Reopening For Business: Opportunities For Franchisors And Franchisees As They Lead The Comeback

Some of the businesses most affected by the coronavirus pandemic are dominated by franchises. Franchises occupy leisure, hospitality, restaurant, health and wellness, and entertainment businesses where social contact is hard to avoid. For many of these businesses, the shelter-in-place orders have turned cash flow off overnight like a spigot.  

Despite the need for these businesses to reopen, the decision on when, and how is vastly complicated by competing demands. Like other businesses, franchise businesses must implement federal, state and local health and safety guidelines. They must also consider (and potentially implement) the best practice recommendations of applicable trade groups. But in addition to the financial burdens and compliance risks, most franchisors will develop and impose new brand standards as the system adapts to the new Covid normal.

Franchisors are keenly aware of these challenges, and have the opportunity to provide critical leadership, support, communication and information to help franchisees navigate this changing environment.

Here are some of the key issues for franchisors when helping franchisees reopen – some may call it making a comeback:

Monitor and Provide Resources for Franchisees

In the U.S., the Centers for Disease Control (CDC) sets national standards and guidelines for responding to Covid-19. As the pandemic has evolved, however, state and local health authorities have also imposed their own rules and recommendations. Some of these are merely recommendations, but others have the force of mandates imposed by executive order. Still other state and local authorities will defer to industry best practices. Governmental and industry mandates and recommendations cover a range of topics such as social distancing, treatment of surfaces and use of materials, equipment and operations. Science and research on the one hand, and the needs of commerce on the other, are driving these ever evolving efforts in an often incoherent way. Franchisors are not only well positioned to track and serve as a real time conduit for information, they are uniquely suited through their platform and experience to help navigate the regulatory snarl by providing practical advice that is adapted to the needs of the particular business.  

Franchisors can also monitor and assist franchisees with identifying federal, state and local programs and lenders who might provide financial relief during store closures. In addition, franchisors should monitor state and local efforts to stay evictions and provide rent relief and to provide this information to franchisees.

Develop Reopening Plans

Reopening planning can be tricky for franchise companies whose franchisee businesses span multiple states. The governors of each state (and in some instances county and local governments) have been charged with developing their own reopening timelines, plans and restrictions. From a timing perspective, franchisors will need to collaborate with franchisee leadership to adapt a national brand’s reopening plan to conform to the reopening timelines determined by each state and local governments.

As discussed earlier, franchisors and franchisees need to sift through often overlapping safety guidelines and requirements and new customer expectations to prepare and adapt their physical spaces, business practices and service offerings for the new normal. These changes to business operations might include:

·      New customer-facing signage displaying changes to the customer experience.

·      Occupancy limitations and physical distancing requirements.

·      Modification or termination of product or service offerings, including, for those that serve and sell food and beverages, meal and food kits.

·      Installation or modification of shields and barriers (typically plexiglass) where appropriate.   These may include barriers between customers and employees (e.g., a barrier between a customer and clerk) and barriers between customers (e.g., table separators).

·      Controlling foot traffic in and out of their space.

·      Analyzing traffic patterns within their space.

·      Adopting some form of online and social media sales strategies, including, where appropriate, adding photographs of menu items, service offerings and the premises (displaying the adoption of new hygiene and sanitation methods).

·      Requiring and expanded use of delivery and third-party delivery services together with utilizing tamper evident packaging and adapting the physical space to accommodate new third-party pick-up and delivery service providers.

·      Requiring and expanded use of contactless and “curbside” delivery and pickup. 

·      Utilizing online portals and electronic communication to minimize physical contact.

·      Eliminating high touch items such as shared coffee makers, vending machines, magazines and brochures in waiting rooms and sampling stations.

·      Requiring both employees and customers to wear face coverings.

·      Requiring employees to wear gloves.

·      Temperature monitoring. 

·      Adding signs and floor marker reminders for physical distancing.

·      Hygiene and sanitation requirements.

·      Closing common area gathering places.

·      Adding disinfecting stations and hand sanitizers.

·      Exclusive visit times for at risk populations.

·      Providing face coverings and single use items to customers.

·      Contactless payment methods.

·      Deploying health questionnaires.

·      Reducing use of restrooms and changing rooms.

Franchisors should integrate governmental recommendations and requirements into system-wide standard operating procedures in order to maintain consistency. The goals of these modifications to the standard operating procedures should be more than just legal compliance and safety, however. Franchisors also need to be sensitive to the customer perceptions. For example, recent surveys indicate that restaurant customers expect workers to wear face coverings and gloves. They also expect to see single use condiments and disposable utensils, and frequent sanitization of the facility. The new procedures are not only about maintaining safety; they are about making the public feel safe when they return.

While franchisors will want to implement consistent operating standards, to the extent such policies apply to labor and employment policies for franchisees’ employees, franchisors need to be aware of joint employer issues.  As a general matter, franchisors should avoid: (1) being involved in employment decisions (i.e., hiring, firing, disciplining); (2) training the franchisee’s employees; (3) providing employment policies; and (4) providing labor scheduling software. In order to steer clear of joint employer liability issues, franchisors should frame operating standards as protective of the brand, and to the extent these affect franchisee employee conduct, leave implementation and enforcement to the franchisees.

Marketing and Communications

How these changes are communicated to a fearful public may be as important as the changes themselves. Businesses need to message to their customers that they have adopted the appropriate measures to keep them safe. A comprehensive plan to reopen must include a marketing plan designed to relaunch the enterprise as having adopted current best practices which deliver on customer expectations around safety. Franchise infrastructure is uniquely well suited to help develop comprehensive marketing and communication plans and reopening collateral with standardization across the brand. These communications should be launched in multiple formats, both electronic and physical, to give customers and the public the assurance they need to return to the business.   New customer-facing signage displaying changes to the customer experience, along with visible adoption of new sanitation procedures will likely be expected by customers. Many businesses are announcing these changes by text, email and website to invite customers to the reopening, and to reset customer expectations on the look and feel of these changes.

Supply Chain Disruptions

The coronavirus pandemic has resulted in major supply chain disruptions which have affected myriad businesses. Franchisees may in some cases be disproportionately affected because of required use of designated or approved vendors. Franchisors will need to monitor supply chain issues wherever they have a presence. In places where the supply chain has been disrupted, franchisors can consider changing or expanding the list of approved suppliers to accommodate supply chain issues. Changes in vendors may, in some cases, be driven by the franchisees who make requests for flexibility. Franchisors will still need to monitor the quality and suitability of all new vendors and their products and can help franchisees maintain the availability of the product as well as price controls.

Closures and Limitations

The numerous government mandated health orders addressing Covid-19 are challenging for all businesses to navigate because they continue to evolve. For franchisors whose brands span many states, they present an even greater challenge, because the content, force and effect of these orders varies so widely between the different states. Virtually all franchise agreements require franchisees to comply with all laws, and franchisors and the franchisees will need to monitor compliance closely as failure to do so might, in addition to creating liability, damage the brand’s reputation in a community.  In addition, newly adopted standard operating procedures will need to be adapted to local law and health directives as well as consumer demands.

Conclusion

As of the date of this writing, most states have started to reopen. With unemployment at levels not seen since the Great Depression, closed businesses are understandably under enormous financial pressure to reopen. But with an effective vaccine or treatment still months if not years away, the coronavirus has inserted itself into firmly into business practices. All businesses will need to adopt procedures designed to protect their employees and customers, but they also need to be aware of regulatory pitfalls and potential litigation risk. The added financial burden of safety puts additional stress on businesses which have suffered significant impact on their cash flow. Franchisors are frequently in a position to assemble necessary data and best practices and to provide the same to the franchisee community. Flexibility and nimbleness will help franchisors maintain their brand in a time of crisis. A collaborative relationship between franchisors and franchisees can help manage and ease these burdens.

Bryan Cave Leighton Paisner LLP attorney Angela Hsu contributed to this post.