You are on page 1of 23

The World of Franchising

History of Franchising The word Franchise comes from old French meaning privilege or freedom. In the middle ages the local sovereign or lord would grant the right to hold markets or fairs, or e.g. to hunt on his land. This concept extended to the Kings granting a franchise for all manner of commercial activities such as building roads and the brewing of ale. Over time the regulations governing franchises became a part of European Common Law.

In 1851, the Singer Sewing Machine Company began granting distribution franchises for their sewing machines. Singer had written franchise contracts which were the forerunners of modern franchise agreements. In the 1880's cities began to grant monopoly franchises to street car companies and utilities for water, sewerage, gas and later electricity.

'Actually, my name is Bobby. 'Jimmy's Lemonade' is an international franchise.'

D. Read the following statements and decide which refer to franchisers (FR) and which to franchisees (FE).
a) FE b) They do not have to borrow large amounts of capital to expand. FR c) They must respect certain rules. FE d) They have to buy supplies from one source. FE e) They are responsible for national advertising. FR They can easily get advice on how to deal with specific problems. f) They can only sell certain products. FE g) They may not be able to sell the business easily. FE h) They provide regular reports on the level of sales. FE i) They can develop their business without having to deal with problems of recruiting and managing personnel. FR

E. Complete the following table.

Verb Franchise Noun (activity) Franchise /franchising Payment LICENCE Person offers who Person who receives Franchisee





ASSIGN Interview




F. Parties to an agreement
1. Everyone promises to obey the treaty all major countries are _______________ to it. SIGNATORIES 2. In the civil case, the _______________ brought the action against the _______________ for damaging his car on purpose. PLAINTIFF/DEFENDANT 3. The price was negotiated between the _______________ and the _______________ of the house, in a private sale. BUYER/SELLER 4. The bank agreed that the _______________ should pay 12% on the loan, so the _______________ made a fair profit! BORROWER/LENDER 5. Manufacturers sell their goods to _______________, and in turn, _______________ buy from them. WHOLESALERS/RETAILERS

6. The relationship between a _______________ and _______________ is bound by confidentiality. LAWYER/CLIENT 7. The beer can be produced under licence but the _______________ must fulfil all the requirements imposed by the _______________. LICENSEE/LICENSOR 8. Some clothes companies sell their products on a franchise basis: each country has a main _______________ with numerous people working as _______________. FRANCHISER/FRANCHISEES 9. A letter was sent to the manager complaining about working conditions. All the members wrote their names. The letter read: We, the _______________, strongly protest about conditions at work. UNDERSIGNED 10. Many projects require the cooperation of various partners. If they all agree to work together, they become _______________. PARTIES TO THE AGREEMENT

G. Create noun compounds for the following.

1. A franchise system for retailers which is sponsored by service firms. A service-firm sponsored retailer franchise system. 2. A distribution network for wholesalers which is funded by manufacturers. A manufacturer-funded wholesaler distribution network. 3. A co-operative for customers which is run by retailers. A retailer-run customer co-operative.

4. A market survey of competitors which is financed by industry. An industry-financed competitor market survey. 5. An association of employers which is supported by the government. A government-supported employer association.

Fill in the blanks with a suitable preposition.

A franchise organisation is a contractual association between _______ a franchiser (a manufacturer, wholesaler, or service organisation) and franchisees (independent to business people who buy the right _____ own and in operate one or more units ________ the franchise system). Franchise organisations are normally based _____ on some unique product, service, or method of on doing business, or ________ a trade name, or patent, or _______ goodwill that the franchiser has developed. on

The franchiser's compensation can consist ________ the of on following elements: an initial fee; a royalty _________ gross sales; rental and lease fees _________ equipment for and fixtures supplied ________ the franchiser; a share by of ________ the profits; and sometimes a regular license In fee. ________ a few cases franchisers have also charged management consulting fees, but usually the franchisee is entitled _______ this service as part __________ the to of total package.

There are a number of phrasal verbs which refer to MONEY.

1. pony up 2. cough up 3. chip in 4. zero out 5. square up 6. rack up 7. splash out on

8. cash in on

a. to extravagantly spend a lot of money on sth usu luxurious b. to contribute money to a communal fund c. to gain financial advantage from a situation d. to spend or pay back money usu reluctantly e. to pay for sth f. to cut off funding, to remove g. to acquire a lot of money h. to settle a bill or debt

1. Look at the price of these shoes. I cant afford to spend money on unnecessary luxuries. SPLASH OUT ON _______________________________________________________ 2. When Tom left his job all his colleagues contributed to buy him a going-away present. CHIPPED IN _______________________________________________________ 3. He made money from the death of his film star wife by selling his story to the newspapers. CASHED IN ON _______________________________________________________ 4. You never pay for anything. Youre so tight and stingy. Come on, spend some cash. COUGH UP _______________________________________________________

5. How will members of the public feel about having to pay for this? PONY UP ______________________________________________________ 6. Dont worry about it now. We can get even later. SQUARE UP ______________________________________________________
7. Last year, they made profits of more than 3 million. ______________________________________________________ RACKED UP 8. How can I eliminate my debts fast before the year ends? ______________________________________________________ ZERO OUT

IS Franchising (BE) not a new phenomenon. HAS BEENaround since the nineteenth It (BE) century, when such companies as Singer and International Harvester (ESTABLISH) ESTABLISHED dealerships throughout the world.

Early in this century, Coca Cola, General Motors, among USED others, (USE) franchises to distribute or sell their products. But the real boom in franchising BEGAN (BEGIN) in the late 1950s, with the proliferation of hotels like Holiday Inn and fast-food establishments like Dunkin Donuts.

HAS BEEN The latest trend in franchising (BE) diversification in the variety of products and services offered. Today, over 3,000 companies OFFER franchises, (RANGE) (OFFER) RANGING from day-care centres to video-tape rental outlets, and funeral parlours. By and large, ARE most (BE) service operations.

PRACTICED 1. As practicing in retailing, by using the business OFFERS 2. network concept, franchising offer franchisees 3. the advantage of starting up a new business . PROVEN 4. quickly based on a proved trademark and . DOING 5. formula of making business, as opposed to .. 6. have to build a new business and brand from HAVING

7. scratch. In addition, a comprehensive study completed 8. in 2006 by Franchise Business Review clearly DEMONSTRATES 9. demonstrate that the majority of franchisees are THEIR 10. satisfied with its decision to invest in a proven 11. system (86% positively rated their franchise 12. opportunity and 71% say they would "do it again"). SAID

Case study: Fast Hair

Think of traditional services which have been reinvented to offer the customer more convenience, e.g. restaurant : fast food, shop : e-store, cinema : drive in.

Short or very short, sir?

QB Houses formula is very simple: Just cut, 10 minutes, 1,000 yen. Kuniyoshi Konishi started the fast hair-cutting business seven years ago; today there are 200 salons in Japanese airports, stations and subways. What is QB House? About fifteen square metres, four chairs, four hairdressers and a dose of high-tech. No appointment is necessary: an automatic traffic light at the door signals green immediate cut, orange five to ten minutes wait, or red fifteen minutes maximum.

You pay before your haircut just put a 1,000 yen note (7.5 euros) in the machine. Theres no shampoo, just a vacuum air-wash after the haircut; ten minutes later you walk out of the door. QB House customers are men, boys and sometimes women: on average a hairdresser does 1,000 haircuts per month. Konishi is already in Singapore and plans to open 1,000 mini-salons in Asia in the next ten years. Europe and the USA are next.

Fast Hair have three possible strategy options. Match one advantage and one disadvantage with each option. Can you think of more advantages and disadvantages for each option?
limited financial risk best commercial impact competitors can take market share very small investment and risk smaller profits large investment needed

A Open just two or three mini-salons and develop slowly B Open as many mini-salons as possible immediately C Operate a franchise for new and existing salons