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

Franchisees are often small business owners whose sales, profitability, and financial stability during the early years of operation are increasingly affected by the variability of weather conditions.

The literature has analyzed the effectiveness of various guarantees offered by franchisors in franchise contracts, but the issue of coverage for the local weather risk to which each franchisee is exposed has never been addressed.

By using design science, we show that franchisors operating in one of the sectors that constitute the 70% most exposed to weather risks can support the establishment of franchises, assess their weather risk, and incorporate financial protections against the consequences of adverse weather conditions into the franchise contract.

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.