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Restaurant franchise systems – Tips for pivoting your business model to focus on delivery and take-out during dine-in prohibitions

Author(s): Andraya Frith, Dominic Mochrie, Jennifer Dolman, Christine Jackson, Tom Peters

Mar 30, 2020

For further information on the changes below or other franchise matters, please contact one of the authors above or any member of our Franchise or Franchise Litigation Groups.

In Canada, all provincial governments declared states of emergency, states of public health emergency or both in March 2020. In some cases, these included travel restrictions, social or physical distancing, self-isolation and quarantine advisories, prohibitions or limitations on public gatherings and the mandatory closures of public facilities, dine-in services at restaurants, and other establishments in efforts to slow the spread of the global COVID-19 pandemic.

In particular, certain provinces have announced mandatory shutdown of non-essential businesses, and a number of provinces have prohibited restaurants from offering dine-in services while still allowing take-out, delivery or both. Please see our post regarding Government Limits on Non-Essential Business Operations for additional details.

In response, many restaurants are operating on a delivery and take-out only basis, even in provinces without these mandatory orders. Third party food delivery services such as Uber Eats, Skip the Dishes and Foodora are expected to experience a surge in popularity as customers seek the convenience of restaurant meals in the “work from home” and social distancing environment. The Ontario and British Columbia governments have also amended the regulations under liquor licensing legislation to temporarily allow restaurants to deliver alcohol along with food orders. If the restaurant is licensed to serve alcohol, no further permit is required to deliver it.

As social distancing policies and prohibitions on dine-in services continue in effect, demand for food delivery, take-out and curbside pick-up will likely increase in the short term. Pandemic-related changes in consumer demand and behaviour could have longer lasting effects, suggesting that a longer-term strategy for these alternative channels of distribution may be warranted.

Restaurant franchisors looking to strategically position their franchise systems during the pandemic will need to take a leadership role in guiding franchisees and should do so quickly. Franchisors should consider the following legal and commercial issues when pivoting to a business model more heavily focused on delivery and take-out, both in the immediate term in response to the pandemic, as well as over the longer term:

Food Delivery Considerations

  • Traditional delivery and take-out models are in high demand and many brands are promoting these channels as a way to support local small businesses during the health and economic crisis. Franchise systems that already incorporate these services can be adapted to serve customers more efficiently and, as discussed below, using enhanced health and safety standards. For example, some franchisors have lengthened their system’s delivery time “guarantee” in order to help franchisees meet increased demand and to help with execution.
  • Traditional delivery and take-out models are attractive to some franchisors because the ordering platform and delivery system can be kept “in-house”, without the need to pay listing and delivery fees to a third party delivery service. Franchisors should consider whether their website, advertising, and social media presence are properly designed to drive this business and marketing campaigns will likely need to be updated given the new realities of carrying on business during the pandemic.
  • Shifting to a new business model will require timely and ongoing communication to franchisees. This should include clear and easy to implement guidelines for operating the restaurant in the new environment. Franchisors should consider setting up periodic updates via email, conference call or virtual meeting to keep franchisees informed.
  • Time is of the essence in accessing a rapidly evolving marketplace. Franchisors should assess which elements of their systems are critical to maintain in the quick implementation of new system changes and which non-core system requirements can be relaxed during the pandemic.
  • The initial roll out of a new or expanded delivery service may result in glitches that negatively impact product quality and the goodwill of the franchisor’s brand. Franchisors should provide franchisees with updated operating procedures to help mitigate this risk. For example, food packaging may need to be tested and improved if the restaurant’s normal takeout packaging system was not designed for a high-volume delivery-only service. Some franchisors have provided franchisees with stickers to seal packages as an interim measure while they await new tamper-proof delivery containers and boxes. In addition, franchisors may need to work with suppliers to ensure increased volumes of takeout packaging are available to franchisees.
  • Several franchised brands are making a difference at the community level by delivering free food and beverages to frontline workers in the health care system. This may be an opportunity to simultaneously increase the goodwill of the franchisor’s brand.
  • If some franchisees have temporarily shut down or limited their operating hours in response to the COVID-19 pandemic, franchisors will need to develop marketing strategies to help the brand regain market position once the dine-in prohibitions are relaxed and ultimately lifted.  
  • Franchisors will need to update their disclosure documents to describe any new material facts related to the temporary shift to a delivery and take-out model.

Enhanced Health and Safety

  • Many franchisors are imposing enhanced health and safety requirements to limit the possibility of contamination of delivery items and to increase consumer confidence in their products and services. Some enhancements include the requirement that employees wear masks and gloves and revising the food preparation system to reduce and eliminate unnecessary exposure. Franchisors could consider requiring franchisees to adopt a policy regarding employee temperature testing or signs of fever at the start of every shift, although franchisees should also be encouraged to seek legal advice on the contours of any such policy based on privacy law and other legislation in their jurisdiction. Franchisees should be required to train their staff about all enhancements to health and safety requirements.
  • Cleaning of the physical space for food preparation and other frequently touched surfaces should be more frequent and more rigorous and, at a minimum, should follow guidance issued by applicable provincial health authorities and governments. Spaces in which customers and staff interact for food pickup could be redesigned with plastic or glass barriers to prevent unnecessary exposure and reinforce the importance of social distancing.
  • Customers should be presented with “no contact” delivery options, where orders are pre-paid via online payment and food is dropped off on the customer’s doorstep.
  • Franchisors should consider requiring that franchisees move to contactless forms of payment such as credit or debit card tap.
  • For more information on the unique considerations when a franchisor is introducing or enhancing Health and Safety Policies for franchisees, see our Osler update on COVID-19 Health and Safety Policy Considerations for Franchisors.

Third Party Delivery Services

  • Some third-party food delivery services are temporarily suspending delivery fees for restaurants within a certain distance of the customer. This is marketed as a way for consumers to support local business during the pandemic. Franchisors should consider researching which delivery services offer this pricing in their franchisees’ respective territories.
  • Some third-party food delivery services have temporarily waived their commission fees, which typically amount to between 15 – 30 percent of order value. Franchisors should research which services offer the best value and consider negotiating a commission waiver if none is being offered.
  • Third party food delivery apps list restaurants side-by-side and allow consumers to sort based on type of food, price, and delivery time. If a franchisor opts in favour of this model instead of a traditional delivery or pickup model, a competitive strategy for pricing and providing value should be developed in the medium to long term that accounts for commission and listing fees charged by the third party.

While members of the restaurant industry are among the hardest hit by the COVID-19 health and economic crisis, the Osler Franchise Team is inspired by the community-minded leadership and collaboration being displayed by franchisors and franchisees as they pull together to navigate through these challenging times.