Franchising Ppt

transcript

FRANCHISING

Singer Sewing Machine – first franchise (mid-19th 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 Growth Of Franchising

“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 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.

What is Franchising?What is Franchising?

Assistance to 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 an entire operation or method of

business Greater assistance, control and longer duration Distributor merely re-sells products to retailers or

customers

FranchisingFranchising

Franchising A marketing system revolving around a two-party

agreement, whereby the franchisee conducts business according to the terms specified by the franchisor

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

FranchisingFranchising

TYPES OF FRANCHISETYPES OF FRANCHISE

3 main types of franchise:

1. Product distribution franchise;

2. Business format franchise; and

3. Management franchise.

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

1. PRODUCT DISTRIBUTION FRANCHISES

Examples of famous product distribution franchises :

EXAMPLESEXAMPLES

1. PRODUCT DISTRIBUTION FRANCHISES

Produces the syrup concentrate Sells the syrup

concentrate

FRANCHISEE Produces the final drink

Retail Stores

Restaurants & F&B Outlets

Vending Machine Operators

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.

2. BUSINESS FORMAT FRANCHISING

EXAMPLESEXAMPLES

A form of service agreement.

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

3. MANAGEMENT FRANCHISE

Examples Examples

Advantages of FranchisingAdvantages of Franchising

Buying a name/reputation

Established markets

Technical/management assistance

Standardized procedures

Quality standards

Selection of location

Facility design

Quicker cash flow

Disadvantages of FranchisingDisadvantages of Franchising

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 (in some cases)

training

grand-opening program

Why franchise?Why franchise?

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 FranchiseesFranchisor 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

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

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 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 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

Franchisor–Franchisee relationshipFranchisor–Franchisee 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

Termination

Franchisor–Franchisee relationshipFranchisor–Franchisee relationship

Elements to look for in a franchise relationship:

Responsiveness

Empathy

Communication

Dependability

Accessibility

Give and take

Anticipation

Structure

Open-mindedness

Franchise agreementsFranchise agreements

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 SuccessfullyFranchise 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 SuccessfullyFranchise Your Business SuccessfullyDoes 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 reduction or modification? If so, under what conditions?

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?

Does the franchisor conduct an in-depth investigation of the franchisee to assure that he or she has the necessary skills and financial requirements to operate the business successfully?

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? Under what circumstances can this be done?

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 CAREFULBE CAREFUL

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 CAREFULBE CAREFUL

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 little or no say concerning termination

Common Mistakes of Prospective Franchisees

Not reading, understanding and/or 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

Not analyzing the local market in advance Not analyzing the competition Not making thorough due diligence of the

franchisor Not choosing the right location

ConclusionConclusion

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 !!

Franchising Ppt

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