franchising ppt
Post on 28-Oct-2014
184 Views
Preview:
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
1. PRODUCT DISTRIBUTION FRANCHISES
Examples of famous product distribution franchises :
EXAMPLESEXAMPLES
1. PRODUCT DISTRIBUTION FRANCHISES
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
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
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
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 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
IPRs
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?
Franchise Your Business SuccessfullyFranchise 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 SuccessfullyFranchise 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 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?
Franchise Your Business SuccessfullyFranchise 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 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
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
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 !!
top related