The Closing Conundrum
By Jonathan Maze, January 3, 2011
Franchised restaurants have a unique problem when encountering a franchisee with a struggling restaurant. On the one hand, letting a franchisee close an underperforming unit is frequently the best way to ensure that the business can keep going. Yet with new development still tough to come by, closing units can be terrible for a system--concepts showing unit declines can have an even tougher time getting financing or franchisees. What to do? At the moment, it appears, franchisors are taking a hard line on restaurant closings. John Berg, an attorney with Monroe Moxness & Berg, said that he's seen more conflicts between franchisors and franchisees over unit closings, some of which have landed in the courtroom. "Franchisors are getting tougher on store closures again," he said. "That's a reaction to closing units." Some systems are requiring buyouts of a franchise agreement, which can cost hundreds of thousands of dollars, to discourage a closure.
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