Recently I reviewed a restaurant franchise offering for a client. One of the things I pointed out is the franchise agreement is freely assignable by the franchisor. This means the franchisor could sell its franchise to another entity and the original franchisor could disappear. If a sale occurs it is difficult to predict whether it will be good or bad for the franchisee. As discussed in a recent Business Record article written by David Elbert, it definitely was not favorable for a long time Des Moines family who owned 31 Long John Silver’s restaurants in Iowa, Illinois, Arizona and South Dakota.
According to the story, there were ups and downs but no serious problems occurred with the restaurants until Yum Brands (also owners of KFC, Taco Bell and Pizza Hut) decided to sell the franchise to a private equity group in 2011. Under the new owners, mistakes were made that alienated longtime customers including changing the tartar sauce and other problems occurred with the cole slaw. Then more changes occurred when Long John Silver’s was called out for using trans fat oils. A non-trans fat substitute had taste and consistency issues which caused significant drops in business. Eventually, the franchisee elected to close 16 of its 31 stores.
The assignability of the franchise agreement is something that you need to consider when looking at any franchise. A new franchisor may have a very different plan than the original franchise owner. They may not handle problems in the same manner and may not be as experienced in the industry as the former franchisor. (It also shows that people’s tastes can change rather quickly in the food industry but that is a topic for another blog post). In the case of the Long John Silver’s franchisee, it is apparent they had a nice run over at least a few decades. But I am sure that it didn’t make the decision to close 16 stores and lay off 200 people any easier. It sounds like they definitely ‘longed’ for the good ‘ole days.