The Data Wars, Franchisee Style

Franchisee Columnist Todd Michaud has spent the last 16 years trying to fight IT issues, with the last six years focused on franchisee IT issues—first running the retail technology department for Dunkin’ Brands (Dunkin’ Donuts and Baskin Robbins) and now running IT for Focus Brands (Cinnabon, Carvel, Schlotzsky’s and Moe’s Southwestern Grill).

"I’m taking your data and it’s going to cost you." That is what many franchisees hear when talking to their retail chain about accessing store data. That 10-word phrase is one of the major misunderstandings between franchisees and franchisors.

Retailers tend to get so caught up in their global rollout plans and product strategy that they often forget to look at things from the store owner's perspective. Seduced by all of the glorious benefits sold by vendors providing data analytics, retail brands start espousing all of the great things that the brand wants to do with detailed data from the stores. “By analyzing the data that we collect from these various sources, we will be able drive sales far more effectively.”

But the retail brand managers are asking their franchisee partners to provide the most intimate details about their business and in turn pay more for the privilege. And without clear quantitative benefits that this data will provide, franchisees have every right to be wary. Franchisees are skeptical that that yellow brick road is so easy to follow.

I once sat in a marketing meeting where several franchisees were being given an overview of a marketing campaign that would be spending significant marketing dollars to support a new menu item. The business case, the test results and the planned marketing strategies were all part of the presentation. One of the franchisees in the room leaned over and whispered to me in the presentation, “This is just nuts. If you look at this business case, with my profit margin, I am supposed to make $2 a day on this item. $2 a day! They are going to spend millions of dollars advertising something that won’t even make a dent in my business. They claim that it is going to drag all this high-margin business with it, but they can’t prove it. All the franchisees that run their business every day know that it won’t. This is ridiculous. Someone needs to be shot."

Most retail marketing and operations executives will tell you that having good data is critical to running a highly profitable and competitive retail organization. Data can tell you what products are selling, which marketing campaigns are effective, what price points are working, etc. Data can also assist in better managing labor costs, inventory costs and optimize the supply chain. But what does a franchisor do when retail franchisees don’t want to provide the data or pay the costs associated with providing it? You have two options: You could track them down, one-by-one and give them a Wet Willy until they scream “uncle” or you could compromise.

With all the benefits of having detailed data available for analysis, it seems obvious that a franchisor today would like to collect and analyze all the same data as their company-owned retail brethren. But the simple truth is that a large number of retail franchise organizations existed long before the technical capabilities to send data back to the home office from systems such as POS, distributors or video surveillance systems. As a result, many franchisee agreements stipulate nothing more than basic sales reporting and maybe a profit/loss statement be submitted on a periodic basis. So when a franchisor starts asking for this detailed store data about a franchisees business to be provided, it’s bound to receive some significant push-back.

I have spoken with a few of my peers about the sensitive nature of data ownership in a Franchise organization. In most of these conversations, the two biggest factors come down to trust and cost. Let’s start with trust. The number one franchisee concern is: “What is going to be done with the data?” If asked outright, typically the franchisor leadership will respond with statements like: “We will use the data to analyze our sales mix and promotion activities so that we can be more effective at marketing and, as a result, spend your advertising fund contributions more wisely.” Or they might say: “We want to understand if some analytics support different store operational processes or supply-chain disciplines that could help reduce your costs.” On the surface these seem perfectly reasonable. Who wouldn’t want that, right?

But things get dicier when more difficult follow-up questions are posed. Will you use the information for loss prevention and potentially use the data against me? Will I be judged or scored based up on the data that you collect? Will other franchisees be able to see my data? Will you spy on me? Typically, the answers tend to these questions are less comforting: "It depends" or “maybe” or "We would consider the circumstances."

From my perspective, this is where some franchisors are trying to have their cake and eat it, too. Opposite to conventional thinking about compromise, in this case, I believe that the key to the compromise in this area is to be completely black and white. If a franchisee is going to open up and share with the brand significantly more information than they have in the past, an admittedly scary situation for some, then the least that the franchisor can do is to be clear about what the data will be used for.

I recommend that the franchisor and franchisees jointly craft a data usage policy similar to those available on many web sites. The policy should clearly call out what data is required to be provided and for what purposes it will and will not be used for. Decisions should also be made if the data is to be automatically sent, provided upon request, or provided with permission from the franchisee. This language should either be added to, or referenced in the franchisee agreements and franchisee disclosure documents. I would also suggest staying away from overwhelming documentation that looks more like a tax code reform than a simple agreement on how two companies work together.

Now let’s discuss the costs of providing the data. In many cases, the ability to send data from remote locations such as stores or distributors exists, but requires additional costs (licensing, infrastructure, etc.) from the vendors that provide these. For example, in some cases, the POS can send transaction data to a centralized database, but only if the “reporting package” is purchased. Keep in mind that a database infrastructure to collect and store potentially billions of records can be expensive as well. I do not think it would be an unreasonable assumption that a mid-sized retail organization would spend several million dollars a year to operate a quality business intelligence/decision support effort.

My recommendation is to share in the costs and share in the benefits. Work with the franchisees to determine an appropriate split of the costs of such a program (Example: Maybe a franchisee pays for the associated POS costs to send the data to the central system, but the franchisor pays for the costs of maintaining the centralized database and reporting system.) It is also important that the brand provide the franchisee with access to its own data with the new system. Although the data may be useful for the franchisor when it comes to marketing and operations initiatives, it is also valuable to the franchisee to help them better manage their individual business.

Creating a win/win situation for both the franchisees and the brand is possible if both sides are transparent with their thoughts and concerns and they work to compromise. Disagree? Please E-mail me at [email protected].