As a franchisor, you have perfected your Retail formula. All its components work together like cogs in a well-oiled machine. The customer experience in your store is perfect and there is high customer satisfaction. Online too, you want to provide that experience with an excellent e-commerce experience for the customer, and behind the scenes for your franchisee in terms of the ERP system to optimize the provisioning, among other things (via Microsoft or Oracle or SAP or yet another provider?). This requires the cooperation of your franchisees. However, these have some objections, after all, they now have to make investments and the returns are uncertain. What is the best way to handle this in practice? Niels van den Bogaard explains it in this practical guide.
Reading Note: The guide below contains practical tips from a legal perspective and are written primarily for the hard-franchise (with the exception of the last tip).
Making arrangements in advance
Establish agreements about IT and investments up front. Dress them accordingly, based on the following argument: As a franchisor, you benefit from promoting as much uniformity and as few deviations as possible,[1] both in your formula and in your IT systems. In doing so, you benefit from as few exceptions to the regular process as possible. This is the reason you enforce the use of the relevant IT systems.
Investment amounts
Agree with your franchisees to work with certain investment contributions for IT and maintenance. Provide these with an amount, a threshold, up to which the franchisee is obliged to invest in any case. This is particularly relevant under the Franchise Act. If you do not do this, then any investment, even if it is one euro, requires approval from (the representative body of) your franchisees."[2]
Finger in the pie
In light of reasonable practices and dealings with your franchisees as well as the Franchise Act, your formula undoubtedly has a franchisee representative body. In it, consultations are held and arrangements can be made regarding the practical implementation of the franchise agreement. It is important here that you, the franchisor, are at the controls. Supply the minutes of these meetings, among other things in the context of service and support for your franchisees. He who writes stays.
Avoid damage claims
Generally, you as the franchisor are the contracting party with whom the franchisee makes the arrangements for IT facilities and maintenance. Make sure your IT agreements talk about efforts you make and stay away from guarantees and results. You make an effort to roll out a particular implementation, perform maintenance and achieve uptime. No guarantees or promised results. This makes you better protected against claims for damages if certain agreements turn out differently in practice (no damage liability).[3]
Determine the subjects of investment
In your franchise agreement, explicitly identify areas where investment is necessary. At least IT, e-commerce, ERP systems, necessary hardware, maintenance and the like.
Emphasize benefits
During consultations, emphasize the benefit in the future and the benefits of the investments to be made now. In the case of e-commerce investments, they result in increased sales. In the case of ERP systems and the investment in them, in lower future costs.[4] In doing so, also pay explicit attention to the distribution of sales and costs. If you substantiate this with documents, do so by documents prepared by a third party, based on sound and well-founded assumptions and write off liability for this as much as possible.[5]
Together you are stronger
Involve your IT supplier in this. Make her partly responsible for creating support among your franchisees and let them do a roadshow along (unwilling) franchisees. After all, without support within your organization, your IT supplier has no business.
APIs at soft-franchise
In case you have a more soft formula, in which individuality of the franchisee is greater, you can consider working with APIs for connecting the franchisees to the IT system used by you as franchisor. In this way, the franchisee's internal systems and practices are respected without compromising the franchisor's practices. The franchisee can then choose:
- For an implementation through an API, where the center of gravity for costs falls on the franchisee. Then also make the franchisee responsible for maintaining that API. Those costs are his/her responsibility, as is the risk of downtime; or
- going along with the franchisor's system. This is cheaper for the franchisee, albeit with less individuality.
And in all cases: pull together with your franchisees as much as possible. Together you are developing and taking the formula further, and that includes making investments together.
With this guide, hopefully you as a franchisor will have less friction on IT projects within your formula. And should you want to know a little more about this topic, please feel free to contact Niels using the form below or our other IT experts.
[1] ECLI:NL:GHSHE:2023:661, Judgment of the Gerechtshof 's-Hertogenbosch of February 28, 2023 in the matter of Dampie vs Leen Bakker.
[2] From the explanatory note to the Act, Parliamentary Record of February 12, 2020, File No. 35392 Sub-No. 3, on Article 7:921: "In this case, it is irrelevant how great the financial implications of the implementation of the intention are for franchisees; even if the franchisor requires a contribution of only one euro from a franchisee for the purpose of implementing its intention, the consent of the franchisees referred to in the first paragraph is required. This regulation aims to encourage the franchisor to contractually fix the threshold."
[3] ECLI:NL:RBROT:2021:5502, Rotterdam District Court ruling of June 9, 2021 in the matter of VHF vs. DHA.
[4] To avoid problems like the one Albert Heijn experienced, see ECLI:NL:HR:2021:957, Supreme Court Judgment of June 18, 2021 in the matter of association AH Franchisees vs. AH.
[5] Lessons to be learned from ECLI:NL:GHSHE:2022:3268, Judgment 's-Hertogenbosch Court of Appeal of August 27, 2022 in the matter of Rotate v. X.
This page was last updated on August 8, 2023.
