TYPES OF FRANCHISING

Types of Franchising Arrangements

⚫Single unit franchising
Most new franchisees buy and operate a single unit
franchise because it’s the easiest way to get started in
franchising. If you’re cut out for franchising at any level,
you can most likely succeed as a single-unit franchisee.
Single-unit franchises usually include a protected territory,
i.e. a three-mile radius of your location.
Many franchisees find single-unit franchising to be perfect
for their needs and expectations. They not only enjoy
good incomes, but they also enjoy being part of their
business community.
Examples : property management, dry cleaning, in-
home senior care
⚫Multi-unit franchising
⚫Some people resist the single unit franchise to avoid the
risk of placing all their eggs into one basket. They like the
idea of owning multiple locations because even if one
location isn’t successful, or not as successful as desired, a
second or third location may offset losses and still produce
an overall profit.
⚫Another benefit of multi-unit franchising: the additional
units are usually sold at a reduced rate per unit, thus
lowering your overall investment. And, too, the units are
not restricted to one city or area. You may own multiple
units of the same franchise brand in multiple cities or
states.
⚫Examples : Nirula’s, Subway
⚫ Area development agreements
⚫ If you’re looking to reach for the stars in franchising, then you’re going to
be interested in area development and master franchise opportunities.
⚫ An area developer agrees to open a certain number of units for a
franchisor in a specific geographic area, i.e. Manhattan, Dubai, the UK,
in a specific period of time. Franchisors like this option because the
area developer exerts resources and efforts every day to build
franchises in the geographic territory. Franchisors do not normally
concentrate on just one area at a time, so the area developer can build
units faster in the specified territory.
⚫ In these cases, the franchisor grants the area developer exclusive rights
to the territory. The franchisor provides training and support to the area
developer, who in turn pays fees, including royalties, to the franchisor.
⚫ Area development franchising is quite similar to multi-unit
franchising. The difference is that it typically involves a greater
number of units encompassing a larger territorial area. Area
developers have the opportunity to raise brand awareness quite
rapidly.
⚫ Example: Opening up a Dubai brands’ franchise units in India
Master franchising agreements
Master franchising is the most complex form of development,
but it is popular in all parts of the world, including the USA.
⚫ Franchisors select this form of development partly because
they don’t have, or don’t want to spend, the resources to
develop a distant territory, i.e. a market in another part of the
world. So while they’re not developing that territory, they find
a master franchisee who’s willing to do so. Franchisors
provide training and support to master franchisees, and
ultimately teach the master franchisee to be the franchisor’s
representative.
⚫ A master franchisee (or licensee) becomes the franchisor’s
representative (a mini-franchisor, or sub-franchisor) in a
specific area, which is most often a country.
⚫ Examples : McDonalds, Toni & Guy and Krispy Krem
⚫ Business format franchising
⚫ In business format franchising, a franchisor (the corporate office)
provides the franchisee, with an established business system that
can be learned and operate. All of the franchises under each
franchisor operate by the same name and in the same fashion.
⚫ The business format franchisor expands its business by granting
licenses to individuals or corporate entities that in turn open units
of the business. The franchisor provides training, support and
other assistance, but the franchisees are considered independent
owner/operators. The franchisees pay royalties to the franchisor
and are bound to follow the franchisor’s operating systems.
⚫ Typical business format franchises include retail and service
businesses, i.e. Smashburger, Farm Stores, Dippin’ Dots,
Burger 21, Fastsigns, EmbroidMe, AAMCO, Little Caesar’s,
Juice It Up, Del Taco, The Melting Pot, Massage Green, etc.
⚫ Product franchising
⚫ Some franchisors are manufacturers that grant licenses to
retailers to distribute their products using the
manufacturer’s name and trademarks. Manufacturers of
automotive products, including tires, use product
franchising.
⚫ Through this type of franchising agreement, the
manufacturers control how the retail stores distribute their
products. In return, the retailers pay fees or buy a
minimum amount of products.
⚫ Product franchising was used, perhaps for the first time,
by the Singer Corporation during the 1800s to distribute
its sewing machines. This practice subsequently became
popular in the petroleum and automobile industries also.
⚫Manufacturing franchising
⚫Many franchisors depend on manufacturers to produce
and sell products using the franchisor’s name and
trademark. Coca Cola is a good example.
⚫Manufacturing franchising is most popular among food
and beverage companies, as well as automakers. In these
cases, the franchisor provides little assistance to the
franchisee, but the franchisee is generally a skilled
operator.
⚫Under this arrangement, the franchisor (manufacturer)
gives the dealer (bottler) the exclusive right to produce
and distribute the product in a particular area. This type of
franchising is commonly used in the soft-drink industry.
⚫ Job-Franchise
⚫ Generally, this is a home-based or you can say a low-cost
franchise that is handled by a person who wants to start a
small franchised business alone. These franchisees are
mostly operated by a single person selling products or
providing a service within a specific trade or industry. The
franchisee usually has to buy minimal equipment, limited
stock, and sometimes a vehicle to provide the services to
the customers. A wide range of services comes into this
sector, like travel agency franchise, coffee van, garden care
service, drain cleaning, commercial and domestic cleaning,
cell phone accessories and repair, real estate service,
shipping service, event planning, daycare services, so on.