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I run a pizza franchisor and recently found out that one of my franchisees is not using the system’s approved cheese. I have been trying to work this out with the franchisee for over 6 months but we cannot agree. What should I do?

April 2017

This is a much broader question than pizza cheese.  This is a question about the enforcement of brand standards, which is paramount to a franchise system.  The beauty of a franchise system is that when customers see the franchise brand, they immediately know what to expect.  When they see the “Golden Arches,” they expect hamburgers, Big Macs®, French fries, and milk shakes.  They do not expect to see “chicken and biscuits” as is portrayed in the recently released movie “The Founder.”  (I highly recommend this movie for anyone thinking about franchising their business!) 

When a franchisor has notice that a franchisee is not following brand standards, the franchisor must take action to enforce the brand standards to protect the franchisee’s customers, who expect a certain quality of products and services when they visit, and the other franchisees in the system, who will be damaged by a rogue franchisee’s non-compliance.  The non-compliant franchisee’s behavior tarnishes the brand.

A recent case from Indiana reinforces the franchisor’s obligation to promptly enforce brand standards.  In Noble Roman’s, Inc. v. Hattenhauer Distrib. Co, 2017 WL 640092 (S.D. Ind. Feb. 27, 2017), Noble Roman’s sued a franchisee for the franchisee’s failure to follow the brand standards by using an unapproved cheese.  When Noble Roman’s changed its approved supplier for cheese in 2010, Hattenhauer began using an unapproved cheese.  It was not until 2014 that Noble Roman’s sued Hattenhauer to enforce the brand standards.  The court dismissed Noble Roman’s case based primarily upon Noble Roman’s knowledge that Hattenhauer was using an unapproved cheese for 4 years and Noble Roman’s failure to take prompt action.  This is an alarm for franchisors to take immediate action to enforce brand standards. 

And anyone interested in franchising their business should see “The Founder!”   

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