Gary Myers, Sizzler's largest franchisee, has remodeled several aging units in the last four years, initially without the blessing of the franchisor. The new design (seen here in a Hesperia, Calif., unit) now serves as the prototype for the entire system.

David Farkas writes at  Chain Leader that some years ago, a MaggieMoo’s franchisee in Columbus, Ohio, wanted to make a few bucks peddling coffee in the morning. Seemed like a good idea; he didn’t sell his first ice-cream cone until 11 a.m. yet paid rent for the entire day. He bought point-of-purchase displays and equipment, got franchisor approval and fired up his pots.

“I don’t think it worked, as I recall, and I probably could have told him that,” remembers then-CEO Richard Sharoff, now a franchise consultant in Annapolis, Md. “But if a guy has passion for something, why not let him try it? It sends a good message to the franchise system.”

Under current economic circumstances, sending an all-ideas-are-welcome message might seem like a good idea. Franchisees are a chain’s boots on the ground and therefore a likely source for operations best practices. But are they also a strategic resource?

Strategic Error

Right off the bat Sharoff can think of plenty of reasons why franchisees should not be a part of the strategic process. “Generally speaking, a franchisee is focused on what’s happening within the four walls of a store and not looking at the big picture,” he says, citing a recent KFC lawsuit as “a perfect example.”

In January, KFC franchisees asked a judge to rule that the franchisee-controlled advertising council have final say in directing ad spending. They claim franchisor Yum Brands promotes grilled chicken at the expense of better-selling fried chicken. (The franchisor dubbed the lawsuit “baseless.”)

“When a franchisor tries talking about changing the menu for the long-term benefit of the system, the franchisee is thinking, ‘What’s it going to cost me today in the store?’” Sharoff explains. “That makes it difficult to seek strategic input because the franchisee is thinking about how much his revenue is going to be today or tomorrow.”

Then again, not all franchisees are created equal. Just ask John C. Metz, who franchises 33 Denny’s; he is also a franchisee of Dairy Queen and Marriott. Last year, Metz became the franchisor of 30-unit Hurricane Grill & Wings. “I’m unique insofar as I bridge the gap better between corporate and the franchisee than other franchisees,” says the veteran operator, citing his M.B.A. from Cornell University’s Johnson School.

Metz, founder and president of RREMC Restaurants in West Palm Beach, Fla., believes he should have been elected to Denny’s board of directors last year, largely because he’s done “a variety of innovative things” and because current management isn’t entrepreneurial enough to solve the chain’s looming problems. “McDonald’s has taken big chunk out of breakfast business, and Starbucks out of coffee,” Metz declares. “And a lot of chains have taken it out of the late-night business.”

Tim Flemming, Denny’s general counsel, says there were too many potential conflicts of interest to make a franchisee a director. One is whether Metz would be an independent or an inside director. Public companies are required to have a specified number of independent board members. Metz believes he is one; management disagrees.

“I think franchisors that don’t consult or don’t listen to franchisees, and especially large successful franchisees, are making a grave mistake,” says Metz, who is testing Denny’s Fresh Express concept in one of his restaurants. The concept, which debuted at California State University, San Bernardino, features Denny’s menu and espresso beverages in a quick-casual format.

Read More at: Chain Leader