Blinded By Love...

We start each Franchise Royalty Assurance program by analyzing food cost, POS exceptions, purchasing data, etc. We use this report to identify the "low hanging fruit", which is based on worst weighted score.

One particular unit in Southwest Utah, for a global sandwich chain came screaming off the page at us. It indicated that 60% of all items initially rang into the POS system each day were voided prior to the sale being closed. You can imagine the impact on reported sales from this single unit operator, where both the husband/wife franchisees worked the store every day.

I sat down with the two and presented the 300 pages of POS data documenting the huge volume of voids, and the significant sales reporting variance calculated during our audit of this franchisee. I could not help but notice that the husband was fully engaged, distraught and could not explain how he was buying so much bread and their sales were so low. I further noticed his wife, who was anything but engaged, spent the entire discussion looking at her phone, and seemed to not have a care in the world. I finally got her attention when I asked what roles they each played in the business, and the husband explained he worked the front of the make line as order taker, and his wife worked the register every day for the three hour lunch rush. She always left by 2:00 PM as she had to drive to Las Vegas for her night job.

After the second or third nudge from me, the husband finally woke up, realizing his wife was the only one that could be voiding the transactions. She would ring up the items, collect the full sale amount, then item delete down to the drink or chips. Then start the next sale from there. We saw tickets open for over 60 minutes. At 1:30 every day, she would run the register reading, take the cash that was "over", and head to Vegas.

Based on the husbands reaction, and his immediate offer to settle the case with us, including paying back all past due royalties and our audit costs, it was apparent that he was being duped by his wife, and he had no knowledge of what she was doing. It was a sad moment watching his reaction when it finally dawned on him what was happening. Believe it or not, I received a note from this franchisee several months after we met. He had removed his wife from the business, and thanked me, explaining his sales were up dramatically, and he was making money. He further explained his wife was getting professional help for a gambling addiction. It was great to hear they were both turning things around.

I often struggle when I hear franchisors or others in our industry claim they have no underreporting because they have a polled POS system. Some claim that underreporting is a self reporting problem . This obviously helps curtail the damages, but the issues arise when no one is using or monitoring the data put out by these systems to identify sales outside the restaurant that are never entered into the POS at all. If you are a self reporting franchise system, message me to discuss our success pricing strategy for Royalty Auditing. #franchising #QSR #Restaurants #audit #Compliance