What happens if my franchise isn’t performing as expected?

Shelley Nadler writes:

The answer to this will really depend on the reason your franchise is not performing as well as expected.

Your franchise may be underperforming because of external reasons. These could be anything from global or national events such as COVID or recessions to local market conditions, for example, where a major store retailer closes down close to where the franchisee’s business is situated reducing footfall or where a competitor opens nearby. A franchisee may feel the underperformance is due to lack of training or support from the franchisor. The franchisor may blame the underperformance on the franchisee’s lack of commitment to the business or its failure to follow the franchise system.

Underperformance may get picked up quickly by the franchisor who will want to meet with the franchisee to discuss the reasons for the underperformance or it could be picked up at a regular review meeting. If a franchisee feels that the poor performance is due to external reasons or a lack of support from the franchisor then it is essential that this is communicated to the franchisor so that franchisor and franchisee can work through the problem together. The franchisor may want to review and audit the franchisee’s business to discover the reason behind the failures. A good franchisor will support the franchisee to put in place a plan to remedy the issues causing poor performance.

The franchise agreement may set out minimum performance targets and a process that will be put in place when these are not achieved. These processes should be fair and reasonable and include the right for a franchisee to seek to remedy the failure to achieve the target. The franchise agreement should also set out what will happen if the underperformance does not improve. As always, legal advice should be sought so that a franchisee can fully understand its position.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.