Protecting franchise chains against weather risk: A design science approach (2021)

Journal of Business Research 125:187-200
Jean-Louis Bertrand, Xavier Brusset, Miia Chabot
https://www.sciencedirect.com/science/article/abs/pii/S0148296320308511

Summary

Franchisees are often small business owners whose sales, profitability, and financial stability in the early years of operation are increasingly affected by weather variability. The literature has analyzed the effectiveness of various guarantees offered by franchisors in franchise agreements, but the case of covering the local weather risk to which each franchisee is exposed has never been addressed. Using design science, we show that franchisors operating in one of the industries constituting the 70% most exposed to weather risks can support the establishment of franchises, measure their weather risk, and incorporate financial protections against the consequences of adverse weather conditions into the franchise agreement. In doing so, they can reduce the risk of financial distress, provide an innovative service, and strengthen the quality of the relationship with their franchisees.