Darwin D.

Clemente (ID# 10581693) Starting A New Business Venture

June 24, 2008 Prof. Alexander C. Trajano

A Case Analysis on “Operating a Kiosk Franchise”

Introduction

The case presents some of the most common problems being faced by people who
enter into a business venture for the first time. Familiarity with the terrains of engaging into a
business requires much legwork than expected, and many of these are clearly reflected in the
article “Ten Tips for New Small Businesses”.

In the case, the franchisee faced many unexpected problems that he failed to foresee
prior to his entering into the franchise agreement, although some of which, he could have well
prepared for had he paid closer attention to the details of the franchise contract. However, it is
quite inevitable that the franchise agreement will not work efficiently mainly due to the absence
of a good support system that the franchisor is supposed to provide.

Statement of the Problem

Based on case facts, the franchise agreement seems to be that of a Piggy Back
franchise agreement employing a Type C franchising structure. The predominant problem noted
from the case is the franchisees inability to operate the retail store efficiently, thereby preventing
the entrepreneur from taking full advantage of the benefits of the contract, resulting to below
expected returns for both the franchisee and franchisor. In this regard, the main problem of the
case is:

“What can the franchisor do to improve the sales performance of his current and
future franchisees?”

Reasons/Contributing Factors:

1. Lack of experience on the part of the franchisee in running the business, which reflects the
franchisor’s poor selection process.
2. Lack of support on the part of the franchisor to provide training and other support services.
3. Lack of attention on the part of the franchisee as regards the following details:
 Franchise contract
 Mall policies and procedures
 Absence of a business plan/model
4. Failure of the franchisee to conduct background check on the franchisor as regards:
 Financial and other business related performance measures
 Experiences of other franchisees with the franchisor

Objectives:

1. To come up with a course of action that would resolve the main problem. Other objectives in
relation with this main objective are as follows:
a. To be able to come up with measures that would improve franchisee selection
process.
 b. To be able to improve franchisor support services aimed at improving franchisor-
improving business performance and franchisor-franchisee relationship.

Alternative Courses of Action

1. Improve franchisee selection process while at the same time providing improved support
services – training, recruitment, and other back office support services.

2. Change franchising structure/format from individual franchisees to multi-unit ownership and

area developers who can be more dedicated to the franchised business.

Conclusion and Recommendation

Considering the above alternatives, I am more inclined to recommend alternative # 1.
The reasons why the franchisee encountered difficulties in hitting sales targets was because the
franchisor failed to provided the necessary support services in order that the franchisee be
properly informed about the ins and outs of the business. Instead of focusing on how to
generate sales, the franchisee had to confine himself with the problems of assembling the kiosk,
learning the ropes of recruitment and selection, as well as the meticulous task of ensuring
compliance with the mandatory social benefits and revenue/tax guidelines.

Arguments in support of my recommendation are as follows:

1. Although alternative #2 may be more attractive in the long run, it will require a major
change in the company’s franchise contract as it normally involves only a month or two
of operations.
2. Alternative #1 can be deployed in a much shorter time and can directly address the
contributing factors that lead to the problem. By taking alternative #1, the franchisor will
have to take the following actions:
a. Come up with improved guidelines on franchisee selection process, that would
at least involve a face to face interview with the franchise applicant – this will
allow them to have franchisees who are more committed and experienced in the
business.
b. Improve support services in aspects such as franchisee training, recruitment
and selection support, as well as back office processing support – this will give
their franchisees a better grasp of the business and give them more time to
concentrate on the all important sales performance.
c. Conduct an on the spot audit/check of the retail store – this will give the
franchisor first hand feedback as regards the store’s operations, giving them a
better understanding of the merchandise requirements of a particular store. In
can be inferred from the case that the franchisor if performing poorly on this
aspect, considering that it only required a picture of the store without necessarily
checking how the store have been operating.

In summary, much of the success of a franchise agreement relies heavily on the good
teamwork between the franchisor and the franchisee. A committed franchisee will be of great
help for the franchisor, however, without a good support system being provided by the
franchisor, the business will surely not be able to realize its full potential, much less survive the
fierce competition in the retail industry. A must for any franchisor is for them to realize that their
customers are their franchisees, their employees and their customers
References

Books:

Berman, B., Evans, J. 2007, Fundamentals of Retail Management: A Strategic Approach 10th.
Edition. Pearson Education South Asia Pte. Ltd. Singapore p. 111-112, 124

Web Articles:

An Introduction to Franchising. 2001. International Franchise Association

Retrieved on June 23, 2008
http://www.franchise.org/uploadedFiles/Franchise_Industry/Resources/Education_Foundation/In
tro%20to%20Franchising%20Student%20Guide.pdf

Websites:

International Franchise Association : http://www.franchise.org/SearchFranchise.aspx

Taco John’s : http://www.tacojohns.com/franchisee.asp