HOW (AND WHY) TO ESTABLISH A POST– COVID-19 PROACTIVE RESALE PROGRAM Written By GRANT KREUTZER
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s the coronavirus pandemic reshapes consumer buying habits and franchisors pivot their strategies to remain relevant, it’s critical to optimize resale programs given a potential acceleration in transfers. Here are the best practices for establishing a proactive resale program that can help lead a franchise system through the economic crisis and beyond. In the best of times, franchisees sell for a variety of reasons: retirement, diversification, or to exit underperforming locations. Brands sell company units to raise cash to fuel innovation or to support franchise growth. Given the extreme market changes under way, a formal resale program actively assists buyers and sellers in completing transfers aligned with post-pandemic growth plans. If franchisors react to transfers by relegating tasks to legal, administrative, or operations staff, they risk losing a significant opportunity to accelerate strategic brand pivots to survive the crisis. Proactive resale programs effectively realign market growth plans, deal with persistent unit underperformance, encourage franchisee collaboration through mentorship, and even motivate consolidation or partnerships between franchise groups. Potentially, such resale programs can yield a future franchisee base capable of maintaining and growing their businesses, adopting innovative brand strategies, and collaboratively testing and exploring new ways to compete as the brand rebalances the on-site versus at-home customer experience.
HOW TO START Where does a chain start to develop a proactive resale program? First, build the program on a foundation of data analysis composed of key market and franchisee performance data. The data will show which franchisees can grow
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and who should consider exiting the system – identifying potential buyers and sellers. Analysis starts by ranking unit-level financial and operational performance data by franchisee and market. Typical data includes franchisee EBITDA, post-debt cash flow, sales trends, adherence to brand standards, reinvestment in the business, and customer feedback. The rankings will show which units and franchisees outperform and underperform the median. DEVELOP A TEAM Next, establish a market planning team composed of franchise experts in financial analysis, real estate, operations, and marketing to review the results and assess growth opportunities and challenges segmented by franchisee and market. Develop an improvement plan for underperforming units in collaboration with franchisees. Monthly milestones help track initiatives and results. While franchisees implement improvement plans, the brand’s franchise business development experts (managing franchise recruitment, transfers, and acquisitions) engage underperforming franchisees to consider ways to reduce high rent or debt costs. The team can explore if short-term royalty reductions linked to improvement plan achievements might assist or motivate these franchisees to reach their goals. Early plan results will show which franchisees can: 1) grow, 2) maintain what they have, and 3) consider exiting the system. A formal resale program engages franchisees to see what path they will take. In the event a franchisee decides to leave the system, offering a formal resale program connects buyers and sellers to complete transactions and stabilize the chain. SETTING THE PRICE AND MAKING THE DEAL It can be challenging for franchisee sellers to determine a
