Mobile Apps Fail To Cut Franchise Risks, May Increase Failure Rates, Study Finds
CHICAGO, IL (WHN) – A new academic study reports that mobile app adoption by large franchise chains, intended to boost sales and customer engagement, does not reduce the risk of franchisee failure and can significantly increase the likelihood of collapse for inexperienced or under-resourced operators.
The findings challenge a widely held industry belief. They stem from an analysis of a large, publicly traded restaurant franchisor.
The research, published in the journal Marketing Science, examined franchisee performance data from the first quarter of 2017 through the second quarter of 2019. This period covers the time before and after the franchisor launched its proprietary mobile ordering and loyalty app in the third quarter of 2017. The study was conducted by researchers from McGill University, Rutgers University, and the Korea Advanced Institute of Science & Technology (KAIST).
Instead of improving financial outcomes, the app’s introduction correlated with a spike in operational problems at the franchise level. The added tasks of managing online orders, complex digital promotions, and coordinating with delivery drivers increased employee workload and service complexity, the study found.
These new operational pressures often led to service failures. These included incorrect orders and longer wait times.
“While the mobile app may increase customer engagement, it also introduces operational complexities that can strain franchisee resources,” stated Warut Khern-am-nuai of McGill University, a co-author of the study titled “Mobile App Adoption and Franchise Performance.”
Service errors frequently resulted in negative online reviews. This created a damaging feedback loop where poor reviews deterred potential customers, leading to decreased revenue and further straining the franchisee’s viability, according to the research.
Certain franchisees were found to be at a much higher risk.
Inexperienced operators were hit the hardest. The study reported that franchisees with less operational experience were 28% more likely to fail after the company mandated app adoption. They struggled to adapt to the new, complex workflow.
Franchisees located in low-income areas faced a 35% higher risk of failure. Researchers suggest these operators often have tighter resource constraints and a customer base more sensitive to service disruptions, making recovery from negative reviews more difficult.
In contrast, the study noted that company-owned stores did not experience the same negative effects. These locations typically benefit from greater corporate resources, standardized employee training, and direct operational support from the parent company, allowing them to better absorb the complexities introduced by the new technology.
The research underscores a critical gap between corporate technology strategy and frontline operational reality. “The key takeaway for franchisors is that technology adoption must be accompanied by adequate support and training for franchisees,” said San-Hui (Sam) Chae of Rutgers University.
The study’s authors recommend that franchisors provide enhanced operational training and consider a phased rollout of complex app features. They also suggest offering financial assistance to operators in economically challenged areas to help them manage the transition.
