Labor Shortages Challenge QSRs’ Franchisee Relationships, Threatening Sales And Loyalty

For quick-service restaurants (QSRs), the challenging labor market right now is not an obstacle for only corporate headquarters, but also for franchisees. Without full access to corporations ’ deep pockets, these franchisees — typically smaller companies or local business owners — are often forced to find ways to make the system work on their own. With franchisees struggling to make ends meet and feeling unsupported by corporate officers, many are closing their ordering channels, losing sales and customers as frustrated consumers seek out other options.

For example, some Chick-fil-A franchisees have recently decided to close the dining room, shifting the focus to the drive-thru.

See also: Restaurants Adapt For Workforce With Fewer Humans, More Robots

“Chick-fil-A restaurant team members are a highly valued part of each restaurant and part of a team. We want to attract and retain the best talent, which is why our restaurants are proud to offer highly competitive wages and benefits,” Chick-fil-A, Inc. said in a statement emailed to PYMNTS. “Our local franchised operators invest in their teams personally, offering mentorship, leadership development and opportunities that can lead to promotions and management roles.”

In the spring, a group of Subway franchisees representing 250 locations published “An Open Letter to Subway Owner Elisabeth DeLuca,” stating that, among other issues, the corporate office required franchisees to subsidize promotions with Paycheck Protection Program (PPP) loans and federal aid meant to support workers.

“We were prevented from reducing our hours to make ends meet so that the corporate office can generate more royalties,” read the letter. “We had to take away from our families so that we can pay royalties to you, a multi-billionaire who does not need a bailout or any federal aid.”

In fact, in January, Oregon Representative Janelle Bynum, introduced a bill to protect franchisee interests. The bill, which would have granted more control to franchisees and offered them more transparency, failed in late June, though it brought attention to franchisees’ frustrations.

The issue is affecting convenience store franchisees as well. The National Coalition of Associations of 7-Eleven Franchisees (NCASEF), a group comprised of 41 independent franchise owner associations representing over 4,400 7-Eleven operators in the United States, announced on Tuesday (Aug. 24) the results of a survey of 598 franchisees representing 1,118 stores.

The survey found that 82 percent of franchisees cited staffing challenges as among the most pressing issues facing their business, and eight in 10 agreed that running their store(s) has had a negative effect on their personal and/or families’ well-being. Additionally, three-quarters of respondents disagreed with the statement that investing in 7-Eleven as a franchisee is a good idea, taking into account the current labor market and economy, as well as the C-store’s business structure.

“The results of this survey are alarming,” said Jay Singh, chairman of the NCASEF, in a statement. “The overall sentiment is that franchisees are unhappy … Franchisees are telling us they are not making a reasonable profit because of the nature of our contract.”

To that point, 76 percent of franchisees who reported that their store value was declining attributed this to their “unfair contract.” Of course, all of these issues are exacerbated by the labor challenges that operators spoke about in an open letter last month.

7-Eleven emailed the following statement to PYMNTS: “7-Eleven, Inc. remains committed to supporting franchisees during this challenging operating environment. Since the start of the COVID-19 pandemic, we have committed more than $185 million in incremental support for franchisees, as they operate as essential businesses.”

Read more: 7-Eleven Franchisee Labor Woes Suggest Wages Are Not Enough To Woo Workers

These tensions developing between major chains and their workforces highlight the central challenge of the franchisee model: At the beginning, restaurants’ and retailers’ growth relies on their franchisees. However, as the restaurant grows more profitable and the power balance shifts almost fully to corporate offices, the model that was once necessary for the success of the business grows increasingly contentious. With labor crises leaving many franchisees in a bind, relationships may grow more fraught in the months ahead.

Subway, McDonald’s and 7-Eleven declined to comment.