Mark Tramontana was a little surprised to see customers show up with Groupon coupons in hand last August, expecting discounted food from his Upper Crust pizzerias. It was odd, and annoying.
Tramontana, a franchisee with locations in Newburyport, Mass. and Portsmouth, N.H., said owners of the Boston-based Upper Crust chain hadn't told him they were doing a Groupon promotion involving his locations. But they had; two promotions, in fact, in the same month.
"I had to Google it to find out about it," he recalled.
He honored the coupons, at first, and waited for the chain owners to send him his cut of the money raised from the deal – in vain, as it turns out.
"It's clear, from what happened, that they did this to raise cash," Tramontana said.
"What happened" was bankruptcy for the Upper Crust pizzeria, which abruptly shuttered 10 locations under the central corporation's operation in November. Tramontana said he believes the August Groupons were a failed, last-ditch effort to grab some cash.
As an independent franchisee, Tramontana's shops survived. But he said he gave away $50,000 worth of discounted product, and other franchisees in the area were similarly affected. They stopped honoring those coupons until December, when Groupon itself stepped in to compensate the franchisees directly.
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A Cautionary Tale About Digital Discounts
Upper Crust's experience was unusually bad, Tramontana and retail experts acknowledge. But the story is a cautionary tale for franchises in the age of daily, digital discounts.
While discount deals such Groupon have retreated from their trendy heights of a couple years ago, they're still a common tool for retailers and restaurants. Whether – and how – to run such deals can get messy when the business has franchisees. It gets especially difficult when, as in the Boston pizzeria's case, the company has major financial problems.
"Franchisees need to assert their rights, always," said Neil Stern, senior partner with Chicago-based McMillan Doolittle, a retail consultancy. That means both franchisees and franchisers need to be proactive and lay out a plan for how exactly to do these deals, and make it part of their contract agreement.
But that's not easy, Stern said. These discounts are relatively new, and they're a fast-evolving part of the small business marketplace. It's challenging for all parties of a franchise to keep up with the evolving business model.
An Upper Crust spokeswoman did not return an email seeking comment, and their office voice mail was full.
Challenges Faced by Franchisees
Franchises are supposed to be a unified front for consumers. But franchisees have their own operations, storefronts and cash flow, and may disagree with their own corporations about what's best for their shops. Similarly, franchisers may have franchisees go rogue and damage the brand by their actions.
The whole point of becoming a franchisee is to take advantage of an established company and brand name, said Doug Fleener, president and managing partner with Lexington, Mass.-based consultancy Dynamic Experiences Group. So if a franchiser runs a deal but one of its franchisees wants to opt out, it would risk alienating customers when those coupons are rejected at a specific location.
"It really puts franchisees in a horrible position," Fleener said. "It's a bad place to get stuck in."