McDonalds goes out of business

McDonalds, Fressnapf, L’Osteria & Co .: Corona crisis affects companies and partners

It was the many senseless meetings that made Tobias Wolf want to sell hamburgers. As an IT consultant, he got stuck in conferences every day. At some point he'd had enough. He took his savings and opened his Burger King branch, the first. That was 19 years ago. Today Wolf has four branches and he runs six other restaurants together with a business partner. He is satisfied, says Wolf. Being part of a franchise system has paid off for him. Until Corona came, at least. Because of the crisis, Wolf had to file for bankruptcy for its six branches.

There are thousands of entrepreneurs in Germany like Tobias Wolf who operate branches for a large, well-known brand as part of a franchise system. The concept works like this: The head office develops the business concept and takes care of advertising, compliance with certain standards or negotiates supply contracts. The franchisees, in turn, open and operate branches, hire employees and take care of day-to-day business. They transfer part of their sales to the head office - as license fees for the use of the business concept and the brands.

It is a sensitive partnership that comes under pressure during the crisis. As in the rest of the economy, franchise systems lack customers and sales. You have to save costs - just how? Both partners can only benefit if both the brand and the franchisee are healthy and efficient. The branches are dependent on the headquarters - and vice versa.

What that can mean is shown not only by Wolf's example, but also by names such as Vapiano, Maredo or Mr. Minit. All three franchisors had to file for bankruptcy; they no longer had enough money in their accounts to cover their costs. For the time being, however, the bankruptcy only affects the headquarters. The branches of Vapiano and Co. are still open. The franchisees must now hope that investors or buyers for the brands will find.

WirtschaftsWoche therefore asked around among the largest and best-known franchise systems in Germany. The result of the survey: In times of crisis, many systems discover a new goodwill. For fear of losing franchisees, the headquarters accept losses.

The corona crisis also shows the advantages of the franchise system: system companies such as McDonald’s and Burger King suddenly develop feelings of care and generosity towards their independent licensees.
by Jacqueline Goebel, Volker ter Haseborg

Because the headquarters are largely financed through license fees. At the pet supply chain Fressnapf, that's only around 3.3 percent of sales. Big players like Burger King charge ten percent license fees and an advertising budget. At Subway, for example, the partners pay eight percent of their sales as a franchise fee, plus another 4.5 percent of sales as a marketing budget.

Other chains provide graduated fees: The optician chain Apollo, for example, charges 6.5 to 10 percent of sales, depending on success. Those who earn more also pay more fees. In addition, there is a fee for advertising expenses of another six percent.

Because many branches had to close in the corona crisis, they have no sales - and therefore do not pay any fees. Or they have financial difficulties - and therefore simply cannot pay any fees. Usually that would be a reason to terminate the contracts. In the crisis, however, many centers are accommodating: they defer fees or waive them entirely, they help out with cheap loans or offer help with applying for state funds.

McDonald’s Germany boss Holger Beeck on slumped sales in restaurants, new work processes - and crisis-proof menus in the pandemic.

The fitness franchise Fitbox, for example, charges its branches a fixed fee of 890 euros per month. Their problem in the crisis: Fitbox offers personal training, so it is difficult to be at a distance. So most of the studios are tight. "We offered everyone to defer the fees," says Fitbox founder Björn Schultheiss. Around a quarter of the franchisees would have accepted this. Apollo Optik also declares that the deadlines for payments will be extended.

The restaurant chain L’Osteria deferred fees for March and April. The Accor hotel chain - badly hit by travel bans - immediately waived the franchise fees for March, April and May for its 205 hotels. In addition, she renegotiated supplier contracts in order to reduce costs. McDonalds also deferred fees and, as the owner of the restaurant building, even waived part of the rents. The headquarters have thus waived a "mid double-digit million amount". But also smaller systems the gourmet chain "Vom Fass" uses such measures and exempted their partners from franchise fees.

The risk is high that, without this concession, franchisees will go bankrupt, like the Burger King partners from Toma Gastro GmbH. The six branches are located at motorway service areas in southern Germany, says co-owner Tobias Wolf. But the highways are empty. "Where no one drives, no-one comes up with the idea of ​​taking a break."

He now has to negotiate the future of the company with his landlord and Burger King. Wolf would like to continue operating the branches. But both negotiating partners have to agree and meet him. "Of course, in such situations, franchisees are more dependent on the franchisor," says lawyer Marcus Winkler, the court-appointed administrator for Toma Gastro GmbH. Ultimately, it is up to the donor whether he wants to continue working with his chain stores. But the relationship between Wolf and Burger King is good and has grown over the years. "We want to save the company," says Wolf himself.

The insolvency of franchisees is a setback for the headquarters as well: They not only lose a fee payer, they also lose part of their market coverage. And even a single bankrupt branch can damage your reputation. "We are very happy that no franchise partner has given up in the corona crisis yet," says Stefan Tewes, founder of the Coffee Fellows coffee chain.

The Fitbox fitness franchise is even growing. In the past few weeks he has signed two new contracts and four letters of intent, explains Fitbox founder Björn Schultheiss. Since some franchisees want to operate several branches, the number of studios would grow from the current 81 to 88. “These are people who didn't buy toilet paper during the crisis. But doers who want to set up a business, ”says Schultheiss. He is convinced that his franchise system can cope with the crisis.

more on the subject
The advantages of the franchise system are evident in the corona crisis. While many companies fear for their existence, system companies like McDonald’s and Burger King suddenly develop feelings of care and generosity towards their independent licensees. But the system also has its pitfalls.

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