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FRANCHISING

FRANCHISING

FRANCHISING

Growth Of Franchising

Growth Of Franchising  Singer Sewing Machine – first franchise (mid-19 century, 1850)  Automobile (e.g.
  • Singer Sewing Machine first franchise (mid-19 th century, 1850)

  • Automobile (e.g. Ford), petroleum products (e.g. Shell), soft drinks (e.g. Coca Cola)

  • Food and restaurants (e.g. McDonald’s, Starbucks) (1933)

Growth Of Franchising  Singer Sewing Machine – first franchise (mid-19 century, 1850)  Automobile (e.g.
Growth Of Franchising  Singer Sewing Machine – first franchise (mid-19 century, 1850)  Automobile (e.g.
Growth Of Franchising  Singer Sewing Machine – first franchise (mid-19 century, 1850)  Automobile (e.g.

What is Franchising?

What is Franchising? “A franchise operation is a contractual relationship between the franchisor and franchisee in

“A franchise operation is a contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a

common trade name, format and/or procedure

owned or controlled by the franchisor, and in which

the

franchisee

has

or

will

make

a substantial

capital

investment

in his business

from his

own

resources.

- Definition by International Franchise Association

What is Franchising?

What is Franchising?  Contractual relationship between the franchisor and franchisee in which the franchisor offers
  • Contractual relationship

between

the

franchisor

and

franchisee in which the franchisor offers or is obliged to

maintain

a

continuing

interest

in

the

business

of

the

franchisee.

  • The agreement is governed by a contract, the Franchise agreement, which runs for a defined period of time, generally renewable and ranging from five to 20 years.

  • Use of franchisor’s trade name, format, system and/or procedure under license.

  • Means to raise capital and expand quickly.

Franchising

  • Assistance to franchisee

Franchising  Assistance to franchisee Marketing, management, advertising, store design, standards specifications  Payment by franchisee

Marketing, management, advertising, store design, standards specifications

  • Payment by franchisee by way of royalty, licensee fee or other means

  • Franchising is more than distributorship

    • Extends

to

business

an

entire

operation

or

method of

  • Greater assistance, control and longer duration

  • Distributor merely re-sells products to retailers or customers

  • Franchising

Franchising

 Franchising Franchising  A marketing system revolving around a two-party agreement, whereby business franchisor according
  • A marketing system revolving around a two-party agreement,

whereby

business

franchisor

according

to

the

franchisee

conducts

the

terms

specified by the

  • Franchisee

    • An entrepreneur whose power

is

limited

by

a

contractual agreement with a franchisor

  • Franchisor

    • The party in the franchise contract that specifies the methods to be followed and the terms to be met by the other party

TYPES OF FRANCHISE

TYPES OF FRANCHISE 3 main types of franchise: 1. Product distribution franchise; 2. Business format franchise;

3 main types of franchise:

  • 1. Product distribution franchise;

  • 2. Business format franchise; and

  • 3. Management franchise.

1. PRODUCT DISTRIBUTION FRANCHISES
1.
PRODUCT DISTRIBUTION
FRANCHISES
1. PRODUCT DISTRIBUTION FRANCHISES  A product distribution franchise model is very much like a supplier-dealer
  • A product distribution franchise model is very much like a supplier-dealer relationship.

  • Typically,

the

franchisee

merely

sells

the

franchisor’s products. However, this type of

franchise

will

also

include

some

form

of

integration of the business activities

EXAMPLES

EXAMPLES  Examples of famous product distribution franchises :
  • Examples of famous product distribution franchises :

EXAMPLES  Examples of famous product distribution franchises :
EXAMPLES  Examples of famous product distribution franchises :
EXAMPLES  Examples of famous product distribution franchises :
1. PRODUCT DISTRIBUTION FRANCHISES
1. PRODUCT DISTRIBUTION
FRANCHISES
1. PRODUCT DISTRIBUTION FRANCHISES Produces the syrup concentrate Sells the syrup concentrate FRANCHISEE Produces the final
1. PRODUCT DISTRIBUTION FRANCHISES Produces the syrup concentrate Sells the syrup concentrate FRANCHISEE Produces the final
1. PRODUCT DISTRIBUTION FRANCHISES Produces the syrup concentrate Sells the syrup concentrate FRANCHISEE Produces the final

Produces the

syrup concentrate

Sells the syrup concentrate

FRANCHISEE

Produces the final

drink

Retail Stores
Retail Stores

Vending Machine

Operators

Restaurants & F&B Outlets

2. BUSINESS FORMAT FRANCHISING
2.
BUSINESS FORMAT
FRANCHISING
2. BUSINESS FORMAT FRANCHISING  In a business format franchise, the integration of the business is
  • In a business format franchise, the integration of the business is more complete.

  • The franchisee not only distributes the franchisor’s products and services under the franchisor’s trade mark, but also implements the franchisor’s format and procedure of conducting the business.

EXAMPLES

EXAMPLES
EXAMPLES
3. MANAGEMENT FRANCHISE
3. MANAGEMENT
FRANCHISE
3. MANAGEMENT FRANCHISE  A form of service agreement.  The franchisee provides the management expertise,
  • A form of service agreement.

  • The franchisee provides the management expertise, format and/or procedure for conducting the business.

Examples

Examples
Examples

Advantages of Franchising

Advantages of Franchising  Buying a name/reputation  Established markets  Technical/management assistance  Standardized procedures
  • Buying a name/reputation

  • Established markets

  • Technical/management assistance

  • Standardized procedures

  • Quality standards

  • Selection of location

  • Facility design

  • Quicker cash flow

Disadvantages of Franchising

Disadvantages of Franchising  Loss of independence  High initial fees  High royalties and advertising
  • Loss of independence

  • High initial fees

  • High royalties and advertising allowances

  • Contractual restrictions

  • Inapplicable advertising

  • Termination clauses

  • Not receiving promised help

  • Unsuitable products

  • Lack of competitive advantage of parent company

Why franchise?

Why franchise? Franchises offer important pre-opening support:  site selection  design and construction  financing

Franchises offer important pre-opening support:

  • site selection

  • design and construction

  • financing (in some cases)

  • training

  • grand-opening program

Why franchise?

Why franchise? Franchises offer ongoing support  training  national and regional advertising  operating procedures

Franchises offer ongoing support

  • training

  • national and regional advertising

  • operating procedures and operational assistance

  • supervision and management support

  • increased spending power, access to bulk purchasing and economies of scale

Franchisor Controls on Franchisees

Restricting of sales territory Requiring site approval and imposing requirement on the outlet’s appearance Restricting the goods/services that can be sold Requiring specific operating hours Controlling advertising

Ingredients of an attractive franchise opportunity
Ingredients of an attractive franchise
opportunity

Registered trademarks

Successful

prototype

stores

with

a

track

record of

profitability and a positive reputation

A business that can be systematized so that it can be easily replicated.

A product or service that can be successful in many different geographic regions.

An operations manual that specifies all the functions of the business and their associated policies

Ingredients of an attractive franchise opportunity
Ingredients of an attractive franchise
opportunity

A training and support system

Site selection criteria and architectural standards

A detailed prospectus that spells out the franchisee’s rights, responsibilities, and risks.

Common considerations of franchisors

Developing franchise concept Market research Familiarity with local laws and regulations Providing training and support to franchisees Criteria for choosing franchisees Control over franchisees Supply of products/materials to franchisees Intellectual property rights issues, e.g. trade mark registration

Common considerations of franchisees

Demand Profitability of franchise, and length of time required to recoup investment Track record of franchisor Support rendered to other franchisees Experience and profitability of other franchisees Existence of competition Capital required Demands of franchisor, e.g. income projections, deadline to open more franchise outlets

FranchisorFranchisee relationship

Regulated by contract which usually covers:

Initial fee Royalty fee/Management fee Capital required from franchisee Territory/Area of operation Duration of license and renewal IPRs Termination

Franchisor – Franchisee relationship Regulated by contract which usually covers:  Initial fee  Royalty fee/Management

FranchisorFranchisee relationship

Elements to look for in a franchise relationship:

Responsiveness Empathy Communication Dependability Accessibility Give and take Anticipation Structure Open-mindedness

Franchisor – Franchisee relationship Elements to look for in a franchise relationship:  Responsiveness  Empathy

Franchise agreements

Franchise agreements  Trade name franchise • agreement that provides to the franchisee the right to

Trade name franchise agreement that provides to the franchisee the right to use the franchisor's trade name and/or trademarks Product distribution franchise agreement that provides specific brand name products which are resold by the franchisee in a specific territory Business format franchise agreement that provides a complete business format, including trade name, operating procedures, marketing, and products or services for sale Piggyback Franchise A retail franchise operation within the physical facilities of a host store Area Developer/Master Licensee Firms or Individuals that obtain the legal right to open several franchised outlets in a given area

Franchise Your Business Successfully
Franchise Your Business Successfully

To franchise your business in a fruitful manner, just get answers to some questions such as :

Do you have a successful business? Do you wish to see its branches in different corners of the nation? Do you want to increase your brand visibility? Is franchising right for you? Is your business expandable? Will the target audience like your products or services? Well, to achieve all this why don’t you franchise your business?

Franchise Your Business Successfully
Franchise Your Business Successfully

Does the franchisor have an excellent reputation in the industry?

Is the franchisor in partnership or any other legal relationship with another franchisor? If so, how will the franchisee be protected should that relationship fail?

Is the franchisee required to do anything that appears questionable from a legal or ethical perspective?

Under what circumstances can the franchisee or franchisor terminate the franchise agreement and what are the

consequences to either party?

Will the franchisor grant an exclusive territory? Is that area

subject

to

conditions?

reduction

or

modification?

If

so,

under

what

Franchise Your Business Successfully
Franchise Your Business Successfully

Will the franchisor reveal the certified financial figures for one of its franchises and can those figures be verified with the franchisee?

Will the franchisor provide a management training program, an employee training program, public relations and advertising

support, or credit?

Does the franchisor assist in finding a suitable location?

What is the financial health of the franchisor? Can financial statements be verified?

What is the track record of the franchise?

Franchise Your Business Successfully
Franchise Your Business Successfully

Does the franchisor conduct an in-depth investigation of the

franchisee to assure that he or she has the necessary skills

and financial requirements successfully?

to

operate

the business

How much capital will be required to start and operate the business to a positive cash flow? Does the initial fee include an opening inventory of products and supplies? What do royalties

pay for and how are they calculated?

Can you transfer your franchise license to someone else? When and how?

How can

you

terminate

the

contract?

circumstances can this be done?

Under

what

Franchise Your Business Successfully
Franchise Your Business Successfully

Can the franchisor terminate the contract? Under what kind of conditions?

What disclosures are

you

required

to

make?

What

disclosures is the franchisor required to make?

BE CAREFUL

BE CAREFUL  The franchisee is not completely independent.  In addition to the initial franchise
  • The franchisee is not completely independent.

  • In addition to the initial franchise fee, franchisee must pay ongoing royalties and advertising fees.

  • Franchisee must be able to balance restrictions

and support provided by the franchisor with their

own ability to manage the business

BE CAREFUL

BE CAREFUL  A damaged image or franchise system can result if other franchisees perform poorly
  • A damaged image or franchise system can result if other franchisees perform poorly or the franchisor has financial problems.

  • The duration of a franchise is usually limited and the franchisee

may

have

concerning termination

little

or

no

say

Common Mistakes of Prospective Franchisees
Common Mistakes of Prospective
Franchisees
  • Not

reading,

understanding

and/or

Common Mistakes of Prospective Franchisees  Not reading, understanding and/or asking questions about the franchisee agreement

asking

questions about the franchisee agreement and other legal documents

  • Not understanding the responsibilities of a

franchisee and the rights and obligations of a

franchisor

  • Not seeking sound legal and financial advice

  • Not verifying oral representations of franchisor

Common Mistakes of Prospective Franchisees
Common Mistakes of Prospective
Franchisees
Common Mistakes of Prospective Franchisees  Not analyzing the local market in advance  Not analyzing
  • Not analyzing the local market in advance

  • Not analyzing the competition

  • Not making thorough due diligence of the franchisor

  • Not choosing the right location

Conclusion

Conclusion  Franchising – a great model for minimizing risks and maximizing returns  Proven formula
  • Franchising a great model for minimizing risks and maximizing returns

  • Proven

formula

for

success

ready

and

waiting to be adopted by the new entrepreneur.

  • Provides proven operating systems, solid research and development, established marketing methods and instant credibility, plus extensive training and support

THANK YOU !!

THANK YOU !!
THANK YOU !!