Distribution Management

Assignment # 02

Q-Read the passage and answer the questions?

Abstract:

The caselet highlights the franchiser-franchisee relationships of popular restaurant chains - KFC, Taco
Bell, and Pizza Hut, owned by Yum! Brands. These fast food companies faced strained relationships
with their respective franchisees. The caselet elaborates on how a variety of factors caused
misunderstandings between the popular fast food companies and their respective franchisees.

Issues:

» Is franchising always a better option to expand business operations?

» Franchiser-franchisee relationship - a growing concern in franchising
» The strained franchiser-franchisee relationship between KFC and its
franchisees
» The strained franchiser-franchisee relationship between Taco Bell and
its franchisees
» The strained franchiser-franchisee relationship between Pizza Hut and
its franchisees

Introduction

Many companies have adopted the franchising model to expand their

businesses in international markets.
Companies that decide to go in for franchising justify their decision by exhibiting statistical figures of
low failure rates in franchising when compared to other modes of entering international markets.

Some companies even view franchising as the most lucrative way to capture a large market share with
extremely low capital investment...
Questions for Discussion:

1. What are the reasons for the strained relationships between KFC and its franchisees? How do you
think this could have been avoided?

Answer-Q1

KFC want long-term profitability but franchisees want short term profitability.

1. Franchisees feel cheated when the FKC deal with corporate and large customers directly and ask
franchisees to deal with low volume and small customers.

The KFC feels that the franchisees is not giving proper attention to the entire range of the foods
products. The franchisees in interested only in the product that are fast moving or have high
profit.

The KFC wants the Franchisees to carry a higher inventory due to the perception of good market
conditions. The Franchisees does not want to carry high inventory as Franchisees perception
about the market is not optimistic they do not want to take risk.

The territory boundaries among Franchisees are unclear it result competition among Franchisees
to get business of same customer.
Q 2. What problems did the franchisees of Taco Bell face due to the strategies adopted by the
franchisor?

Answer Q2

1. Higher operating cost

Franchisees have to follow the SOP (Standard operating procedure) regard less of sales and
revenue they are getting from the outlet. Franchisor charge high license fees and demand
quality environment, which effect operating cost.

2. Less brand control

Franchisees has very low control on brand, Multi-location restaurants are under a close eye in
the media because of their presence nationwide, which means a slip up by one individual at
one restaurant, big or small, could impact the perception and performance of hundreds or
even thousands of other locations

3. Less decision making power

Franchisees has very little decision making power which create hurdle to solve day to day
problems.
4. More regulations
When Franchisees operate in metropolitan cities they have to follow more regulations of the
city, it may increase their cost. These laws add significant changes to the way restaurants
manage and schedule employees, requiring affected restaurants compensate employees for
last-minute shift changes, share schedules at least two weeks in advance, and/or allow input
on scheduling, among other mandates