If You’re Franchising But Not Collecting POS Data, You Deserve to go Bankrupt

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In 2007 Domino’s franchisees went after corporate for requiring that they use a common point of sale (POS) system. PULSE, Domino’s custom-built POS, cost franchisees around $25,000 but would allow all Domino’s outlets to “have one unified point-of-sale system to look for trends, improve customer service and enable the chain eventually to start a universal online pizza ordering system for all locations.”

To be fair, Domino’s did not put this requirement in the franchise agreement in a very explicit way. A court ruled against Domino’s originally in 2007, but was then overturned in Domino’s favor in early 2008. The key phrase in the franchise agreement was, “…you may purchase items meeting our specifications from any source.” Some franchisees interpreted this to mean any POS system that would send Domino’s the appropriate data, where Domino’s contended that the phrase meant a franchisee could purchase PULSE from any source they found.

Our observation is three-fold.

First, Domino’s was smart for seeing the trend in online ordering and the need to centralize data. Having unified data is a boon for a number of reasons we’ll discuss below.

Second, Domino’s likely knew that integrating legacy POS systems, no matter if they met a specification, would be a real pain in the ass. Walled gardens. Clunky interfaces. Expensive integrations. Who-the-f&ck-designed-these database table structures? It’s a total nightmare.

Third, if franchisees purchased POS systems that seemed to meet their franchise agreement only to be told by Domino’s the systems weren’t any good, shame on Domino’s. But if franchisees didn’t understand the value in centralizing data, should they even be allowed to franchise in the first place?

Regardless, the story has a happy ending for all. Domino’s went on to become one of the best performing restaurant stocks in recent memory. It’s produced 4x the gains over restaurant ETF BITE since BITE was securitized in October of 2015.

The franchisees, while throwing a stink-fit for (possibly) the wrong reasons, ultimately benefitted from Domino’s industry-rare foresight.

Which makes us wonder: how do other franchisors not follow the approach proven by Domino’s? That is, how is it that franchisors do not understand the value of data and require their franchisees to submit real-time, granular information? (At this point asking this question has become facetious because we’ve already proven well-paid restaurant executives are 40 years behind braindead business tenets proven elsewhere.)

Here are all the reasons for centralizing data from franchisee and franchisor POS systems

  • Marketing. Many franchisors have national promotions they’ll spend marketing dollars on. But as franchisors transition to a franchisee-dominant unit ownership model, how do they know if the promotions are working? A combination of machine learning, control groups, and traceable promotions are key to calculating ROI and knowing where you stand before shelling out more money on marketing.
  • Assortment. Different demographics prefer different things. Centralized data allows corporate to check popularity of items and optimize offerings by regional areas accordingly. Consumers are not a one-size-fits-all.
  • Pricing. Price elasticity was previously a highly-engaged consulting effort by industry specialists. Now computers can perform calculations faster and cheaper in order to find the optimal price. Corporate can determine the pricing on different items by looking at a combination of popularity and margin.
  • Demographics. Marketing should target consumer segments that are relevant with your brand. Collecting payments data from each location enables corporate to better understand their ideal customers for marketing campaigns. Further, unified loyalty programs can help to A/B test conversions of events.
  • Operations. It’s not controversial that retail is a low margin industry. That’s why operations are critical to measure and manage. Unified POS data can help franchisors run analytics to determine which locations are at-risk. KPIs can vary from theft to labor alignment. If franchisees aren’t following prescribed methodologies customers can be underserved and the brand harmed.
  • Inventory. Unified purchasing data can help with supplier and distributor contracts as well as analytics for optimizing all of supply chain. Aggregate information will also help retailers leverage co-op marketing spend and additional goodies from their suppliers.
  • Syndication. The right POS will enable operators to connect with Google, Yelp, Amazon and a number of other consumer platforms. Doing this as a centralized brand effort makes the integration process easier, and more consistent for consumers: “Why can I order online from one location but not another under the same brand?” Consistent POS eliminates the technical barrier (assuming the franchisee is sophisticated enough to understand the value of syndication).

These are all reasons franchisors should already be neck-deep in data curation; franchisors should be the ones pursuing innovation. But our experience tells us otherwise.

We find that franchisees – many of who are founders and entrepreneurial – are more innovative and willing to listen. The above, bulleted benefits should then be a playbook for franchisees looking to force change in their franchisor overlords. As franchisees control more and more of the units in the field, this might make the most sense anyhow.

If a brand – at any level – ignores their own data and doesn’t use it in an increasingly competitive world, they will suffer greatly.

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