FRANCHISING

What is a Franchise?

License to use an established brand Use is very restrictive – many rules to be

followed. Provide a proven successful business

format Entrepreneurship for people that are not

particularly entrepreneurial.

Advantages 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 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

The Franchisee’s Perspective Things to

Look For Proven operating location Credible top management Skilled field support staff A trade identity A proprietary operations manual Effective training programs Disclosure and offering documents Plans for advertising, marketing, PR and promotion A communications system Sufficient capital

Franchising Agreements

Issue Questions to Resolve

Franchise fee Amount? One time? Per unit?

Royalties Amount? Percentage of net or gross? Sliding scale?

Quality control Quality specs? Monitoring practices?

Rewards? Sanctions?

Advertising Fee? Local budget? National? Intensity? Messages?

Offerings Product line? Product mix? Requirements?

Alternatives?

Equipment Required? Additional? Financing?

Location Site selection requirements? Franchisor aid?

Financing?

Operations Signs? Hours? Maintenance? Décor? Personnel

policies?

Reporting Types? Frequency? Auditing? Sanctions?

Disputes Resolution methods? Equity of resolution

process?

Termination Timing? Causes? Sanctions? Recourse?

Franchisee Guidelines

Perform a self-evaluation Investigate the franchisor Study the industry and competition Study the Uniform Franchise Offering

Circular Investigate the franchisor’s disclosure Know your legal rights and retain counsel

The Franchisor’s PerspectiveAdvantages

Faster growth Lower capital requirements Motivation – franchisors are owners of

the franchise Control of locations Revenue stream – franchise

fees/royalties

The Franchisor’s PerspectiveDisadvantages

Reduced control Profit sharing Greater commitment to operating

support Problem franchisees???

TYPES OF FRANCHISE

3 main types of franchise:

Product distribution franchise; Business format franchise; and 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.

PRODUCT DISTRIBUTION FRANCHISES

PRODUCT DISTRIBUTION FRANCHISES

Examples of famous product distribution franchise:

Produces the syrup concentrate

Sells the syrup concentrate

FRANCHISEE Produces the final drink

Retail Stores

Restaurants & F&B Outlets

Vending Machine Operators

PRODUCT DISTRIBUTION FRANCHISES

BUSINESS FORMAT FRANCHISING

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.

Famous Examples

BUSINESS FORMAT FRANCHISING -

outlet in Sale, Australia

outlet in Marseille, France

MANAGEMENT FRANCHISE

A form of service agreement.

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

Famous Examples

Why is franchising important to SMEs?

Leveraging on a recognised brand name Enhancing business image Ensuring consistent quality Attaining higher productivity/better

motivated staff Access to good locations Economies of scale Reducing risks of failure

PHILIPPINE FRANCHISE ASSOCIATIONPHILIPPINE FRANCHISE ASSOCIATION

Franchising

You are in a business for yourself, but not by yourself. The franchisor is always there to help.

Running your own business by duplicating the success formula of the franchisor

Franchise Success Rate VS Traditional Retail

100

0

50

100

12

34

56

78

910

50

0

Franchise90%

Franchise90%

TraditionalRetail

25%

TraditionalRetail

25%Years

%%

47 (43%)64 (57%)

FOREIGN

LOCALLOCAL

PFA Founding PFA Founding YearYear

2003

1999

1995

19801970

2003

1999

1995

19801970

306 (60%)202 (40%)202 (40%)

FOREIGNLOCALLOCAL

508508

330 (44%)

420 (56%)420 (56%)

FOREIGNLOCALLOCAL 750+750+

111111

45-50

15-20

Franchise Growth in the Philippines

Foreign VS Local

19951995 1996 1997 1998 2000 2001 2003 1996 1997 1998 2000 2001 2003

70%70%

30%30%

47%47%

53%53%

46.8%46.8%

53.2%53.2%

40%40%

60%60%

41%41%

59%59%

46%46%

54%54%

345345

franchisesfranchises

405405

franchisesfranchises4848%%52%52%

FoodFood

Non foodNon food

Ratio of FranchisorsFood VS Non-Food

The Philippine Franchise Association

Composed of 150 members [from the industry leaders such as McDonald’s, Pizza Hut, 7- eleven, Jollibee, Netopia, Caltex, STI, Francorp] Member of Asia Pacific

Franchise Confederation, World Franchise Council

Recognized by the International Franchise Association

The Philippine Franchise Association

Aims to make the Philippines the “Franchise Hub of Asia”

PLAYED a crucial role in the growth of Philippine franchising

The Philippine Franchise Association

Networking with the

International community

Franchise Excellence

AwardsREGIONAL FRANCHISE

SHOWS

ANNUAL FRANCHISE

CONFERENCE AND EXPO

Our key activities/events

Certified Franchise Executive Program

Franchise Expos in UK,

US, China, Indonesia, etc

SMALL SCALE: SME Development

• Putting up of incubation centers during franchise shows• Creation of new generation of entrepreneurs thru seminars, training - how to franchise your business- how to acquire a franchise, etc.

MEDIUM SCALE: Nationwide Development

Expand existing

franchise in the

Philippines into

nationwide network of at

least 100 units

LARGE SCALE: International Promotion

Franchising to become top $ earnerFranchising to become top $ earner

• Export of top Philippine franchisors• Export of top Philippine franchisors

Local franchisors have penetrated the US, and Asia but has yet to conquer the European market

Food & Non-FoodFood & Non-Food