-KANAN BUDHIRAJA (1201)

-VAISHALI KOCHHAR (1234)

WHAT IS A FRANCHISE?
A franchise is an agreement or license between two
parties which gives a person or group of people the
rights to market a product or service using the
trademark of another business.

A franchise is a right granted to an individual or group

to market a company's goods or services within a
certain territory or location.
PARTIES INVOLVED
There are two parties involved in a franchise
agreement.
Franchisee
The franchisee gets the right to market the product or service using
the operating methods of the franchisor. The franchisee has the
obligation to pay the franchisor certain fees and royalties in
exchange for these rights.
Franchisor
The franchisor has the obligation to provide these rights and
generally support the franchisee.
Franchising is not a business or an
industry, but a method used by
businesses for the marketing and
distribution of their products or
services. Both franchisor and
franchisee have a strong vested
interest in the success of the brand
and keeping their customers happy.
EARLIEST FRANCHISING

Many believe that Albert Singer, founder

of the Singer sewing machine, was the
initiator of franchising. He was actually
the earliest person recognized by most as
being associated with franchising.
SCOPE OF FRANCHISING
Franchising is being more employed by more
businesses and more types of businesses than ever
before .

Today, almost any product or service can be

distributed through franchising
The “system” in Franchising
All Tangible Business components (Decoration,
Equipment, POS, signs, Furniture, etc…)
The Operations Manuals
The Know – How Techniques
The Training (classroom & on the job)
The Support (Business Plan preparation, Store
Location, Store design, Equipment purchasing,
Recruiting, Marketing, Operations, Financial,
ongoing support services)
Seminars & workshops
Legal point of view
Franchising takes place when the owner of the unique &
distinctive business (FRANCHISOR)

Licenses
To the new operator (FRANCHISEE) to use its Trade
name, Proprietary marks and system according to the
terms of the Agreement (FRANCHISE AGREEMENT)
and for certain fees.
Receiving Franchise
fee and royalty

Giving the License for

system & Proprietary
marks
TYPES OF FRANCHISING MODELS

Company Owned Franchise Operated

Franchise Owned Franchise Operated

Franchise Owned Company Operated

TYPES OF FRANCHISE METHODS
Typically there are two types of franchise methods:
BUSINESS FORMAT FRANCHISING
Business format franchising offers a variety of services to the franchisees.

 They provide the franchisee use of trademarks and logos, as well as a

complete system of doing business.
 They will assist the franchisee with site selection, interior layout and
design, hiring and training, advertising and marketing, product supply
and more.
 The franchisee pays an up front franchise fee and agrees to pay
continuing royalties to the franchiser that help the franchiser provide
research, development and support for the entire system.

There are many examples of business format franchising, including – fast

food restaurants, automotive services, estate agents, convenience
stores, recruitment agencies, hairdressers etc.
BUSINESS FORMAT FRANCHISING
The type involves three characteristics:

1)The franchisee sells goods or services which meet the franchisor's

quality standards;

2) The franchisor exercises significant assistance in, the franchisee's

method of operation;

3) The franchisee is required to make a payment to the franchisor or a

person affiliated with the franchisor at any time before to within six
months after the business opens.
PRODUCT AND TRADE NAME
FRANCHISING
Product and trade name franchising generally is associated
with industries such as automotive, petroleum and soft
drink.

This type of franchising does not include royalty fees.

The franchiser provides trademarks and logos, national

advertising campaigns, but most importantly, product.
 PRODUCT AND TRADE NAME
FRANCHISING
This type, also offers three characteristics:

1) The franchisee sells goods or services which are supplied by the

franchisor or a person affiliated with the franchisor;

2) The franchisor assists the franchisee in any way with respect to

securing accounts for the franchisee, or securing locations or sites for
vending machines or rack displays, or providing the services of a
person able to do either; and

3) The franchisee is required to make a payment to the franchisor or a

person affiliated with the franchisor at any time before or within six
months after the business opens.
TYPES OF FRANCHISING
INDUSTRIAL FRANCHISING

It is a form of business collaboration between manufacturers.

The franchisor owns a manufacturing system and/or exclusive

patents, which are assigned to another manufacturer for use
in a predetermined territory.

Given that the franchisee could easily undermine the

franchisor by copying formulae and methodology received,
the franchisor does not generally transfer the entire
production process to the franchisee, only a part thereof.
Franchisor’s obligations & duties

To own, register & protect the Proprietary Marks

To be an excellent communicator
To constantly seek manageable expansion
To constantly develop the system (R&D) and solve problems
To ensure consistency in service/ product delivery
To employ experienced staff & invest enough capital
To support Franchisees & provide training & manuals
To maintain value for Franchisees
To abide by the Franchise Agreement
Franchisee’s Obligations & Duties
Allocate Time and effort to operate the Franchise
Use Proprietary marks & system appropriately
Abide by confidentiality & non competency
agreement
Train and motivate team members
Pay royalties and other dues on time
Avoid breaching the Franchise Agreement
ROLES AND RESPONSIBILITIES OF A
FRANCHISEE
Advantages to the Franchisee
1. Established track record
2. Reduces the business risks
3. Name recognition
4. Faster learning curve – faster growth
5. Start-up assistance – lower capital requirement
6. Easier for obtaining Financing
7. Purchasing power
8. Management assistance
9. Marketing support from franchisor
Advantages to the Franchisor
Expansion
Opportunity for accelerated growth
Legal considerations
Operational considerations
Centralized marketing for increased power
Disadvantages of Franchising
Franchisee is committed to pay Franchise Fee and
Royalties – Profit sharing
Franchisee has to report constantly to Franchisor
Lack of independence and freedom
Limited geographical area & defined Franchise term
Control over permitted products & services
Flourishing Franchising
The following sectors are flourishing all around the
world, especially in India
ITES
Education
Restaurant
Healthcare
Finance
SOME FAMOUS FRANCHISES
 McDONALD’S
McDonald's has been a franchising company since 1955 and has relied on
its franchisees to play a major role in the system's success. McDonald's
remains committed to franchising as a predominant way of doing
business.

Today, the McDonald's franchise is the leading global foodservice retailer

with more than 30,000 restaurants, located in more than 100 countries.

A very small number of new operators enter the system by purchasing a

new restaurant.
 FINANCIAL REQUIREMENTS AND
START-UP COSTS TO OPEN A
McDONALD’S
 An initial down payment is required when you purchase a new
restaurant (40% of the total cost) or an existing restaurant (25% of the
total cost). The down payment must come from non-borrowed personal
resources, which include cash on hand; securities, bonds, and
debentures; vested profit sharing (net of taxes); and business or real
estate equity, exclusive of your personal residence.

 Since the total cost varies from restaurant to restaurant, the minimum
amount for a down payment will vary. Generally, you need a minimum of
$300,000 of non-borrowed personal resources to be considered to open
a McDonald's franchise. Individuals with additional funds may be better
prepared for additional or multi-restaurant opportunities which
McDonald's encourages.
OTHER REQUIREMENTS TO OPEN A
McDONALD’S