KFC’s delivery advice: Look for ‘brand protector’
Illustration by Jonathan Hankin
Mac Shimmon could be considered the dream franchisee for Jersey Mike’s nascent efforts to get into the delivery game. As the operator of 17 stores in the Chicago area, he’s all in.
“It’s phenomenal,” he says about the rise of delivery facilitated by third-party players. “Of course I think it’s a no-brainer,” when customers can order anything they want, from pizza to sub sandwiches to sushi to Italian and beyond, “anything you want delivered to your house.”
In Jersey Mike’s case, the franchisor first inked a master deal with UberEats, which Shimmon’s restaurants have been using for about the last 12 to 14 months. As of late April a second vendor, DoorDash, went live. The franchisor, not the franchisee, is the one who chooses the vendors, Shimmon points out, when it’s done the right way.
He points to two common concerns from franchises rushing into delivery. “One was, would it cannibalize our in-store business? Over the last year and half that’s not proved out to be a real concern,” he says. “All we’re doing is making our food more easily accessible.”
The other concern is the percentage paid to the delivery service. “Hey, that’s 27 percent. That’s a lot of money,” he’s heard plenty of people say. But franchisees are allowed to up-charge their prices for Uber orders, he says, and also the labor costs in the store are not higher for delivery. “The 27 percent that Uber charges us, if we offset that by 10 percent, we have an incremental 17 percent that we’re giving up on those orders,” he figures. “You’re making it up on labor.”
Yum sought ‘brand protector’
Jersey Mike’s is just one of, well, virtually all restaurant franchises today trying to figure their way in third-party delivery, which one expert said was “in the third inning” at the recent Food On Demand Conference in Chicago.
Yum Brands made a huge splash in February 2018, announcing it had cut an exclusive deal with Grubhub for all of its brands, in exchange for sharing customer data with the franchise, something most delivery providers do not do.
Dawn Croft, director of legal for KFC, advises other franchises to forget about going after the first deal that comes along. “We understood that delivery is only going to get more important to the business, so we were really looking for something that would be a longer-term relationship,” she says.
Yum Brands, parent of KFC, Pizza Hut and Taco Bell, wanted a vendor that would understand, “1, the complexity of the company that has several different brands and one that was going to innovate with technology, and somebody that would understand that we are putting our customer experience in their hands What we were looking for is an aggregator that could be that brand protector.”
KFC, which has more than 4,100 stores in the United States, is making delivery voluntary, not mandatory, for its franchisees. “It’s one thing to mandate, which is fine, there’s obviously nothing against that. But for KFC we tend to get more by continuing to have those conversations with our franchisees and getting them to sell it into the system and each other,” she says.
Her role was her “passion,” on the legal and contractual side. They had to work with Grubhub “first of all, just doing a lot of educating about how franchise systems work. A lot of these aggregators have come in talking to mom and pop companies and can make those decisions. From a legal perspective there are things we can’t force upon franchisees because they are independent business people,” she says.
On the contract side, “good insurance indemnification was key, because driver liability and food safety are both big concerns. We want to be able to reach out to as many customers as we can, but we have to do that while maintaining food that is hot and fresh, and we know it’s getting there” with the same safety standards as in the restaurants.
No to bikes and backpacks
“It’s a big topic these days,” says Amy Cheng of Cheng Cohen law firm, referring to her work with restaurant franchisors who are racing to sign up with third-party delivery services.
The majority of larger franchisors, she says, are stepping in to negotiate a master contract with the providers, “so they have a little more control over the process and they get better rates, if they’re negotiating on behalf of the whole system.”
Smaller systems have a harder time doing master agreements, especially if, for example, they are in two different markets and a particular aggregator is strong in one place but not in another. A legal fix is to “reserve the right to have another preferred provider in those markets,” she says.
One delivery “don’t” is allowing franchisees to negotiate their own agreements with a third party and place the brand logo on their website. “The franchisee under the franchise agreement doesn’t have the right to sub-license to any third party the right” to use a logo. “Most franchisors have been turning a blind eye and not thinking about it,” she says, which could come back to bite. “Somebody could argue that the franchisor is really not controlling the marks that way,” she says.
She adds an overlooked tip is to actually test the services with your food products to make sure they’ll get where they’re going properly and in the right containers. “You certainly don’t want somebody riding on a bike with a backpack delivering your ice cream,” she says, stating the obvious but indicating you’d be surprised what goes down in a budding business.
Beth Ewen is senior editor of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to firstname.lastname@example.org.