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The traditional franchisor-franchisee relationship is evolving in response to a riskier legal and regulatory environment. So how can franchisors prepare for this new reality?

An evolving relationship

The franchisor-franchisee relationship is a model most people understand, and it has historically led to mutually beneficial success. The franchisor owns the brand and related intangibles such as recipes, processes, and technology. It sets the standards, provides support services, and takes a fee in return. The franchisee owns and operates the assets, employs the staff, puts in the hours, and earns a return as an entrepreneur.

But this traditional model is evolving in response to an increasingly riskier legal and regulatory environment. As the contractual agreements and division of responsibilities become more complex, the landscape is fraught with additional pressure and risk.

Emerging trends

In addition, franchisors are facing increased pressure from evolving consumer, business, and regulatory trends, including:

  • Brand innovation
  • Maintaining consistency in customer experience
  • Advertising spend
  • Managing dated and complex contracts
  • Addressing guest privacy
  • Evolving accounting standards
  • Regulatory rulings

The confluence of these trends results in franchisors being more responsible for managing complex relationships with the end consumer and for the risks associated with those interactions. Franchisors face potential risks that they haven’t encountered before, such as being included in legal actions against their franchisees.

At the same time, franchisors can’t employ too much oversight or be so prescriptive that they run the risk of being labeled a joint employer. They have to strike a balance.

Preparing for this new reality

For most of its history, the separation that was built into the franchise model was a large part of what made it attractive to participants on both sides. But pressure on the traditional franchise model is coming from multiple directions. Consumers demand more integrated experiences with a brand experience. Meanwhile, courts and regulators are chipping away at the firewall of ownership and responsibility that made franchising a distinct model in the first place.

All of this means that franchisors can’t afford to rely on long-held assumptions about their role in the business model. There are new customer demands that are constantly evolving. And with regulatory changes, a franchisor can’t approach talent, risk, training, or relationships the same way it did only a few years ago. Some of those changes are easy to perceive. Some are in the headlines. But the second-order changes that cascade outward from them are less easy to appreciate without deliberate effort.

Franchisors that move most decisively to embrace this new reality will be the ones better prepared to prosper in it.

Download the full PDFRestoring balance and protecting valueto learn more about the franchisor lifecycle model.

About Rebecca Chasen

Rebecca is a Deloitte Advisory partner with Deloitte Financial Advisory Services LLP and US Advisory leader for the Travel, Hospitality & Leisure practice. Rebecca has more than 20 years of experience in financial consulting, corporate investigations, and auditing of public and private companies. In addition to client and leadership responsibilities, Rebecca speaks at internal audit, accounting, and governance conferences. She holds leadership positions within her community, including serving as a Chair of the Board of the Victim Rights Law Center and a member of the United Way Women’s Leadership Council.

Contact: Rebecca Chasen, US Advisory Leader, Travel, Hospitality & Leisure

rchasen@deloitte.com / +1 617 437 2315

About Kevin Lane

Kevin is a Deloitte Advisory principal with Deloitte & Touche LLP and serves as the retail industry leader for Deloitte’s Enterprise Compliance Services practice. He has more than 18 years of professional experience in advisory services, and recently completed an assignment in South America. Kevin now serves a variety of retail clients throughout the US, helping them to meet their risk and compliance objectives. His areas of focus include compliance, third-party risk, and finance and operations.

Contact: Kevin Lane, Principal, Deloitte Advisory

kelane@deloitte.com / +1 214 208 5528

About James Cascone

James is the US and Global Restaurant & Foodservice Industry leader and partner, Deloitte & Touche LLP. He is also the national Supply Chain Risk Management Advisory marketplace leader. He has more than 20 years of experience providing business advisory and auditing services, and leads a national team that assists clients with strategic risks and operational challenges related to supply chain. He also advises restaurant and foodservice clients on leading practices and industry trends.

Contact: James Cascone, US & Global Leader, Restaurants & Food Service

cjcascone@deloitte.com / +1 213 553 1300

About Rebecca Chasen

Rebecca is a Deloitte Advisory partner with Deloitte Financial Advisory Services LLP and US Advisory leader for the Travel, Hospitality & Leisure practice. Rebecca has more than 20 years of experience in financial consulting, corporate investigations, and auditing of public and private companies. In addition to client and leadership responsibilities, Rebecca speaks at internal audit, accounting, and governance conferences. She holds leadership positions within her community, including serving as a Chair of the Board of the Victim Rights Law Center and a member of the United Way Women’s Leadership Council.

Contact: Rebecca Chasen, US Advisory Leader, Travel, Hospitality & Leisure

rchasen@deloitte.com / +1 617 437 2315

About Kevin Lane

Kevin is a Deloitte Advisory principal with Deloitte & Touche LLP and serves as the retail industry leader for Deloitte’s Enterprise Compliance Services practice. He has more than 18 years of professional experience in advisory services, and recently completed an assignment in South America. Kevin now serves a variety of retail clients throughout the US, helping them to meet their risk and compliance objectives. His areas of focus include compliance, third-party risk, and finance and operations.

Contact: Kevin Lane, Principal, Deloitte Advisory

kelane@deloitte.com / +1 214 208 5528

About James Cascone

James is the US and Global Restaurant & Foodservice Industry leader and partner, Deloitte & Touche LLP. He is also the national Supply Chain Risk Management Advisory marketplace leader. He has more than 20 years of experience providing business advisory and auditing services, and leads a national team that assists clients with strategic risks and operational challenges related to supply chain. He also advises restaurant and foodservice clients on leading practices and industry trends.

Contact: James Cascone, US & Global Leader, Restaurants & Food Service

cjcascone@deloitte.com / +1 213 553 1300

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