Changing Course and Reinventing Brands to avoid “unfranchising’

August 31st, 2018 by Ritwik Donde

Nothing stays the same forever. In a world where things are always changing, sometimes you have to think about who you are and where you stand—and figure out whether or not it’s time for a refresh or a total change in direction.

At its peak, Blockbuster Video had more than 9,000 stores. But starting next week, there will be only one left in America. Following the acquisition of the company by Dish Network in 2011, the remaining corporate stores began winding down, leaving the Blockbuster Video in Bend, Oregon, as the final store.[1] Minneapolis-based ink-and-toner retailer Rapid Refill experienced a similar story. The franchise had shrunk from 120 locations in 2009 to 80 in 2014, with the bottom of the sinkhole nowhere in sight. This led the franchisors management/owners to follow what it called “unfranchising” of the system.[2]  So, what led to these franchises to become defunct?

One theory suggests lack of innovation in face of changing consumer preferences and disruptive external competitive forces. But not all franchises that have faced similar disruptive forces followed same route. Many franchisors have been quick to change course and reinvent their brand by expanding into new products and services. This strategy has helped franchisors avoid going the way of video-rental shops and record stores.

Take the home services market for example. In light of new competition from innovators like Amazon’s Home Services play or increasing consumer reliance on third-party apps like Angie’s List and Home Advisors, residential services franchises have been quick to consolidate their offerings into a platform where franchisees can cross-sell their products and services, reducing their cost of new customer acquisition. Take the case of Dwyer Group. The company, like many others in its industry was impacted by the recession and faced competition from independent players that leveraged Home Advisors type service providers. In response it launched its “Neigborly” platform to help franchisees in seeking new customers from within its system. Payback for this strategy came through reduced customer acquisition cost, increased customer retention and shortened service intervals, all driving top line revenue.[3]

Service providers are not the only ones to evolve their systems to keep them alive. Printing industry franchises faced a similar dilemma. For the copy-and-printing franchise Alphagraphics, it was the rise of desktop printing and publishing was slowly killing the entire copy-store industry. To overcome this disruptive change, the company, in 2011, radically repositioned the concept from simple print shop to new-media marketing services provider.[4] Targeting a new customer market, i.e. small and medium businesses, it tapped into their growing demand to start using mobile marketing and social media by offering them end-to-end marketing communications solutions, allowing its franchisees to boost their sales in the years ahead.

Now the same headwinds are being experienced by the casual dining industry. As more and more millennials, one of the largest demographics in the U.S., are preferring to eat at home, yet not inclined to cook[5], this industry’s hand has been forced to reinvent their traditional service options. We can see that brands like IHOP are now adopting to the boom in mobile and online ordering technology. IHOP, owned by Dine Brands Global Inc., announced earlier this week that it is partnering with DoorDash to offer delivery from more than 300 of its restaurants, while Panera Bread has built an in-house delivery operation that served 43 states as of May 2018.[6]

And as consumers continue to change, one thing is certain, franchisors need to invest more time in strategically planning their next move, which would require time, investments and considerable risk.

[1] Oregon Public Broadcasting

[2] Franchise Times

[3] Franchise Times

[4] Forbes

[5] The Columbus Dispatch

[6] Bloomberg