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17 December 2019
Asian fusion quick service restaurant (QSR) Wrapchic fell into administration in 2019 after shareholders refused to lend further funds as it continued to make losses.
Wrapchic is one of a number of recent casualties in the UK food and beverage sector. However, unlike some of the more high-profile casual dining brands which have suffered a similar fate, Wrapchic was almost entirely franchised and operated in the generally more resilient QSR segment of the sector. So why did it fail and what lessons can franchisors learn?
While there may have been innate issues with the Wrapchic concept and wider macroeconomic factors which contributed to its demise, a recent statement by the administrators revealed two distinct issues:
One of the key benefits of franchising is that the growth of the network is funded by the franchisee's investment in human and capital resources, and franchisees consequently take the risk associated with that. By entering into headleases with landlords and subleasing to franchisees, Wrapchic was shifting a significant risk back onto itself.
Real estate strategy
It is not uncommon for franchisors to take on headleases, particularly where a landlord may require a stronger covenant or the franchisor wishes to exert more control. However, franchisors should adopt a flexible approach wherever possible to allow them to hedge their risks more effectively. For example, franchisors should consider the following guidance:
For further information on this topic please contact Gordon Drakes at Fieldfisher by telephone (+44 20 7861 4000) or email (email@example.com). The Fieldfisher website can be accessed at www.fieldfisher.com.
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