How Franchisors Can Identify Use Of Unauthorized Products Or Suppliers In Their Franchisees

One of the most important features of franchising is uniformity. Consumers should have the same customer experience, which includes receiving uniform products and services from any franchised location. By using unauthorized products and/or suppliers, franchisees will start to break away from the uniform system standards set by the franchisor. This will then lead to consumer dissatisfaction and will eventually tarnish the brand image.

For Instance, KFC sales in China plunged after it was reported that some poultry suppliers violated rules on drug use in chickens. KFC overhauled quality controls and eliminated more than 1,000 small poultry producers from its supply network.

Thus, Franchisors need to allocate appropriate resources, to monitor their systems and identify unauthorized and/or unapproved products. Some of them are listed below:

Inspect Franchise Location

One of the easiest ways to identify a franchisee’s use of unauthorized products is to have periodic inspections of the premises. In order to do this, however, the franchise agreement must clearly state that the franchisor has the right to inspect the franchised location.

It must set forth any key terms for inspections, such as their frequency or the areas that require inspection etc. Unannounced inspections are often the best way to understand the day-to-day customer experience, particularly in industries like food or hospitality.

Moreover, unannounced inspections limit the franchisee’s opportunity to remove or conceal the presence of unauthorized products or products obtained from unauthorized suppliers.

Document Request or Audit

Franchisors can identify several key “red flags” signalling the presence of unauthorized products by conducting an audit or document request. An audit can be conducted remotely or on site. Remote audits are generally less expensive for the franchisor, particularly for distant franchisees. Another red flag in an audit is finding supply orders that do not correspond with reported sales.

If the franchisee has purchased an unusually low amount of approved supplies as compared to its rate of sales, this may be a sign that the franchisee is cutting corners by using cheaper, unauthorized products. But the franchise agreement must include a provision allowing for inspection of records at the franchisor’s request.

Customer Feedback

Customer feedback can help the franchisor manage several aspects of the brand experience. Franchisors can easily get to know about customer service and health and safety conditions in a particular franchise, as well as about the potential use of unapproved products.

Franchisors concerned about the use of unauthorized products should be alert to complaints related to products sold to customers that should not be offered by a franchisee. Multiple complaints about the same type of product from the same franchised locations may indicate that the franchisee is cutting costs by using an unapproved ingredient or an unapproved supplier of the ingredients.

One way for franchisors to solicit customer feedback is by offering rewards to customers who complete short surveys.

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