Restaurant franchises typically find corporate headquarters and local operators aligned on a number of fronts — but marketing is often not one of them. That's because the needs of a restaurant franchisor hoping to build a regional or national brand can be in conflict with local franchisees simply wanting to drive sales. While such opposition has long held true, it has been thrown into greater relief by a tumultuous 18 months for businesses and consumers.
At its core, the franchise model plays to different strengths. Franchisees are store operators — not marketers. With different priorities and financial imperatives on both sides, a certain amount of tension is natural. But as the pandemic continues to impact restaurant sales while accelerating the shift to digital marketing, franchisors and franchisees are seeking a way forward that serves the needs of both — without alienating consumers, who also have a range of new priorities.
"Most often, the marketing requirements [are] destroying the relationship or creating bad will that's going to manifest itself in other ways," said Dan Rowe, CEO of franchise development company Fransmart.
Typically, franchisees pay into funds that help pay for national advertising efforts while franchisors, who are fighting for market share, focus on creating campaigns that generate brand buzz in a competitive landscape. But if national campaigns don't deliver on driving consumers into franchisee locations, this can result in disenchantment.
"Franchisees are struggling and the company, in its wisdom, spends money to come up with this great big campaign," said Rowe. "Not only are they doing an unprofitable campaign, they're spending [franchisee] money to do it."
Brands like Domino's have done a good job of juggling disparate needs while others, like Burger King, have not, according to Rowe. Domino's often uses its marketing money to make it easier for customers in the digital world to spend money at its stores — a reflection of its oft-referenced "tech company that sells pizza" philosophy. On the other hand, Burger King often relies on marketing that drums up controversy, or in the case of deals like 10 chicken nuggets for $1, put operators in the red.
National marketing, local problems
When corporate campaigns hit road bumps, it is often the franchisees that take the brunt of it. For example, Subway's recent Eat Fresh Refresh rebrand kicked off in July and included a massive roll-out that featured four of the country's top athletes — Serena Williams, Tom Brady, Steph Curry and Megan Rapinoe. Later in the summer, however, Subway came under fire when Rapinoe faced backlash after kneeling during the Tokyo Olympics to protest racism. Some Subway franchisees and customers complained to the company about Rapinoe appearing in the campaign, per a report by Business Insider, with the store operators saying that the campaign was not driving additional traffic.
Not all franchisees, however, are created equal: Total sales at Subway's U.S. restaurants were up 4% in August compared to 2019 figures, with the top-performing quartile seeing transactions up 33% versus two years ago. Despite the sales growth, the controversy certainly affected some franchisees.
As many brands have seen in recent years, purpose-led campaigns and politically active spokespeople make engaging with an increasingly polarized consumer base very difficult. In the case of Subway, 45% of U.S. consumers said the sandwich chain should respect public sentiment and drop Rapinoe as a brand ambassador, while 36% said the brand should respect her opinions, per an August Piplsay survey.
These are difficult waters for marketers to navigate, especially with the long timelines of national campaigns. The decision to include Rapinoe was likely made months before the campaign launch, but that might not matter to franchisees.
"Franchisees' hard-earned money went into something that backfired," Rowe said. "When a franchisee is buying into a system and they're paying the mother ship to do marketing, the mother ship needs to deliver."
The unintended consequences of a national campaign on a local operator can be mitigated if there is buy-in throughout the system about how corporate is spending national ad dollars. Often this is achieved through a board of franchisees that weigh in on marketing. In the case of burger chain Five Guys, CMO Molly Catalano relies on a task force that helps oversee the brand's advertising.
"In terms of marketing our franchisees, we've always said they could do local marketing but with approval," Catalano explained. "Generally, our franchisees were on board. They were continuing to invest their money in their stores. When we decided to do some advertising, we make that decision with the franchisees."
Five Guys is perhaps an outlier in the restaurant industry, as it didn't spend any dollars on outside marketing until late 2017, with a majority of marketing dollars still going towards its secret shopper program. For local advertising, the only hard-and-fast rules were no coupons and discounts, nor TV advertising; franchisees would take out the occasional newspaper or radio ad.
The chain, which has about 400 corporate locations and 1,000 franchised ones, uses shared funds and works with agency MRY on national advertising, social media and some programmatic advertising on franchisees' behalf. And while franchisees can have their own Facebook pages, setting up campaigns on the social media platform is not their core competency.
"It's kind of hard to set that up if you don't have the experience of Facebook Business. Some of them would be able to do it, and some are interested in understanding it, but that's not their business," Catalano said.
The need for franchisee-focused digital advertising led Five Guys to partner with marketing conglomerate Boulder Heavy Industries to use Local Hero, its self-service digital local marketing app. Local Hero allows franchisees to launch campaigns across a variety of platforms by automating functions that corporate leaders would otherwise have to handle, including creative ad and channel approval to prevent overlapping efforts or misuse.
"When they're picking up their kids or they're in between shifts, franchisees can pull out their mobile and run a campaign without having to be a marketing expert," said Adam Edelman, founder and executive chairman of Boulder Heavy Industries.
"When a franchisee is buying into a system and they're paying the mother ship to do marketing, the mother ship needs to deliver."
Instead of having to make ad creative for a variety of ad platforms, get approval and make decisions about targeting, marketers can use Local Hero to launch channels — including Facebook, Google Display Network, Instagram and Waze — that are driving traction for franchisees. The company works with corporate to build and test creative templates.
"When the franchisees log in, they're looking at what we believe the campaigns are going to deliver. Instead of having to pick a channel, they're able to pick a likely outcome," Edelman said.
Local Hero seeks to solve an inequity between franchisor and franchisee. While franchisors are mostly focused on national advertising, much of their time and money goes to supporting the bottom quartile of underperforming stores, Edelman explained. This leaves a middle segment of franchisees looking to grow and scale, but often struggling to get the resources they need. Such an approach could also mitigate the concerns that franchisees have about national campaigns — like Subway's Eat Fresh Refresh — that spend money on spokespeople but can have unforeseen consequences.
"It hopefully will reduce franchisees' concerns that corporate isn't paying attention at the local level, and they're just focusing at the national level," Edelman said. "To the extent that corporate has the rights, they can leverage those national endorsements and spokespeople so they can tell the franchisees, 'We're flowing down some of that work so that you can benefit from it at the local level.'"
Five Guys and its franchisees are mostly leveraging Local Hero for recruitment purposes as the chain faces the same labor issues that have become an industry-wide problem. Being on the same page — from marketing on up — has helped Five Guys continue to grow, even during the pandemic: The chain saw a 3% sales growth in 2020, per the Technomic Top 500 Chain Restaurant Report, outpacing McDonald's and Burger King.
"We have a very good relationship with our franchisees," Catalano said. "We all know them very well and we've all built the business together."