Multi-Unit Franchisee Magazine Issue IV, 2011 | Page 54

Sink or Swim?
was dirty, equipment faulty, and
the employees uninspired, says
Cottle, who started with Andy’s
Burgers as a part-time “fry guy”
at 15, purchased his first location when he was 24, and today
operates the chain’s top store, in
Locust, N.C.
Cottle hired a former employee to manage the unit, fired
the entire staff, scoured the store,
and invested in new equipment.
“We had the wrong people in
place,” says Cottle, whose company, J.R. Cottle Inc., will post
$2 million in sales this year.
“We were not looking for the
best people, but for the right
people who would be invested
in the company’s success. You
don’t have to be the best waitress, you just have to be a good
person. It’s harder to teach character
than talent.”
Cottle’s strategy paid off. In just six
months, he rebuilt relationships with the
community and doubled same-store sales.
Hearty growth and the highest turnaround
in the company continues today.
Sometimes external circumstances that
are no fault of the operator can wreak
havoc. A change in the market, pressure
from new competition, the exit of a mall’s
anchor tenant, or road construction that
blocks access all can hurt sales.
When road construction turned a
bustling Taco John’s franchise into a
distressed unit, the franchisee, a client of
Dady’s, went to the franchisor for help.
The franchisor, to its credit, allowed the
unit to relocate, says Dady. “That is an
example of a franchisee wise enough to
ask for help,” he says. A property owner
with multiple properties may also be
able to move a struggling unit to another
location within their portfolio and renegotiate the lease.
Sometimes a franchisee is too close to
the problem to see the situation clearly.
Dady and Gala both emphasize the benefit of taking a step back and seeking legal
counsel, asking your franchisor for help,
or consulting with another franchisee
for advice.

52

“Landlords
don’t want to
adjust rents,
franchisors
don’t want
to adjust
royalties, and
no one wants
to take a
haircut.”
—Anand Gala
Do your homework—diligently!

Stores close, even in good times. An operator’s solid track record, relationships,
and open communication can play a successful role in negotiating a reasonable
termination. It pays to study your loan
document, lease, and franchise agreement
carefully before acting.
“You had better read the fine print
first of both your lease and franchise

agreement before you close
the doors or those things will
be a huge noose around your
neck,” says Thomas.
Some franchisors may demand future royalty payments
for closed units or refuse to
allow franchisees to shut down
or relocate. Lee Plave, founder of law firm Plave Koch
in Reston, Va., says some of
his clients take a firm stance
on early termination agreements while others are open
to negotiation under certain
circumstances. Terminating a
franchise agreement should
be the result of negotiation,
says Plave, who represents
franchisors and distributors.
Franchisors will seek to determine whether the distress is
isolated or represents a broader problem
within the franchisee’s system, says Plave.
And as long as the franchisee doesn’t come
in with a “flamethrower’s mentality,” he
says, “people of good faith can find a way
to approach the problem. Usually there
is a solution that can be found.”
Gala agrees that negotiation and concessions, including a reasonable termination
fee, are possible. “The smart franchisors
are the ones who are not looking to add
insult to injury. They are not shortsighted
or greedy. That just isn’t good business
ethics,” he says.
No matter how the story of a struggling
unit ends, multi-unit franchisees should
keep the big picture in mind to ensure
the success of their entire portfolio. And
whether your store is underperforming
or a day away from closure, the key is
to maintain a set of standards to keep
customers loyal to the brand, says Plave.
“It’s kind of like a duck that looks
calm above the surface, but underneath
the water the legs are flapping away,” he
says. “If you have problems, make sure
the public doesn’t see. The moment the
public starts to see the situation is the
very moment that the franchisee has no
choice but to act quickly, decisively, and
without options.” And that just isn’t good
for anyone’s business.

Multi-Unit Franchisee Is s ue IV, 2011

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