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What you need to know about omnichannel marketing before you buy a franchise

Sarah Stowe

You’re ready to snap up that retail franchise for sale but wait…have you considered how your franchisor will handle online and omnichannel marketing? 

How do customers buy goods or services today? How did you make your last purchase? In a store, online, using an app or over the phone? The same product may be sold by the same supplier through a number of different channels. In the retail world this concept of omnichannel retailing or marketing has had a significant impact on how all businesses, including franchises, operate. 

The new digital world of retailing

Once a upon a much simpler time the franchisor gave a franchisee the right to operate a 'bricks and mortar' store and/or a defined territory and the franchisee sold the goods or services to the customers who entered the store or who lived in the territory. 

But what happens now? A customer can live almost anywhere and order the same goods or similar online from all over the world and for maybe a cheaper price. 

You can order and buy a custom made mattress, shoes or a pizza through your computer or phone. Even service based businesses can be affected by new forms of online technology such as Airtasker (handyman services), Uber (taxi), Expedia, Flightfox etc (online travel agents) and their numerous competitors. 

Will your franchise handle ecommerce?

Retailing and marketing are becoming more complex with the aid of these new technologies. Every purchaser of a franchise big or small should carefully consider how the business is impacted by omnichannel marketing both internally to the franchise system and from outside competitors.

For example consider how the franchisor handles online sales in the system. Does it operate a website allowing customers to buy the same products sold by franchised stores? If it does, then how are the profits for these sales dealt with? Many franchisors share the online revenue with their franchisees in some way, usually taking into account the cost of operating the online shopping facility.

Some franchisors allow the franchisee to take online sales and may provide the technology for the franchisee to process customer transactions.

The online (or mobile app) ordering of fast food is such a situation – the customer selects their local store and the order is placed directly with the franchised business. The franchisee in those cases will expect to pay a fee for the provision of the technology by the franchisor.

Many service franchises gain the bulk of their customers from online or phone queries – the franchisor will operate a central call centre and phone number, and leads will be allocated according to franchise territory. If several franchisees operate in a single territory then leads may be rotated and the franchisor may take into account franchisee response time and compliance when allocating leads. 

Often there are restrictions in the agreement on how the franchisee can operate online; if the franchisor operates a central website or ecommerce facility then franchisees may be prohibited from operating their own competing facility or site, even a separate Facebook site.  

All these issues must be carefully examined and considered in assessing any potential franchise business.

If the franchisor does not operate an up to date functional mobile-friendly website or use new technology then the question must be asked why not? And is it open for competitors – those outside the system – to do so?  Can the same goods be offered more cheaply online? What stops your future customers from moving their purchases online to the outside competitor?

The franchise agreement should be expected to make provision for future developments or technologies so that the business can move into new channels as they arise. 

Legal protections

There are no laws in Australia which prohibit a franchisor from selling online in competition to its franchisees or from stopping its franchisees from selling online. But the Franchising Code of Conduct demands franchisors disclose these matters to franchisees to enable them to make an informed decision.

The current form of the franchise disclosure document (to be provided at least 14 days before a franchisee signs a franchise agreement) requires a franchisor to give details of what the franchise system provides about online sales.  

The franchisor must disclose whether the franchisees or the franchisor can sell online and what restrictions are placed on franchisees from doing so. If the franchisor can sell online then the extent to which it can sell in the franchisee’s territory and the details of any profit sharing arrangement with franchisees must be disclosed. 

Another issue to be disclosed by the disclosure document is the potential sale of the goods or services through third party websites, whether by franchisee or franchisor. 

Originally this chiefly concerned Ebay, however there are now numerous other sites which act as auction houses or markets for various sellers of goods and services and these are likely to be of interest to either a franchisee or franchisor.  For example – may a handyman franchisee advertise its services on Airtasker?

A related omnichannel issue worth mentioning for retail franchises is the extent that third party sellers (online or not) may sell the same products. If a retail franchisor permits its products to be sold in department stores or supermarkets what impact will this have on the franchisees? This is an issue not adequately covered by the disclosure document but which should be considered by the franchise buyer.

The information provided by the disclosure document is only a starting point. Potential franchise buyers still need to ask a lot of questions about how the franchised business is affected by online and other marketing channels and to ensure that the franchisor has also considered the issues and has developed appropriate strategies. 

A red flag should certainly be raised with respect to any franchise system that continues to ignore the impact of omnichannel marketing or fails to build in flexibility for the future. Such a business runs the obvious and real risk of being made redundant by its more agile (and maybe not franchised) competition.