Franchises

• Franchise

  A business run by one firm under the name another.
• Franchiser

  • Original business that gives franchisees licences to sell goods or services under their brand name.
  • Aims to grow, increase market share and maximise profits.
• Franchisee

  • Owner of each individual branch of the franchise.
• Advantages for the Franchisers

  • Low risk form of growth as the franchisee invests the majority of the capital
  • Risk is shared between the franchiser and franchisee
  • Receives a percentage of all franchisee's profits each year
• Disadvantages for the Franchisers

  • Reputation of the whole franchise can be tarnished by one poor franchise.
  • Reliant on the franchisee to make it a success.
  • Only a share of profits is received rather than a whole share of share of profits.
• Advantages for the franchisee

  • The franchise is a well-known business with an existing customer base, so the risk of business failure is reduced
  • National advertising is carried out by the franchiser
  • Industry knowledge, administration and training is provided by the franchiser 
• Disadvantages for the franchisee

  • Very little autonomy over decisions as the franchiser decides on products, store layout, uniforms etc
  • The franchiser can decided not to renew the franchise
  • High initial start-up fees
  • Royalties have to be paid each year, so not all of the profits can be kept