Franchising an Existing Business: Setting Quality Standards and Approval Procedures for New Products and Services
To reproduce company-owned outlet quality across a franchise network, you need to distinguish non-negotiable standards from areas where local adaptation is allowed. Here is how to define approvals for new products and services, from trials and contract terms to who pays.
Published
When turning an existing business into a franchise, a promise to deliver “the same quality as company-owned outlets” does not tell franchisees exactly what they must do. Yet fixing every detail can prevent them from adapting to local customers. The franchise community built by the franchisor and its franchisees needs both shared quality standards and a safe process for testing new products and services. Define those boundaries before recruiting franchisees.
1. Separate quality standards into mandatory requirements and flexible methods
Start not with detailed tasks, but with the value you promise customers. Identify the factors that determine trust in the brand: product safety and the finished result in a restaurant, for example, or functionality after a repair and the information given to the customer in a repair service. Rather than relying solely on the founder’s judgement, express these factors in terms that allow someone else to decide whether the standard has been met.
Standards are easier to apply when divided into three categories.
- Non-negotiable requirements: statutory safety requirements, processes that directly affect quality, and information that must always be explained to customers.
- Choices within defined limits: combinations of approved specifications, or variations in the offering to suit local demand.
- Changes requiring prior approval: adding new products, changing materials or treatment procedures, or making claims about benefits or performance that differ from those of existing services.
For example, changing the arrangement of food on a plate should not be treated in the same way as changing its ingredients. The latter may affect not only taste, but also allergen information, storage conditions and preparation procedures. Classify changes by their impact on customers and outlet operations, rather than by what they are called.
For each entry in your standards checklist, specify “what to check”, “acceptance criteria”, “how to check” and “evidence to record”. The key is to translate broad judgements such as “courteous service” into observable actions: for example, “explain the service and its price before starting, and obtain the customer’s confirmation”.
2. Test whether the standards are workable at a pilot outlet
Once the quality standards are documented, test them at a company-owned pilot outlet before applying them to franchisees. The purpose is not to test whether the entire outlet can operate independently, but to establish whether the specified product and service requirements can be met with the equipment and staffing available in practice.
Ask staff with different levels of experience to work to the same specifications, and record variations in results, preparation time, waste, rework and occasions when further explanation is needed. Test during busy periods and staff changeovers as well as under normal conditions. Even when quality requirements are met, excessive time spent on each order or job can affect franchisee profitability and customer waiting times.
If testing reveals problems, avoid immediately concluding that more training is needed. Distinguish between unclear specifications, differences in equipment performance, inconsistent materials, workload and staff understanding. If the specification itself is unrealistic, more intensive instruction will not produce consistent quality.
Keep not only photographs of acceptable products, but also examples of failures and the reasons they fall short. For services, identify situations where explanations must not be omitted, and conditions that require staff to pause and seek confirmation. Use concrete examples to reduce differences in judgement where criteria cannot be quantified.
Also record the conditions under which the standards were tested successfully. Do not assume that a specification achievable only at an outlet with particular equipment or experienced staff can be reproduced by every franchisee.
3. Establish a process for franchisee proposals
Proposals for local products or additional services can create opportunities to improve the brand. Do not simply state that “franchisor approval is required”: decide who will check what, and how the outcome will be communicated.
The application form should ask franchisees to describe the proposal, its intended customers, how it differs from existing products, the materials and equipment involved, the delivery process, labelling and customer explanations, checks on any necessary licences or permits, and costs and working time. The franchisor should allocate responsibility for reviewing quality, safety, consistency with the brand and the impact on existing outlets.
An approval process might work as follows.
- Receipt: identify any missing information, name the person responsible and give an indicative response timeframe.
- Assessment: respond with approval, permission for a conditional trial, a request for revisions or rejection, giving reasons for the decision.
- Limited trial: document the participating outlets, trial period, conditions for offering the product or service, and criteria for stopping the trial.
- Review of results: assess quality, customer responses and operational workload, then decide whether to continue or end the offering.
Make the scope of approval explicit, so that permission for a trial at one outlet does not automatically become permission to offer the product or service throughout the network. Also make clear whether a lack of response constitutes approval, and put procedures in place to prevent launches without the necessary authorisation.
Before work begins, agree who will pay for prototypes, testing, signage and labelling materials, and additional training. Deciding what happens to stock and dedicated supplies if a proposal is not adopted also reduces the risk of unexpected losses for franchisees.
4. Link contractual restrictions to their quality-control purpose
Japan has no single comprehensive statute governing all franchise agreements. That does not mean franchising is unregulated. Franchisors and franchisees are independent businesses: their contracts are subject to general legislation such as the Civil Code, and their trading relationship is also subject to the Antimonopoly Act.
The Japan Fair Trade Commission’s guidelines on franchise systems under the Antimonopoly Act explain that restrictions intended to protect trade secrets or maintain a consistent brand image, for example, are not necessarily problematic if they remain within the bounds needed for the franchise system to operate properly. However, restrictions that exceed those bounds and unfairly disadvantage franchisees may raise concerns under the Act.
It is therefore important not to use “maintaining quality” as a blanket justification for prohibiting all additional products or imposing unnecessary costs. State the purpose of each restriction and consider whether it could be achieved in a less burdensome way. Keep restrictions on selling prices separate from quality assessments, and have any pricing conditions reviewed separately for compliance with the Antimonopoly Act.
Where a franchise arrangement qualifies as a specified chain business under Article 11 of Japan’s Act on the Promotion of Small and Medium-sized Retail Business, the franchisor must provide prospective franchisees with written disclosure of the prescribed information and explain it before the contract is signed. Whether an arrangement qualifies should be checked against criteria including whether it primarily serves small and medium-sized retailers, involves ongoing supply of goods or arrangements for such supply, provides management guidance, permits the use of trade marks or other identifying marks, and collects payments on joining. Do not decide solely on whether the business is described as retail or food service.
Quality obligations, conditions for approving additions, and responsibility for inspection and trial costs can all affect the decision to join a franchise. Check how these relate to statutory disclosure requirements, ensure that the contract and its attached quality standards are consistent, and do not omit significant burdens from explanations given during recruitment. Even where the statutory requirements do not apply, explaining important restrictions in writing beforehand helps build trust.
Practical takeaway: Start by choosing one core product or service and preparing a quality standards checklist and a proposal application form. Use them in a company-owned outlet, resolve any criteria that cannot be assessed and uncover hidden costs, then incorporate the findings into the franchise agreement.
