Online Merchandise Sales and the Franchisor-Franchisee Relationship

Author: BeTheBoss.ca

Date: FEB 5th, 2018

Topic: Industry Experts


In Canada and elsewhere, sales are booming online. According to information portal Statista, for example, 10 percent of Canadians made a purchase online once a week throughout all of 2016 (https://www.statista.com/topics/2728/e-commerce-in-canada/). This trend has not gone unnoticed by franchisors who sell goods, and many of them now also sell their products online to reach that wider customer base.

Naturally, this shift has franchisees concerned as these are products that could have been bought from their locations. In response to this issue, some major franchisors in Canada have already announced or started a profit-sharing plan with franchisees regarding online sales. Some have opted to split the web profits evenly or by a percentage with franchisees, while others are reinvesting profits back into the brand, and by extension, the franchise system as a whole. However, there are still lingering questions surrounding online product sales by franchisors and what it means to the franchisor-franchisee relationship.

 

Breach of franchisee obligation? 

One of the biggest questions about brand sales outside of the franchisee system is whether such a move will breach the franchisor's obligation to the franchisee or endanger that relationship. Franchisors do have to consider whether selling online or through other non-franchise channels is permitted by the franchise agreement and what type of competition that would pose to franchisees. They also need to weigh how to handle the profits in a way that does not alienate franchisees. 

Some franchisors are already addressing outside-franchise sales in their agreements, so prospective franchisees should review their agreements for provisions regarding this area. The agreement may specify how and when franchisors are allowed to sell products outside the franchise system and exactly what will be done with those profits. As mentioned above, some brands are directly sharing the money with franchisees, but others are reinvesting in into the company, which can prove more difficult for franchisees to track and evaluate the benefits of. 

It's too soon to tell exactly how franchisors will handle the impact of outside system sales going forward. There is always a chance, for example, that major problems will arise if a franchisor's outside sales rise while the franchisee sales flatline or decrease at the same time. As this new trend continues to evolve in the franchise industry, incoming franchisees will need to examine just how their potential franchisor is handling or will handle sales made outside the franchise system.