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Franchise Feasibility
Executive Summary: The purpose of the feasibility study is to discuss the franchise feasibility
of the bar and restaurant business. The discussion is innovative. It can be termed like that
because generally the company that can offer its franchise must have some unique features for it,
which it can only offer. The software patents in case of soft ware training, the dealerships in case
of other industrial spare parts and so on. But in the context of bar and restaurant the franchise
concept is a new idea.
The analysis for franchise feasibility in case of Garuva Restaurant and bar was conducted. The
features of the firm which were unique and innovativeness in its operations were examined and
discussed to decide the feasibility. As the bar and restaurant do not have any patents or special
rights such as dealerships, it is difficult to offer franchise as there will be less takers. But here the
franchise feasibility was done for Melbourne and Sydney.
The most important findings of the paper are that the bar and restaurant business is more
competitive and the sustaining edge in the business can be done with maintaining quality in food
and cocktails and being innovative in offering services. It was found that instead of offering the
services according to the intentions of the management it is better and reasonable to offer a
selections of services from which the customers can choose their likeness. This may require a bit
more investment initially but more returns can be expected in future.

Table of Contents
Contents

page number

1. Introduction

2. History of the organisation and the selections available

4.

3.Suitability for franchising

4. Conclusions and recommendations

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5.References

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6. Appendices

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Introduction
The report is to study the feasibility of franchising the Garuva bar and restaurant according to the
Australian franchising standards. The conduct of a franchise should be in a manner protecting the
good will of the business and the industry. The feasibility study must be in such a manner to
protect the investments of franchisers. The chance of happening of unfair and unethical practices
can be estimated and the actions necessary for avoiding them can be discussed. The feasibility of
the business, whether it can come under the franchise code of conduct will be discussed. The
business of the firm of which the franchise feasibility is discussed must be according to the laws
of Australia when it was franchised. It does not mean that the bar and restaurant business for
which we are discussing the feasibility for franchise is an illegal one. The meaning is that; can
the bar and restaurant business can be franchised according to Australias law or not. The
capability of Garuva bar and restaurant to give training in the skills of serving and catering to the
needs of the customers can be discussed. The willingness of the Garuva bar and restaurant to
communicate with its franchise from time to time about the way of running the business can be
discussed. Evaluation of the prices and costs about the products and services of the Garuva firm
so that it can be known whether the pricing range is suitable for franchising as it involves profit
sharing or affects the profitability.
Limitations of the study: The study was limited to the points of feasibility of franchising. The
nature of business, product or service, pricing strategy, promotion and distribution methods will
be studied but not ownership, supply sources and profitability. The issues mentioned later in the
previous sentence shall not come under the study of the paper.

History of the Organisation and the Selections Available


Garuva bar and restaurant is termed as Hidden tranquillity Restaurant. It was started in Fortitude
Valley in 1992. Right from the beginning it gained popularity by mouth publicity. They did not
spend much on publicity. Due to that a cocktail bar was annexed after a few years to
accommodate the guests who wait to go to a restaurant to dine. After that in January 2002 the
organisation moved its activities to 324 Wickham Street. In valley centre there is a convenient
parking centre in the form of multilevel car park. It occupies areas in St pauls Tce, Constance
street, and Alden street. Apart from that off street parking can be done after 7.00 PM on all week
days and Sundays. Even at present there is no sign board before the bar. People knew it by its
fame which spread by mouth publicity.
The organisation offers food, liquor, cocktail bar, music and dance viewing while drinking and
various varieties of food items and cocktails. The uniqueness lies in the way they offer the
services. The variance in the food and cocktails items offered also were an added advantage to
the organisations business. The customers can sit on cushions and can listen music or watch a
dance while drinking. The persons who dont want music or dance while drinking have a
separate sitting arrangement. The concept of the organisation is unique in nature and it offers
services that are different from other bar and restaurants which are conventional in nature. The
floor on which the customers sit on cushioned rugs containing back rests for relaxing, low level
tables with dim lighting are the specialities. The tables which are converted into booths with
curtains give reasonable privacy for the couples as well as groups. It provides intimacy for
couples and privacy for groups. The size of the booths depend upon the number of people. There
are different sizes of booths ranging from the ones that are useful for couples and to the ones
that can accommodate a number of thirty people. All the days there prevails a tranquil mood in
the restaurant. But on Friday and Saturday the nights in the Garuva premises are too busy and
loud as any other bar and restaurant. But even in those days, 8 booths were on separately
arranged in one corner for those who enjoy tranquillity, while in the bar. Arranged separately
from these booths there is a function hall a little far away that can provide accommodation for 30
people. Customers generally use this hall for birthday functions, hens nights, get together parties
and other staff functions. The food and cocktail items offered here are also unique.

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When the food products that are offered are concerned, the following are the important ones.
Beef Baha was made up of beef brisket which was stewed in soy sauce, tomato, puree and other
vegetables.
Braised Chicken Wings are made up of chicken cooked in Chinese marinade with springed
onions.
Sweet Potato and bean curry can be considered as a classic blend of assorted curries with
spices and contains fresh garden vegetables.
Thai Chill Prawns are the tiger prawns that are sauted in tomato and chilli sauces.
Japanese Salad is decorated with orange cream dressing in which crisp lettuce hearts combined
with a variety of fruit and nut structures.
All the meals offered by Garuva are with a minimum cost of $17.50 and are of large size. If
customers want an extra rice bowl $1.5 was charged. Apart from the above mentioned items all
the menu of food items were divided into meat , sea food, vegetarian and salad selections.
Meat Selections
The important one Beef Baha was provided above. After that the important one is Chinese roast
beef. The beef was marinated in ginger, soy, sherry and garlic. Roasted and sliced beef contains
sauce made from chilli plums.
The another meat selection is lamb curry. The lamb shanks were braised with curry sauce with
spices.
The last meat selection is Thai pepper pork. The thin pork loin was marinated in garlic juice and
mixed with pepper and sauce made from fish. After that it was fried on the pan contains bed of
bean sprouts.
The next part of the menu is sea food selections.
The first one to be considered is Thai Chilli prawns. It was provided in the list of important food
items mentioned before the meat selections. After that BBO Fish fillets is the important one. The
sea perch was fried on the pan and served by mixing with sweet ginger and sauce of soy.
Another one in the list of sea food varieties is prawn and pumpkin fritters, which was a mixture
of sea food and fruit or vegetable. In this item the prawns are mixed with mashed pumpkin and
sprouts of beans. These beans are coated with tapioca and flour of rice. They are battered and
combined with sauce which is a mixture of garlic, coconut and vinegar.

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The last in the sea food selections is Turkish Octopus. Matured pieces tiny octopus was sauted in
cream, garlic and lemon grass. It was served with a sauce of Turkish dipping.
The last one is coconut prawns which was a mixture of prawns and coconut that is capable of
supplying fibre with sea food. The deeply fried prawns are coated with shredded coconut and are
served.
The first one in the chicken selections Braised Chicken Wings was mentioned in the important
items before meat selections.
The next one is known as Karaage. It was Japanese style chicken selection. The deeply fried
chicken is combined with dipping sauce. The nature of the sauce depends on the taste of the
customer.
The next in the list is also a Japanese selection of chicken item. It was a kabab made by Japanese
in which the chicken kababs are BBQed to perfection in the mouth watering yakitori sauce.
The next one in the list is the special item of the Garuva. It is called as Cajun Blackened
Chicken. The chicken breast was baked in Cajun mix with spices and was served with mango
chutney. The chutney contains herb mayo also. This one is also considered as a mixture of non
vegetarian and vegetarian delicacies.
The last one in chicken selection is creamy chicken. The chicken was sauted with mushrooms
and mixed with onions. It was served with Cream and paprika. The rice was mentioned before
the full menu and the cob bread and babaganush were charged $3.30 per serve.
The next comes the vegetarian selection.
The first one sweet potato and bean curry was mentioned in the important menu list.
The next one in the list is known as Singapore vegetables. The vegetables steamed and tossed in
oyster sauce
Tempura vegetables were air floured vegetables that are deep fried and served with sweet chilli
soy, and a sauce of herbs and garlic.
The tofu and vegetable stir fry is an item which was cooked in curry coconut and sweet chilli
sauce.
The last one in vegetarian selection is Garuva Legumes. The bak choi was mixed with garlic and
ginger. The mixture is treated with oyster sauce and fresh coriander and onion rings were used to
decorate the outer part.

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The next part of the menu is salad selection. Out of the salad selections the Japanese salad is
mentioned in the important menu list. In the remaining ones the first one to not is the Warm thai
beef salad.
The warm Thai Beef Salad is a selection that contains sliced rib rillet that was marinated in
coriander and sauce of soy. It was rarely found item which was cooked with fresh red chilli sauce
and served with cucumber garnishment.
The next one is Green Garden salad. This can be termed as vegetarian salad. With garden greens
tossed and serves with dressing.
The last one of the salads is Garuva Tantilizer.
It was a salad made with fruits available in tropical regions and mixed with cheese platter.
Next comes the liquor items.
The beers are available in three varieties. Local, premium and import beers. They are available
for 5, 6, 7 dollars.
The next variety is spirits. They are available in four varieties. They are basic, top shelf spirits,
lemon ruski, vodka cruiser and Black Smirnoff Ice.
The wine varieties are available in number of types and various mixtures were changed from
time to time.
The next selection is liqueur coffee.
They are available in four varieties. They are : Roman , Irish, Jamaican and Hot nudge.
Apart from the above menu the speciality of Garuva is to make the customers enjoy the attentive
service and an atmosphere of privacy. The environment there is capable of relaxing the heart and
soul of any individual by indulging them in food, drink and private conversation.
The bar and restaurant not only supplies food, drink, music and dance but also the tranquillity
that was required by busy individuals. Any body can be apart from their busy life and can share
their time with others.
Adding to the list of foods and hot drinks there are varieties of soft drinks and beverages. The
soft drinks and juices are five types. They are soft drinks (various types), tomato jucie with
venila, pineapple juice, tropical juice, and mocktail.
The next ones are coffee varieties. They are termed as short black, long black, decaf, Vienna and
cappuccino, cafelatte, Hot chocolate hot mocha, coffee da silva and piazza coffee. These coffee
varieties are from different areas of the world. The tea range which was available is a number

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that cannot be accommodated here. Every selective range of tea is of same price. Apart from
these there are number of varieties of dessert varieties for the people who come for only food
varieties and not for drinking.

Suitability for Franchising


Market Research for franchise feasibility of Garuva: Garuva bar and restaurant was being
operated in Brisbane and the feasibility study was to set up franchise in Melbourne or Sydney. As
the field of business in case of Garuva comes under food, liquor and services category. As both
Melbourne and Sydney are bigger cities than Brisbane and the need of hotels, bars and
restaurants which operate innovatively will necessarily thrive in their business. Both Melbourne
and Sydney have prosperous customers more than Brisbane as both the cities are having more
cosmopolitan structure than Brisbane. When the Garuva establishes a franchise in either
Melbourne or Sydney the market there is having enough potential to attract the customers. When
the necessity and the facts were considered, the need of expanding the presence horizontally
comes to the fore. The vertical expansion was continuing and the horizontal expansion can be
done by franchising. Then comes the brand value. When we examine the way the Garuva
developed we come to know that it developed its business by mouth publicity of its products and
services. It attained a fame and value by its services in Brisbane. That can be used for material
benefits in Melbourne and Sydney and if the services and products are up to the range that are
available in head quarters (Brisbane) the business is deemed to be successful.
Recommendation: The services offered by Garuva are innovative and the prosperous customers
can pay substantially for them. But there is a chance of a severe competition if any organisation
is capable of offering these type of services more economically. As the food products and the
services have no patent rights or dealership rights, there is a necessity of preserving its position
by enhancing the quality of services and offering them cost effectively.
The next thing to consider in feasibility study of franchise is to establish goals and objectives.
Then the question of point of starting the business comes to the fore. That is, from which range
the franchise can be offered and the time and range that can be extended. This means that the
Garuva should not franchise all the services at a time as it is difficult for a different person or
organisation (franchisee) to cope up with the standards of Garuva at once. So to preserve the
fame and brand value the services and products offered by Garuva can be franchised one by one.

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The way Garuva developed its business in Brisbane, there is a need to develop it in the same
manner even in Melbourne and Sydney also.
Recommendation: Even in this case the success depends upon withstanding the competition.
Garuva did not resort to expensive publicity to develop their business. The way they served their
products and offered their services made them famous and earn good will the business. When the
franchising was considered the franchisor (Garuva) must select a franchisee who or which have
similar qualities like Garuva. A person or an organisation containing those qualities, may not
invest in paying for a franchisor and may opt for starting an own business of bar and restaurant.
Thinking in this wat it is not feasible to franchise a business like Garuva bar and restaurant.
The next step in studying the feasibility of franchise is the model unit of economics. In this the
amount to invest in the business and the payments to the franchisor were considered. When we
observe the way Garuva bar and restaurant developed we find that the growth was long living but
there is a need of substantial break even period as the mouth publicity requires initially long time
to show material benefits. The services sector also was a field which needs patient and skilful
application of thoughts and plans. The requirements of a franchise in case of business
opportunity by Garuva bar and restaurant were spacious building which can accommodate bar
and restaurant. An open place to develop garden, for the garden restaurant. This aforesaid
infrastructure is not impossible to obtain in Melbourne and Sydney but a financially franchisee is
needed as the cost of buildings and land is reasonably high in both the cities.
Recommendation: As long as the services offered are cost effective and profitable for the
franchisee there is chance of success in every context of the business. But to keep good relations
with the franchisee there is a need of continuous support in enhancing the quality of food
products and services. For this Garuva bar and restaurant must establish training facility which is
capable of researching for newer food products and for a variety of innovative services. This unit
must cater to the needs of quality enhancement of Garuvas business and as well as its
franchisees. When this type of quality enhancement was done by Garuvas management there is a
chance of holding the franchise for a long time and for ever.
An easy way to franchise a business like Garuva bar and restaurant is to build good contacts with
a successful entrepreneur in the same field but a smaller unit when compared to the franchisor.
So Garuva can select a bar and restaurant which was successful in conventional methods and
smaller unit than it. By offering training and franchisor support to that management Garuva can

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turn that individual business owner into a franchisee. This can be termed as a safest way to
extend and franchise our business.

Conclusions and Recommendations


The organisations (Garuva) potential, its way of doing business, the method suitable for
extending the business by franchising and an alternative method were discussed and analysed.
The pros and cons of each thought were discussed and evaluated. The chance of success in every
aspect is observed and estimated. The probability of making the franchisee unit successful was
discussed in a number of possible ways. Garuva management developed its business in a slow
and steady way and earned fame by mouth publicity. In this journey of growing it established a
number of milestones in unconventional services of bar and restaurant business. Generally in bar
and restaurants there will be dance programs for the customers who are drinking and a dance
floor with an annexed pub. But in Garuva this conventional approach was made innovative by
arranging cushioned rugs on floor and arranging back rests. This can be considered as lying
down while drinking, listening music and watching dance. Customers are offered to listen music,
watch dance and even to have privacy from all of these. There are separate arrangements for each
type of customers. That is, the management offered the customers not only the way they serve
but a selection of services from which they can choose. Generally the customers coming to a bar
and restaurant will be of six types. They are: 1. The people who want to drink and in a way
different from home environment. 2. The people who want to enjoy with a reasonable company.
3. The couples who want to drink and dine with an atmosphere filled with intimacy. 4. The
people who come for taking food items fascinated by their taste. These people come to avail the
services of restaurant only but not bar. 5. The people who come in groups to drink and dine.
These groups are generally short gathering of friends or colleagues or business partners
celebrating a personal or business cause. 6. The people who want drink and dine or simply dine
with reasonable privacy accompanied by music or dance.
Every bar and restaurant will cater the needs of the customers of the kind of I category
mentioned above.
But the Garuva bar and restaurant caters for the needs of other five categories of customers also.

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The people who want to enjoy by drinking, dining, and dancing with a lot of company can attend
Garuva bar and restaurant in Fridays and Saturdays to enjoy noisy dancing atmosphere.
Garuva cater to the needs of the couples who want to drink and dine intimately and away from
home. The tables which were built into booths that are suitable for different number of customers
will serve intimacy to couples and privacy to groups.
There is a chance for the people who do not drink at bar but want a restaurant which offer its
delicacies. Garuva is catering to the needs of those customers also. It offers a variety of
selections in meat, sea food, chicken and vegetarian varieties. There is provision for the persons
who long for a tasty food. Not only non vegetarian but also a vast selection of vegetarian
varieties were available with a dose soft drinks after the meals. Those who do not prefer soft
drinks and still want non liquor items can opt for a variety of desserts available in the restaurant.
Garuva is catering for the people who gather for birthday parties, get together parties and who
gather in a number more than 10 and less than 50 to celebrate as personal or business success.
For them a small function hall was arranged with all the reasonable and luxurious facilities. Here
the liquor and non liquor parties can be arranged. This will be separate from the atmosphere of
the bar and restaurant, so that the group can enjoy in drinking and dining with privacy.
Instead of arranging a dance or music while drinking and compelling customers to enjoy it,
Garuva offers a choice to customers. They can enjoy only drinking, drinking with music,
drinking with dance or drinking and dining with either music or dance. The service is according
to the choice of the customer. The services which are offered in all the above ways make Garuva
a unique organisation in its domain of the business. When it was unique it gains fame and value.
This can be termed as brand value suitable for franchising. The franchisee can attract the
customers by the fame and good will of the franchisor. After that the need of offering of services
depends upon the franchisee. When he was capable of catering to the needs of the different types
of customers like that of Franchisor like Garuva, the franchisor must keep his upper hand over
franchisee by offering continuous changes in menu (food products and cocktails) by establishing
a team of chefs, cooks and managers of hospitality. This team by its continuous research can
make the services and products offered by both franchisors and franchisees innovative and cost
effective. This is the way the franchisor of a business like bar and restaurant can have a hold on
their franchisees. The training given to the staff of the franchisee units must in innovating the
food items offered and changing cocktails from time to time to be in the good books of the

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customers and develop business. Garuva is offering the services like music, dance, and drink and
dining in an innovative way till now. When any other potential competitor adopts them and was
offering competitively with both quality and economically then there is a chance to Garuva and
its franchisees to think over innovativeness to be different from competitors and dominate them
in quality and innovation.
The above all is the analysis done for recommending the franchising.
It is better to think about the cons of the proposal also.
The bar and restaurant business is prone to severe competition along with availability of number
of customers. The upper hand in the business is due to taste of food items, difference in cocktails,
and the innovativeness, privacy and intimacy offered in the services regarding drinking and
dining.
The place where the food and services were offered must be pleasant and must according to the
needs and intentions of the customers. Being innovative is the key for the success of the
business. So as long as to keep the franchisees in good books of the management the need of
maintaining quality and innovative nature in food, cocktails are necessary. The firm must think
about a variety of food products every year and the cocktails offered also must change from year
to year. The services when are offered by any competitor the ways of making them innovative or
offering them for less cost must searched.

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References:
1. Author not mentioned, 2006, Franchise council of Australia- member standards, Franchise
Council of Australia, ,electronic, 10-10-06, http://www.franchise.org.au/content/?id=205
2. Franchising consulting firm team, 2006, Preparing To Franchise Your Business Including
Converting Company Owned Units, Dealer Networks, Or Independent Business Owners
Into Franchises, Franchising consulting firm,

,electronic, 11-10-06,

http://www.franchiseconsultingfirm.com/Preparing.html

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Appendices

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1. Preparing To Franchise Your Business -- Including Converting Company Owned Units, Dealer
Networks, Or Independent Business Owners Into FranchisesConduct Market Research. You
should know how your competitors franchise-both direct competitors and similar franchises.
Much of that information may be extracted from their Uniform Franchise Offering Circulars
(UFOCs), which are generally available under the freedom of information act. You would want
to visit their web sites for additional information. This may be augmented by industry
information, from various sources, as needed. When it is possible, we would also want to
interview a number of franchisees of your competitors, to learn what attracted them to this
franchise and what their experience has been. The purpose of this research is not to copy
what others are doing, but to understand and formulate the value proposition of your own
franchise and position your offering.
Establish Goals And Objectives. This properly starts with an analysis of your capabilities and
constraints and would cover the kinds of franchises to offer (start-ups, conversions, area
development, sub-franchises, etc.), target markets (both geographic and franchisee prospect
profiles), speed of expansion, broad supply-chain and division-of-labor issues, financial
hurdle rates, company-owned units, mergers and acquisitions, and exit strategies, etc.
Model Unit Economics. An estimate of the franchisee's initial investment is a required
disclosure in franchising: it is usually expressed as a range. We would also want a typical
cash flow pro forma, to determine the parameters needed for an attractive offer. We would
use this model to test various assumptions as we structure the franchise.
Structure All Relationships. It is advantageous not to have too many kinds of relationships
requiring different treatment, to avoid confusion and dissent. It is also a regulatory rule to
treat similar kinds of franchises the same, as well as not to discriminate against protected
classes. Issues to cover include pre-opening, opening, and on-going training, assistance, and
support, site selection assistance, build-out assistance, territory and exclusivity definition,
performance requirements, additional investment requirements, use of trademarks and other
intellectual property, opening and participation requirements, term, renewal, transfer, buyback, and right-of-first-refusal provisions, local, regional, co-op, and brand marketing
requirements and contributions, use of proprietary products, purchase from designated or
approved suppliers, anticipated size and use of product margins or rebates, unit or territory
options and development requirements, use of an earnings claim, initial and on-going fee
structures, reporting requirements, etc. Go to "Structuring Chain Relationships" for more
detail.
Plan The Franchisor Organization. In order to recruit franchisees, leads must be generated
and followed up and serious candidates must be carefully selected. These functions are
highly specialized, and their execution largely determines the success of failure of the
franchise program. The initial cost of this is part of your investment in the program, as it
takes time for franchise fees to cover all recruitment and franchisee set-up costs. Generally, a
franchisor organization needs both headquarters and field staff. Training and support may be
a combined function to start. A general manager may have to perform all management
functions in the beginning, adding specialists in chain marketing, real estate, finance, etc.,
over time, and as needed. Overhead should be kept to a minimum, but it is important to
establish an efficient and effective communications and management information system
immediately.
Model Development Schedules And Franchisor Economics. Each franchise will contribute to
the chain economics at different rates depending on when it opens. Similarly, when granting
multiple unit developments, each franchise within that area will contribute at different rates.
In addition, various kinds of franchises may be subject to different fees, royalty rates, product
margins, and rebates. Many franchisor expenses are proportional to the number of new or
cumulative franchisees, but economies of scale must also be taken into consideration. In

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order to gain an understanding of the value of the franchise program, a terminal value may be
projected, and the internal rate of return or net present value may be calculated. When this
model is tied into the unit model, many assumptions may be tested simultaneously. Go to
"Imprementing Your Franchise Program" for more detail.
Document Your Franchise Structure. Structural decisions should be documented in sufficient
detail to allow all decision-makers to sign off on it. This document could be amended in
several directions: it could be augmented as a feasibility study or it could be summarized as
part of a business plan. This document will also be used as a blueprint for creating other
franchise documents, such as contracts, disclosures, manuals, brochures, etc.
Franchise Agreement, Ancillary Agreements, UFOC, And Filings. A number of different
agreements may be needed to capture the full structure created. At a minimum, you will need
a franchise agreement. Other possible agreements include an area development agreement, a
conversion addendum, a trademark license agreement, a software license agreement, an
asset purchase or similar agreement, etc. If a sub-franchise structure is used, a separate
franchise is created, requiring another full set of documents. The purpose of the UFOC is full
disclosure, and it follows a government-prescribed format, similar to a stock prospectus. It
must include audited financial statements on the franchise company. To the extent an
operations manual is provided to the franchisees, its table of contents must be included, as
well. In addition, about half of the states require filing or registration of documents. Go to
"Manuals & Training" for more detail about that, and to "Our Experts" for information about
some of the CPAs and law firms that you may want to consider.

2. Why Franchise? To Franchise Or Not To Franchise -- Choosing The Right Channels


.
How do you know if franchising or any other distribution channels should be part of your
distribution mix?
Franchise Your Business to:
Minimize Capital Needed For Expansion. You can use your own money to expand and be fully
at risk. You can borrow and be responsible for all repayments and experience low or negative
cash flows due to high loan payments. You can take on investors and give away substantial
equity, lose control, comply with complex regulations, and endure stringent government
oversight. Or you can franchise and make the franchisees responsible for all unit level
investments, lease obligations, other contingent liabilities, set-up costs, the cost of hiring and
training employees, etc.
Gain Motivated Unit Managers. The franchisees' capital is on the line. Many mortgage their

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homes to make the investment. Their families work in the business. There is no easy return to the
job market. And when franchisees succeed, they purchase additional franchises without adding
much, if any, to your cost of set-up and support.
Control Your Network. Properly structured and executed, franchising affords you great control
over your individual units. Franchisees will follow your systems and procedures because they
want and need to succeed. Moreover, because they are using your trademark, you have almost
total control of what they can market and sell. For similar reasons, many companies convert their
dealers into franchises.
Capture Market Share. Expand as fast as you can help franchisees start their businesses. Use
area developers to multiply your speed of expansion. Or use master franchising to grow
exponentially.
Saturate Your Markets. Not just a market penetration strategy, franchising allows you to
saturate your markets. The owner-operator franchisees increase sales by 10-30 percent and
reduce costs by 5-10 percent as compared to comparable company-owned units, thus being able
to profit where company units cannot.
Improve Your Image And Competitive Advantage. By franchising, even your existing
business gains in stature, as you become associated with the large, well-known franchise brands,
such as McDonald's, 7-Eleven, Midas, or Avis.
Minimize Your Central Organization. Franchising is the ideal mix of brick and mortar and
virtual company. You maintain one or more prototypes for training and research and
development and a sufficient number of area supervisors to visit with the franchisees to audit
their sales and promote the central philosophy. Apart from this, properly selected and trained
franchisees mature and become virtually self-governed.
Give Your Most Trusted Employees Opportunities To Grow. Avoid the loss of good
employees due to lack of promotion opportunities. With a franchise program, they may either

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become involved in marketing, selling, training, or supporting franchises or they themselves may
want to become franchisees.
Consolidate Fragmented Industries. As an example, franchising was used to consolidate the
real estate brokerage industry by providing the brokers a better marketing and management
system. Hotel franchising is another example.
Cash Out While Retaining Ownership To Intellectual Property. Convert and sell off company
units as franchises--primarily to existing unit managers.
Finance Chain Acquisitions. When buying a chain, sell off the individual units as franchises to
fund the purchase.
Export Your Name And Know-How. American trademarks and business know-how are highly
sought--after commodities in many parts of the world. A franchise offer--and especially a master
franchise offer-thus becomes an attractive export package. Moreover, your local franchisees act
as your ambassadors and translators and help you adapt to different cultures.
Maximize The Value Of Your Business Before Selling Or Retiring. By including franchising
in your distribution mix, you can increase the Net Present Value of your company substantially.
Alternatively, you can retire on royalties from your franchisees while retaining ownership to the
intellectual property.
Minimize Legal Challenges To Your Distribution Program. Last, but not least, franchising
may preempt or reduce legal challenges to your distribution methods. Many companies--large
and small--attempt to avoid compliance with franchise laws by structuring sub-optimal
distribution programs and calling unit owners licensees, partners, dealers, distributors, associates,
etc. Invariably, these programs are either lacking in several important respects, causing lackluster
sales and inefficient operations, or they are ultimately deemed to be illegal franchises, with
subsequent fines, or even jail time, rescinded agreements, repayment of investments,
compensation for fraud, and disintegration of the whole network. Fortunately, many of these

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situations can be improved upon, but better solutions may have been found if proper business
advice were provided when the expansion first started.