Ahmed Mahmood, Franchise and Business Development Consultant
Scope management Consultancy
Coronavirus pandemic has undoubtedly resulted in global implications and adversaries on Franchise including Franchiser, Franchisee, SMEs and large businesses. In the UAE, these implications overstretched all Franchise activities. Franchise model along with all the systems, packages, operational mechanisms, obligations and conditions it includes, which are contained in a detailed and inclusive agreement is more vulnerable to the changes in direct and indirect business management environment. In response to that, governments have imposed health controls on people and various economic sectors to protect them under this vicious and fast spreading pandemic. Therefore, it has become necessary to change people’s day-to-day behavior, lifestyle, dynamism and interaction. Many government organisations, markets, malls and businesses, except food, medication and daily necessity providers have been locked down. Retails, including Franchise and others, have also been locked down or got their activities restricted. This includes Franchise in various businesses like restaurants and cafes, which are allowed to work only through delivery. Besides, transportation, tourism, aviation, healthcare, retails and services sectors have been locked down where appointments are set in advance and the number of customers and workers in closed environments is restricted. Health and regulatory conditions for social distancing, disinfection and measuring temperatures have been set. Distance learning and e-education has also been applied.
Sever and Various Implications on Franchise
These implications include new costs, managerial states and various operational patterns. Franchise businesses have faced very new normal and continuous losses, which Franchise seeks to minimize them in different ways.
Some of these implications are:
First: Income and Cash Flow:
- Cash contraction
- Accumulated losses due to low demand
- Additional cost due to precautionary measures
- Difficult coverage to operational obligations
- Loss of a great part of trained workforce
- Payment of post job termination
- Salary reduction and its impacts on quality
Third: Management and Legal Obligations:
- Multi-management difficulties and operational updates
- Various legal obligations and Franchise Agreements; many contracts have gaps
- Decision on business continuity, vision, plan or abandonment
- Updates in legal actions and the importance of commitment to them
- Negative impacts on supply chain and external production inputs may disrupt productivity and services due to the effect of the global trade and the restrictions imposed on them
Fourth: High Rentals in Malls and other places:
High rents in malls and outside places have been some of the highest expenditure clauses for the Franchise private sector businesses where their outlets are multiple. Such rents have become one of the risk factors for SMEs growth, which exert tireless efforts for continuity. Along with coronavirus pandemic, which has resulted in triple-crisis: economic, health and social, high rents have become one of the most serious issues that should be reduced or deferred for several months until full recovery. This, of course, needs the interference of the government and the cooperation of mall owners who sometimes do not respond to the requests for rent reduction and resilience making the competent entities to address them officially. Canadian Franchise Association has requested the competent entities to interfere for the interest of Franchise as a global and strategic sector for transferring experience, technology, capabilities, investment, training and creativity to Emiratise them within the UAE who met the request through a Rent Relief Programme and met the request of the Association by facilitating loans and reducing fees and taxes. It is worth noting that it has requested financial relief to pay salaries. All of these initiatives meant to maintain Franchise continuity and its significant contribution to economy.
South Korea has provided the largest support and incentives packages via trade agency. It also forced Franchisers to reduce Franchise property fees by 50%. It also reduced sales, services and supply fees by 30% from Franchiser to Franchisee. Besides, it supported cash flow and reduced the profit percentage for loans and bank credits provided the corporate submit an updated Franchise Disclosure Document (FDD).
Key Steps you should adopt to protect your Businesses
- The Franchisee should contact the Franchiser to provide adequate information about the situations and the Franchiser should be keen on monitoring and working jointly as one team.
- It is necessary to agree with the Franchiser that it might be difficult to meet all the requirements at a time and therefore, they should be postponed for a certain period or amended. Some of these requirements are payments and fees.
- Looking for rent reduction or payment deferral
- Constant cooperation and communication between Franchiser and Franchisee is the most important factor for the continuity of relationship to curb the pandemic.
- Both should work jointly to address the supply chain issues
- It is important to ask advice form franchise consultants on the magnitude of risks and the effective measures to address them and the new markets during and post pandemic.
- Developing post pandemic new plans to negotiate with the Franchiser to reach out new solutions and ideas in case of losses.
- Franchiser should fully cooperate, provide alternatives, update and change what is required for business continuity.
- Global chambers of commerce and Franchise Associations are seeking to attain support form Franchise competent entities for its prominent role in GDP and provision of managerial and technical skills as well as opportunities for domestic corporates for safe and low capital expansion.
- Monitoring any facilities the state provides for corporates and seeking to obtain them.
Double Think on Protection against Risks
- Franchise contract should be technically completed by a Franchise Consultancy accredited by Franchise Associations as the contract is not like other normal agreements; it is made of technical and legal sides on which it is based.
- Franchise Consultants work on international principles and directives for Franchise Model. Therefore, you should review the contract with them to make sure it is technically complete.
- Now it is necessary to get your previous and upcoming contracts reviewed by Franchise Consultants and you can first contact Franchise Association for advice. The consultant sheds light on the technical gaps and the loopholes that should be amended or should be previously recognized. He also makes sure of the equilibrium between the legal and the technical sides and cooperation between the Franchise Parties.
- Technically completed contract for Franchise Model gives you an opportunity to participate in local and global Franchise Exhibitions.
- Creativity and innovation are important to find out new ideas and solutions to avoid risks and maintain business continuity through a risk study in business environment using business diagnosis method.
Digital Transformation is the most important factor that protects the continuity and future of your business, its marketing and products. Therefore, do not hesitate, Scope Company
can provide you with the appropriate advice.