under-declaration of turnover, non-compliance with tax and other legal requirements and sourcing of inputs from unapproved sources. These are among issues that collapsed Kenya’s Kenchick Inns after years of successful franchising. Eateries would grow own chicken or buy from wherever, then sell in Kenchick-branded outlets, nailing the brand’s coffin every time this happened. Others were legally uncompliant and most under-declared turnover. AAR Healthcare converted independent clinics into AAR-franchised network and failed miserably after lifting the profiles of these clinics with consistent member throughput and had to revert to own clinics, a model they use to date. Some of their former franchisees have grown to become competitors.

Finally, the network suppliers. While franchisors have elaborate standards to be met by suppliers, it is unlikely that they can cover all aspects of the supplies needed. An unethical franchisor cannot stop franchisees and suppliers from being unethical.

Basic legislation and strengthening of franchise associations in East Africa is needed to build a strong franchise culture.

The writer is a Franchise Consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment