The secret of succession: proactive chains should help franchisees plan for the future

Nation's Restaurant News,  Jan 22, 2007  by Paul Frumkin

• E-mail
• Print
• Link

Aging restaurant franchisees have the potential to pose a sizable problem as both they and the industry mature. Franchisors acknowledge that the smooth transition and continuity of a chain's operations demand that operators--especially the smaller-scale franchisees with five or fewer units--develop end-of-career contingency strategies.

However, the fact that so many food-service companies are helping their franchisees with succession planning also bodes well for the industry.

The times are right. The largest generation of Americans--the 97 million baby boomers--are starting to pass the age of 60 and beginning to contemplate retirement. Among them are a large number of restaurant franchisees.

These baby boomer entrepreneurs have used their investment capital and much toil and sweat to build the half-trillion-dollar foodservice industry into what it is today.

Their impact on the industry has been huge, and it remains so. The aging of the boomers was one of the reasons that led KFC to forecast the possibility of "no new net-unit growth" in its domestic system in 2007 and 2008. David Novak, chief executive of Yum! Brands Inc., which owns the 5,500-unit KFC, recently told investors that older operators of 200 to 300 domestic outlets may opt to close shop or let their contracts expire rather than invest in a mandatory, systemwide remodeling project with a June 2008 deadline.

The key to maintaining a vibrant economic picture and continued unit growth, experts say, is to convince longtime franchisees to plan for the future. Jim Stansik, executive vice president of franchise development for the 8,000-unit Domino's Pizza chain of Ann Arbor, Mich., said he is devoting more time to making sure that his franchisees think about succession planning.

Stansik said: "When they hit their 50s and 60s and we ask them about their succession plans, so many have given it no thought. And the reason for that is it's not a fun topic. But I think, as franchisors, we have to bring it up."

"Success" is the foundation for "succession," and for a franchisor to continue to flourish, succession planning is vital.

Smart companies began examining the issue more than a decade ago, and others are catching up quickly and putting effective programs into place. Ann Dugan, assistant dean of the Katz School of Business at the University of Pittsburgh and a leading expert on succession planning in franchised businesses, says: "A good succession should consider family, the franchisor and other franchisees."

That's why some companies, such as Domino's, have created innovative programs to interest family members in the business. Domino's, which franchises internally, created an annual summer internship during which a dozen or more college-age children of franchisees work in all departments of the corporate headquarters to get them interested in the business.

Programs designed to generate interest among younger members of family-owned businesses make perfect sense, and any restaurant chain with a large franchise community should consider them.

While some experts agree that it probably is better late than never to address this type of planning, the sooner a franchisor or franchisee begins the process, the better it is for all involved.

Susan Kezios, president of the American Franchisee Association, says she urges her members to begin thinking about exit strategies the day they sign their contracts.

"We tell folks who are purchasing a franchise to think about getting out at the same time they are getting in," she said. "Have an exit strategy ready on day one."

In fact, the eleventh hour is not a good time to consider a transition or a way out of a large business investment. Nevertheless, programs devised by such large-scale franchisors as Domino's and McDonald's Corp. indicate that the foodservice industry has a lot of foresight and concern about the direction the franchise community will take as the older licensees either seek or are required by advancing age to leave the systems.

Perhaps what is most heartening is the fact that these chains are approaching an uncertain future with the desire to keep as many of these franchised businesses within the families as possible.

So many franchisees, after investing such massive amounts of hard work and hard-earned money into their operations, have to have a sense of satisfaction that the parent company is working to help them continue their legacy.

The franchisors that have helped build solid, profitable businesses for their partners are showing definite foresight in helping those successful franchisees pass their businesses on to the next generation.

Editorial Page Editor: Paul Frumkin. NRN's editorial board: Alan Gould, Ellen Koteff, Robin Lee Allen, Richard Martin, Gregg Cebrzynski, Elissa Elan, Alan Liddle and Ron Ruggless.

COPYRIGHT 2007 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2008 Gale, Cengage Learning