International Posted April 2, 2020 Managing Your International Franchise Network in the Time of the Coronavirus Pandemic Resource Share View Recording Wednesday, April 1st, 2020; 2:15pm-3:15pm Managing Your International Franchise Network in the Time of the Coronavirus Pandemic Panelists: Bill Edwards / Tao Xu Webinar Summary – Both the business operations and legal perspectives of franchising internationally were discussed in this webinar. Panelists discussed the current situation for franchise businesses in different countries as they confront COVID-19-related disruption, and its impact on different sectors. They also discussed the various ways that franchisors are providing support to licensees and franchisees, and provided specific cases of how businesses are responding, both internally and customer-facing. Finally, the panelists touched on government assistance programs available in different jurisdictions. Key Bullets – International franchisees are at the forefront of this situation and battle against declining business due to COVID-19; franchisors must be ready to step in, show leadership, and communicate solutions to franchisees given the circumstances Financial as well as legal support – provide guidance to franchisees grappling with business closure, declining sales, and government mandates in a transparent centralized way Use this time to streamline operations, plan for the future, and map out opportunities Consider universal versus regional and country specific market plans and approaches. What works for some may not work for all given the advance and scope of disease and re-opening in different markets Be sure to communicate with franchisees the range of government loan and business relief options available; communicate openly the risk spreading operation inherent in franchising Full Bullets – Spreading risk works if franchisors are willing to step up and show leadership, helping their international franchisees who are at the forefront of this battle. This sometimes requires setting aside certain aspects of the franchise agreement to lead through challenging times. Legal issues are not the only, nor the most important, considerations in these times. Current Situation No similar international disruption like this before Franchisors have put into place “no over water” travel policies, and int’l travel is at a standstill Expos postponed until late 2020 Restaurant, retail, and fitness franchisors have seen their units shut down worldwide, resulting in lower sales and royalties Massive reduction in retail footfalls; travel and flying Regional Situation Asia Pacific: much of it is shut down; China, Japan, Korea have partially re-opened, but unsure how long that will last. China and Japan are partially re-closing Europe: France, Germany, Italy, Spain, Poland, UK Latin America: Beginning to close; case by case Middle & Near East: India and Saudi Arabia closed North America: Closed by region of the country, Canada/US Common Int’l issues franchisors are dealing with Communication – frequent, centralized, consistent Operations – remote operations Supply chain – manage inventory, simplifying Marketing – managing changes, reductions Development & Fees – Market by market discussions Remote support – monitoring is remote, not face to face Int’l legal issues Financial support – trying to preserve sales and keep expenses down; some considering large layoffs, furloughs Marketing contribution suspension or relief Royalty fee deferral/reduction (or waiver) Typically based on percentage of sales These can help with temporary cash flow problems Commitments are made with intention to revisit in a few months Suspend minimum fee payment For most, cash flow is largest challenge Non-financial support Cleaning, personal hygiene, operations, closures Allowance of deferred maintenance Provide information on government policies and available resources Share information on what other companies in the same industry are doing Support negotiation with landlords for rent relief Force Majeure discussions are being avoided for the moment – most franchisors and franchisees are working together and not resorting to these dicsussions Concerns about joint-employment liability? View is that these directives do not create material joint employment risk, but check with different jurisdictions Specific franchisor issues and solutions Restaurant sector à support off-premises channels; turning restaurants into community pantries, selling own inventory of perishables to consumers and proceeds go back to business Retail à repurchase of inventory by franchisor, to the extent that zor has capacity to buy back; encouraging more engagement with customers online and online to offline models (O2O), to have brick and mortar to serve as delivery/pick-up points Hotel à Allowing use of hotels for quarantine or by healthcare workers Example: Cartridge World Communication – increased frequency of webinars, online meetings Home Delivery – going online and home delivery Tailored response – not all Masters or regions are affected or are reacting the same, no cookie-cutter solution Example: CKE Tele-conferencing depending on capabilities of franchisee – not all countries have access to same tech Daily updates from the field to leadership on operating/supply chain challenges Regular “Town Hall” video Regional GMs set up WhatsApp groups to facilitate regular communication All public announcements are not directly handled by franchisees, but are centrally executed Closure and conversion to delivery/take-out Sharing of safe practices and shared system wide – two-way communication Cleanliness and sanitation standards Non-contact drive-thru and to-go procedures designed to remove all direct contact Example: Dairy Queen Communications Centralized, specific, consistent 3 buckets – ADQ Staff / ADQ Franchisees / DQ Consumers Country-by-country strategy Fluid and changing as things evolve Operations Focus on current units and current business / staff / consumer health Payment plans and royalty deferments if required – market by market basis Example: Denny’s Country-by-country Communicate with candor to int’l franchisees Social media to communicate customers Postpone noncapital spending Example: Home Instead Senior Care Constant communication, optimally by video Sharing operational challenges and solutions Sharing resources – social media messages, samples, practical ways to keep clients/caregivers safe Using technology to keep seniors connected – isolation can lead to depression Example: SNAP Fitness Gyms are closed – no customer and face-to-face revenue Following guiding principles and distribute them quickly to franchisees Townhalls, financial support Virtual workouts, free to everyone (worldwide) – making their product widely distributed, and setting up the brand for future success Example: United Franchise Group Personal phone calls to each of the Master License partners Personal video messages Offering discounts on royalties Using this time to fine-tune menus, designs, operations, to innovate for when the crisis passes. Think long-term viability versus short-term physical deficit. Plan for new opportunities. Better real estate rates, discounts, and hiring new people Legal Perspectives: Communication is key Universal approach vs. regional differences Timing, severity means franchisors must adapt and consider these differences Operational changes – adapt to the changed market and regulatory environment on the fly Viable to remain open for some, but not all Provide information to franchisees Share best practices Legal issues: Unilateral announcement vs. contract amendment Franchise disclosure issues Force Majeure clauses Whether it excuses certain obligations under the agreement remains to be seen. Force Majeure clauses are interpreted narrowly and strictly. Inability to pay does not create an impossibility At the end of the day, this is a risk spreading operation Government Programs Australia – low interest loans with interest free period; grant programs New Zealand – Wage subsidy scheme; delaying taxes, mortgage holidays UK – tax payments deferred; job retention scheme (80% percent of wage costs); grant of $3000 per month per company South Korea – $9.8 billion stimulus package to help small and medium sized businesses pay their workers France – $49 billion aid package, includes fund to help shopkeepers and self-employed; guaranteed bank loans of $327 billion Japan – $4.6 billion package in Feb, $15 billion in March; new program of 0% loans to increase lending Going forward: “Keep Calm and Carry on”