Franchisor Tips: Lessons Learned From the World's Biggest Franchising Scandals

Franchises have seen incredible success across the business industries - but over the years several have come into the limelight for the wrong reasons. We’re taking a look at some of the biggest franchising scandals to hit the news, and what we can learn from them. Keep reading for our top franchisor tips.

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Franchising scandals can have a huge impact on a business’s performance; it can lower its sales figures and share values, and have a lasting influence on its reputation. Every entrepreneur wants to know how to avoid a scandal, and the best way to find out is by researching other franchises’ pitfalls.

7 franchising scandals - and the lessons we can learn

1. Poor staff treatment

Let’s start with one of the most common causes for controversy: poor staff treatment. Back in 2015, it was revealed 7-Eleven franchisees had been underpaying their employees. The franchise was even accused of accompanying workers to ATMs to take out money and pay back a portion of their wages.

At Domino’s, reports emerged in 2017 suggesting franchisees have asked international workers to send them money to cover their visa applications. There have also been complaints about managers asking employees to work overtime without paying them. When people found out about these accusations, Domino’s shares fell in value by more than six percent.

Costa Coffee has come under fire for similar reasons. Staff members have claimed their employers have refused to pay for their annual or sick leave, and withheld their tips.

The lesson: Customers often feel very strongly about staff treatment at the businesses they support, and many will stop visiting them if they think workers are being exploited. As a result, this franchising scandal can have a significant impact on a business. Implement measures to monitor franchisees’ activity when it comes to paying employees. You should also impose high sanctions for investors who are found to have breached the rules.

2. Poor product standards

Use of the franchise model is common in the food industry. Some of the biggest franchises out there are restaurant brands, but they occasionally find themselves in hot water when their product standards slip. Here are three examples of franchising scandals.

In 1990, McDonald’s switched from cooking its fries in beef fat to vegetable oil. However, customers became upset when they found out the chips weren’t vegan, as its “natural flavours” ingredient contained beef products. Three vegetarians sued the franchise, which ended up paying $10 million to Hindu groups and other organisations.

Remember the horsemeat scandal of 2013? Burger King was just one of the companies involved, as some of its beef patties contained meat derived from horses. It quickly changed suppliers to avoid selling misleading menu items.

After consumer safety organisations examined the meat sold by burger chain Five Guys, they gave it an ‘F’ grade for failing to source its produce from antibiotic-free farms.

The lesson: Once you’ve revealed inadequate products, it’s hard for consumers to forget them. So, the best thing you can do is to keep a close eye on your supply chain. Visit your business partners regularly to discuss product lines and make sure you understand the manufacturing process inside out.

3. Inappropriate behaviour

This category can cover a whole swathe of different scenarios, but let’s just look at one - rather bizarre - incident.

In 2013, an employee at Taco Bell posed for a photo licking a stack of taco shells in the restaurant. When he uploaded it to social media, it went viral. In the end, he was subjected to a formal investigation, which was embarrassing not only for the individual restaurant, but for the franchise as a whole.

The lesson: Set out clear regulations for employees and franchisees alike. In particular, be very clear about whether staff can take personal photographs, and whether they can upload them to social media accounts. By creating a specific regulatory framework, you can reduce the likelihood of people overstepping the line.

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4. Inappropriate working relationships

This is where scandals can become incredibly serious. Whether inappropriate behaviour is consensual or not, it can have disastrous consequences for both individuals and businesses. For example, in 2019, Steve Easterbrook was fired from his role as Chief Executive at McDonald’s after he dated an employee.

The lesson: Foster a culture of openness, so workers and franchisees feel they can come to you to discuss personal matters. If an employee initiates a serious relationship with their superior, it may be possible to transfer them to a neighbouring branch to avoid conflicts of interest.

Also, staff members will be more likely to approach you if they’ve been the victim of abuse, allowing you to take early action.

5. Use of inappropriate language

No one should be using derogatory terms relating to gender, race, sexuality, class or any other personal attribute. Just one use of inappropriate language can spell trouble for a franchise.

In 2018, the founder and chairman of pizza chain Papa John’s resigned after using the N-word during a media training workshop. This momentary lapse of judgement changed his life and had profound consequences for his brand. Shares went down by almost five percent and NFL broke off its eight-year partnership with the franchise, introducing Pizza Hut as its new sponsor.

The lesson: As much as we might think the people around us are tolerant and politically correct, this isn’t always the case. You can try to avoid slip-ups by running regular meetings and training exercises to reinforce your company values of tolerance and inclusivity.

One of the best ways to combat the use of discriminatory language and behaviour is to be objective in your recruitment activity. Support people in minority groups to acquire franchise agreements and build a diverse business network.

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6. Stereotypical marketing campaigns

Businesses are getting better at avoiding cliches and damaging stereotypes in their adverts, but sometimes mistakes happen.

Earlier this year, KFC’s Australia division released a television commercial to shine a light on its Zinger Popcorn Box. It featured an attractive woman in a low-cut top and short shorts adjusting her clothes in the reflection of a car window. Inside, two young boys watch with a smile, while the mother in the driving seat appears to be annoyed. The advert attracted a fair amount of criticism for portraying stereotypical gender roles.

The lesson: Collaborate with a specialist third party to review promotional material before it’s released. In general, getting the opinion of as many different people as possible is a great way to reduce the chance of causing offence.

A quick way to check for stereotypes is to think about whether you can switch out the characters without changing the meaning of the storyline. Would it work just as well with someone of a different age, race or class? If not, ask yourself why.

7. Data breaches

As more and more businesses move their operations online, the risk of cyber attacks increases.

Recently, hotel franchise Marriott International suffered a huge data leak involving 500 million guests. During the security incident, the names, addresses, passport numbers and check-in details of around 327 million people were compromised.

The lesson: The answer is simple - invest heavily in cyber security. This step is particularly important if your franchise holds a high volume of sensitive information on your customers. Put a reasonable amount of time and money into making sure your data is secure and regularly upgrade any software you use to store information.

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