Why Franchisors Should Check For Unauthorised Suppliers in Their Franchise System

Sneha Santra
Sneha Santra May 14 2019 - 3 min read
Why Franchisors Should Check For Unauthorised Suppliers in Their Franchise System
A part of the reason behind the success of a brand and its reputation depends on a franchisors’ commitment to specific vendors and suppliers across its entire system

The franchise industry offers unique business opportunities to aspiring entrepreneurs. The franchise system offers a well-established business model and a reputed brand name. Part of the reason behind the success of a brand and its reputation depends on a franchisor’s commitment to specific vendors and suppliers across its entire system.

By using unauthorised products and/or suppliers in providing the products and services at the franchised business, franchisees will start to break away from the uniform system standards set by the franchisor, which will then lead to significant problems. Consumers of a franchised business expect the same customer experience that includes receiving uniform products and services from any franchised location. Here are the reasons why you should check for unauthorised suppliers in your franchise system.

Tarnishing Brand Image

Many franchisors spend years building up the goodwill associated with their system and trademarks only to have their franchisees ruin it by following their own rules while operating under the franchisor’s brand. If franchisees veer off the course set by franchisors by, for example, selling an unauthorised product at their franchised business, then it is more likely that the franchise brand’s image will be tarnished or at least disassociated with the system. 

Many food franchises such as KFC and McDonald's have had to shut down their franchises, as the quality wasn’t up to brand’s reputation owing to the use of unauthorised suppliers.

Violation of Rights 

When franchisees start using unauthorised suppliers without any action against them for a long tie, it may give them the impression that the franchisor finds his/her action acceptable. It gives them a wrong impression that the franchisor has waived its right to enforce its system standards. This leads to franchisees taking more steps outside the set boundaries mentioned in the franchise disclosure document. As a result, violating the franchise rights entitled to them. Without the ability to enforce its own standards, the franchisor may face additional problems beyond a franchisee making unauthorised purchases, such as losing control over their own franchise.

Decreased Revenue

Uniformity can be one of the major issues in operating a franchise, which might result in losing your customer base and reputation and thus decreased revenue. Loss of control is not the only issue with unauthorised purchases. Franchisors may also lose money when franchisees choose outside vendors. While many assume that franchisors only earn money through royalty payments from franchisees, there are many franchisors that earn money in an additional way, which is through the required purchases of franchisees. 

Lack of Traceability

Another problem caused by franchisees purchasing fake or low-quality products from unauthorised suppliers is that the franchisor is deprived of its ability to assure quality and safety. The franchisor won’t be able to track the issue and get to the root cause associated with the problematic franchisees’ purchases; this issue is easily seen within the restaurant industry. The knowledge of authorised vendors means that the franchisor and franchise system can quickly resolve an issue.

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