Franchise Strategies
Jul 1, 2025
Explore the shared cybersecurity responsibilities of franchisors and franchisees to mitigate risks and protect sensitive data in franchise networks.
Franchise cybersecurity depends on clear roles for franchisors and franchisees. Franchisors set system-wide policies, provide tools, and manage compliance, while franchisees handle local implementation and training. Miscommunication can leave gaps, leading to data breaches, like Wendy’s 2016 breach costing $53 million.
Key points:
Shared Responsibility: Franchisors focus on policies; franchisees ensure local execution.
Training & Tools: Franchisors provide resources; franchisees train staff and secure systems.
Compliance: Both must meet regulations like GDPR and PCI DSS.
Cyber Risks: Small businesses face 43% of attacks, with breaches averaging $4.88M in 2024.
Collaboration: Communication and joint incident response plans are critical.
Franchisors and franchisees must work together to reduce risks and protect their network.
Creating A Cybersecurity Culture PCA & KnowBe4 Webinar
How Cybersecurity Responsibility Works in Franchises
In franchise operations, cybersecurity relies on a shared responsibility model, where specific tasks are divided between franchisors and franchisees. This approach ensures that both parties contribute to the overall security structure, minimizing vulnerabilities.
The model often mirrors the "security of the cloud" versus "security in the cloud" concept. Franchisors typically manage the broader security framework - setting policies, providing tools, and ensuring corporate-level protections. On the other hand, franchisees are tasked with implementing these guidelines locally, securing their day-to-day operations, and maintaining compliance with established standards. This division of responsibilities is essential, especially when considering the alarming statistics surrounding cloud-security misunderstandings.
For instance, while 98% of businesses have experienced a cloud-data breach in the past 18 months, only 13% fully understand their cloud-security responsibilities. This disconnect highlights the risks of unclear role definitions.
"The Shared Responsibility Model is critical for cybersecurity because it prevents gaps in protection caused by unclear ownership. Misunderstanding roles leads to unpatched systems, misconfigurations, and breaches. Knowing what you're responsible for helps organizations build stronger, more proactive security postures."
In franchise networks, ambiguity in responsibilities can lead to serious consequences. For example, if a franchisor assumes that a franchisee has implemented all required local security measures, while the franchisee believes corporate-level policies cover everything, critical vulnerabilities may go unnoticed. These gaps can result in data breaches, compliance failures, and significant financial or reputational damage.
Compliance adds another layer of complexity. Regulations like GDPR, HIPAA, and PCI DSS demand specific data protection measures. Under GDPR, non-compliance can lead to penalties of up to 4% of a company’s annual global revenue. To avoid such risks, franchise agreements must clearly outline which party is responsible for meeting these regulatory requirements. Beyond legal obligations, human error remains a persistent challenge.
By 2025, it’s estimated that 99% of cloud-security failures will result from customer-side issues. Human factors already account for 74% of all cyber breaches. Without regular training, even the most comprehensive policies can fail. This is particularly concerning for franchise locations that handle sensitive customer data, process payments, or store personal information - each one a potential target for cybercriminals.
Identity theft, now the fastest-growing financial crime, underscores the need for clear and enforceable policies. As Kevin Kilcommons of Kilcommons Law PC puts it:
"Franchisors must present clear franchisee privacy policies in their manuals that mandate the manner in which franchisees are to handle sensitive customer information."
Ultimately, the shared responsibility model isn’t just about assigning tasks. It’s about building a cohesive defense strategy that protects the entire franchise network from evolving threats.
What Franchisors Must Do for Cybersecurity
Franchisors carry the primary responsibility for establishing a strong cybersecurity foundation that protects their entire franchise network. Their role goes beyond simple oversight - they're tasked with creating detailed security frameworks that shield both corporate operations and individual franchise locations from cyber threats. Here's how franchisors can take the lead in safeguarding their networks.
Creating Security Policies and Standards
Franchisors need to develop clear, network-wide cybersecurity policies to ensure consistent protection. These policies should outline how franchisees handle sensitive customer data, including rules for data collection, storage, sharing, and deletion. As Kevin Kilcommons of Kilcommons Law PC points out, franchisors should include privacy policies in their manuals to guide franchisees on proper data handling practices. This is especially critical as identity theft continues to rise as a major financial crime.
It's equally important for franchisors to keep these policies updated. Privacy laws like GDPR, HIPAA, and PCI DSS evolve, and franchisors must implement regular reviews to ensure compliance. Franchise agreements should also clearly define the roles and responsibilities of both franchisors and franchisees when it comes to managing data privacy, leaving no room for misunderstandings.
To reduce security risks, franchisors should require franchisees to use standardized software and computer systems. This helps eliminate vulnerabilities caused by outdated or incompatible technology across different locations.
Supplying Security Tools and Training
Providing franchisees with the right tools and training is another critical step. Franchisors should supply or approve cybersecurity tools like firewalls, intrusion detection systems, and encrypted data storage solutions to ensure every location meets baseline security standards.
Training is just as important. Regular, hands-on sessions can teach franchisees to spot threats like phishing scams and weak passwords. For global franchise networks, training materials should be tailored to account for cultural differences, ensuring the message resonates across diverse markets. Additionally, implementing role-based access controls can limit access to sensitive data, ensuring employees and franchisees only see what they need for their specific tasks.
Running Security Audits and Risk Checks
Frequent audits and risk assessments are essential for identifying and fixing vulnerabilities before they lead to breaches. A structured audit process should cover IT infrastructure, data storage, physical security, policies, and compliance across all franchise locations.
Adhering to compliance frameworks is a key part of this process. The table below highlights some major frameworks and their audit requirements:
Compliance Framework | Industry Focus | Key Audit Requirements |
|---|---|---|
HIPAA | Healthcare | Annual security risk assessment, technical safeguards verification |
PCI DSS | Retail, E-commerce | Quarterly vulnerability scans, annual penetration testing |
SaaS, Cloud Services | Annual Type 1 or Type 2 audits | |
GDPR | Handling EU data | Data protection impact assessments, processing audits |
In addition to scheduled audits, franchisors should implement continuous security monitoring to catch threats in real time, enabling quick action to prevent damage. Routine cybersecurity audits are also necessary to ensure franchisees are sticking to established privacy protocols.
Finally, having an incident response plan is non-negotiable. Franchisors should develop a detailed strategy that prioritizes risks, outlines remediation steps, ensures business continuity, and provides clear communication during a crisis. Regularly testing these plans ensures they’re ready to go when needed.
What Franchisees Must Do for Cybersecurity
Franchisees play a critical role in maintaining cybersecurity at the local level. While they must follow corporate guidelines to protect customer data and comply with industry regulations, they also need to address specific risks that come with their day-to-day operations.
Following Franchisor Security Policies
Franchisees are required to strictly follow all cybersecurity policies set by their franchisor. This includes establishing a clear data governance framework to manage sensitive information like customer payment details and employee records. Key security measures include using firewalls, intrusion detection systems, encryption, and multi-factor authentication, while ensuring access is limited to only those who need it.
The consequences of non-compliance can be severe. For instance, in 2017, a major coffee franchise suffered a data breach where the liability fell on a franchisee. Despite using a standardized point-of-sale system, weak local security protocols allowed the breach to occur.
Setting Up Local Security Measures
Franchisees must go beyond corporate mandates to secure their individual locations. This starts with implementing all franchisor-recommended technologies and tools, ensuring they are properly configured, and encrypting sensitive data both at rest and in transit.
Keeping systems updated with regular security patches is essential. Additionally, franchisees should provide targeted training for their staff to address common threats like phishing and poor password practices.
Managing Incident Response Plans
Every franchisee should have a local incident response plan that aligns with corporate protocols. This plan should clearly define team roles, establish communication channels, and be tested every six months through tabletop exercises to ensure readiness.
Local incident response teams should be trained to act quickly during cyber incidents. Each team member’s role - whether as a lead, investigator, communicator, or decision-maker - should be clearly documented. Procedures must also be in place to notify employees, law enforcement, and other stakeholders, as well as to provide timely updates to the franchisor about emerging threats.
The responsibility for cybersecurity is shared between the franchisor and franchisee, but franchisees cannot rely solely on corporate support during incidents. In 2019, a breach at a national fast-food chain highlighted shared liability when the franchisor failed to enforce mandatory software updates, worsening the impact of the incident. By implementing these practices, franchisees contribute to a stronger, more coordinated cybersecurity effort across the network.
Franchisor vs. Franchisee Cybersecurity Roles Compared
Understanding how franchisors and franchisees contribute to cybersecurity is key to building a strong defense against cyber threats. While both parties aim to protect the franchise network, their responsibilities differ in scope and focus.
Franchisors are responsible for laying the groundwork. They create the cybersecurity policies, select tools, and set compliance standards. Franchisees, on the other hand, are tasked with implementing these guidelines at their locations, balancing corporate requirements with local realities.
This shared responsibility model fosters collaboration. Franchisors establish overarching security frameworks, while franchisees handle local execution and provide feedback on emerging threats. This feedback helps refine policies and ensures resources are used effectively across the network.
However, dividing responsibilities also introduces unique challenges. Recent data breaches have shown the increasing financial toll of cyberattacks. Adding to the strain, 79% of franchisors in 2024 reported that their franchisees were struggling to fill cybersecurity-related job openings. Franchisees, meanwhile, face the dual challenge of managing limited budgets and ensuring their teams are properly trained to handle complex security measures. The table below highlights how these responsibilities are divided.
Responsibility Comparison Table
Responsibility Area | Franchisor Role | Franchisee Role | Shared Duties |
|---|---|---|---|
Policy Development | Develop comprehensive cybersecurity policies | Implement policies at local levels | Update policies based on new threats |
Training Programs | Design standardized training materials | Conduct training sessions for staff | Evaluate training effectiveness together |
Technology Implementation | Provide approved security tools | Use and maintain prescribed tools | Ensure proper setup and integration |
Incident Response | Create network-wide response protocols | Form local response teams | Collaborate during security incidents |
Risk Assessment | Perform network-wide audits | Conduct local vulnerability checks | Share threat and risk data |
Compliance Management | Establish compliance standards | Maintain local regulatory adherence | Monitor and report compliance efforts |
Budget Allocation | Fund major security infrastructure | Allocate local funds for additional measures | Optimize spending for security needs |
Vendor Management | Approve security service providers | Handle local vendor relationships | Coordinate third-party access and protocols |
This table highlights how franchisors and franchisees work together to create a multi-layered cybersecurity strategy. Franchisors provide the strategic vision and foundational framework, while franchisees handle the day-to-day operations needed to protect customer data and keep the network secure.
The rapid growth of the franchise industry adds another layer of complexity. By 2024, the number of franchised establishments increased by 1.9%, reaching 821,589 units. Franchise employment also grew by 2.6%, adding over 221,000 jobs for a total of 8.9 million employees. With more locations and employees, the potential entry points for cyber threats grow, making collaboration between franchisors and franchisees more critical than ever.
How to Improve Franchise Cybersecurity Teamwork
Building a strong cybersecurity partnership between franchisors and franchisees takes careful planning and consistent effort. With cyber incidents increasing by 150% since 2018 and the average cost of ransomware attacks climbing from $90,000 to over $220,000 per event, working together effectively is critical to safeguarding the entire franchise network.
Two major factors drive successful cybersecurity collaboration: establishing reliable communication channels and coordinating cyber insurance coverage across the system.
Setting Up Clear Communication
Effective communication is the foundation of any successful cybersecurity strategy in a franchise system. Without consistent information sharing, franchisees may miss critical updates, and franchisors could remain unaware of emerging threats at individual locations.
To address this, franchisors should implement clear communication policies that include regular check-ins and updates with franchisees. Scheduled meetings and timely support ensure everyone stays informed about cybersecurity challenges and solutions. Using appropriate communication tools can also make it easier to share updates and maintain remote connectivity.
It's equally important to have an emergency communication plan in place. During a cyber incident, franchisors should ensure that roles and responsibilities are clearly defined so franchisees, partners, and even the public receive timely and accurate updates.
When discussing cybersecurity, franchisors should approach franchisees with patience and understanding, acknowledging that not everyone has the same level of technical expertise.
Coordinating Cyber Insurance Coverage
Clear communication alone isn’t enough - franchisors and franchisees also need to align their financial risk management strategies through coordinated cyber insurance. A breach at a single location can jeopardize the entire franchise network, making system-wide coverage essential.
Coordinated cyber insurance provides uniform protection and ensures that resources are in place for a swift response across all franchise locations. Regular reviews of IT security and privacy controls are also critical. These reviews help identify inconsistencies in security measures that could complicate responses to incidents and increase overall risk.
This type of insurance not only offers financial protection for expenses like investigations, credit monitoring, and legal costs but also supports business continuity by enabling quick remediation of cyberattacks. Unlike general liability or workers' compensation policies, which are often handled at the individual franchisee level, cyber insurance needs to be managed holistically to protect the entire network.
How Franchise Ki Helps with Cybersecurity Planning
Cybersecurity often takes a back seat when people evaluate franchise opportunities. Yet, with 43% of cyberattacks targeting small businesses and the average cost of a data breach climbing to $4.88 million in 2024, it’s a critical factor for anyone considering an investment. Franchise Ki steps in to address this often-overlooked area by weaving cybersecurity assessments into its franchise evaluation process.
Leveraging the shared responsibility model mentioned earlier, Franchise Ki’s free consulting services guide prospective franchisees in evaluating the cybersecurity frameworks of various franchise systems. This ensures that investors can verify whether a franchise has the right protective measures in place to safeguard their investment.
Franchise Ki’s personalized matching service and curated database make it easier to compare how different franchises handle cybersecurity. Some franchises provide strong IT infrastructures with dedicated teams, while others shift much of the responsibility to individual franchisees. By understanding these distinctions upfront, investors can align their choices with their technical abilities and comfort with risk. The database offers detailed insights into each franchise’s approach to technology and security, helping potential owners make informed decisions.
Budgeting for cybersecurity is another area where Franchise Ki provides valuable support. Many new franchisees underestimate the ongoing costs of security tools, compliance, and training. Through its consultation process, Franchise Ki ensures that investors understand these recurring expenses and how they fit into the broader financial picture of franchise ownership.
Franchise Ki’s expert assistance doesn’t stop at the purchase phase. Their ongoing support helps franchisees tackle cybersecurity challenges as they arise. With access to consultants who know both franchise operations and security needs, owners can implement effective protections and avoid costly mistakes.
For business owners looking to expand into franchising, Franchise Ki also evaluates how new franchise systems can integrate with existing cybersecurity practices. This is especially critical for multi-unit operators who need consistent security standards across all their locations.
Conclusion
Strong franchise cybersecurity relies on a clear division of responsibilities and effective teamwork. Franchisors are tasked with setting up policies, providing necessary tools and training, and performing regular audits. On the other hand, franchisees must implement these measures at the local level and act quickly when incidents occur. This partnership is essential to counter the ever-present danger of cyberattacks.
With cyberattacks happening every 11 seconds and 43% targeting small businesses, franchise systems face constant exposure to risk. As cybersecurity experts Marc Lieberstein and Raymond Aghaian from Kilpatrick point out:
"Franchisors and franchisees should collaborate and coordinate their online activities to provide for security and control over the franchises valuable proprietary commercial and consumer data."
The interconnected structure of franchise systems means that a breach at one location can jeopardize the entire network. Such incidents can harm brand reputation, lead to regulatory penalties, and result in millions of dollars in recovery costs.
Franchisors bring enterprise-level expertise and resources to the table, while franchisees ensure vigilant local implementation. This teamwork can significantly shorten breach detection and containment times, reducing the average 280 days it typically takes to address a breach.
A long-term commitment to cybersecurity is non-negotiable. Franchisors need to regularly update their security frameworks to address new threats, while franchisees must stay informed through training and maintain consistent security protocols. Regular communication, joint training programs, and coordinated incident response plans strengthen the entire network’s defenses. This shared vigilance protects both the financial stability and reputation of the franchise system.
Planning for cybersecurity from the start, with expert guidance, is key to safeguarding investments and the success of the franchise brand. By combining strategic oversight at the corporate level with diligent local action, franchise networks can ensure their resilience and long-term success.
FAQs
What are the cybersecurity responsibilities of franchisors and franchisees in a franchise system?
In a franchise system, franchisors take the lead in establishing cybersecurity standards, offering secure systems, and ensuring data protection rules are followed. They are key players in managing consumer data and guiding franchisees on how to implement effective security measures.
Franchisees, meanwhile, are tasked with adhering to the franchisor’s cybersecurity guidelines, safeguarding their local systems, and protecting customer and operational data. Strong collaboration and open communication between franchisors and franchisees are crucial to preventing security breaches and preserving the overall integrity of the franchise network.
What steps can franchisors and franchisees take to work together effectively and prevent cybersecurity breaches?
To safeguard against cybersecurity breaches, franchisors and franchisees need to join forces by putting clear cybersecurity protocols in place that are followed across all locations. Regularly training employees on security best practices and encouraging open communication for reporting potential threats are key steps in this process.
Collaboration can be further improved by performing routine security audits, adopting cutting-edge security measures like end-to-end encryption and zero-trust frameworks, and sharing insights gained from past incidents. Maintaining transparency and consistent communication helps franchise systems create a unified and resilient defense against cyber threats.
What risks do franchisees face if they don’t follow the franchisor’s cybersecurity policies?
Failure to follow a franchisor's cybersecurity policies can have serious consequences for franchisees. These might include legal penalties, hefty fines, and disruptions to business operations caused by cyberattacks or data breaches.
Beyond the financial and operational impact, non-compliance can damage a franchisee’s reputation, weaken customer trust, and potentially lead to the termination of the franchise agreement. In some instances, franchisees could also face lawsuits or be held accountable for damages stemming from their negligence.
To sidestep these risks, franchisees should make cybersecurity a top priority. Collaborating with their franchisor to adopt best practices and protect sensitive data is essential for maintaining both compliance and business integrity.
