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Chapter 2. The Franchise Relationship Model

Chapter 2. The Franchise Relationship Model

In 1986 Pizza Hut was struggling with upstart competitor Domino’s. Franchisor management was convinced that the competitor’s pizza delivery was a real threat and that Pizza Hut needed to respond with its own delivery offering. But the franchisor had over a thousand franchises with territory rights that were highly successful sit-down restaurants. “Why fix what isn’t broken?” was a common franchisee refrain. The delivery system added costs to the franchise operation with uncertain revenue. It also affected the way franchisees operated the sit-down business. Tension grew as the franchisor began to experiment with the Pizza Hut business model with centralized phone ordering and special procedures for home delivery orders. Pizza Hut teetered on the brink of massive litigation.

Eventually, the franchisor negotiated with franchisees and the firm embraced delivery. But why did the friction between the franchisees and franchisor rise to this level in what now seems an obvious need to respond to the competition? The complexity of the franchisor–franchisee relationship suggests that if you don’t pay attention to key aspects of this partnership, the system will fray.


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