FRANCHISING

• Franchising


  A contractual agreement between or license between two parties (Franchisor & Franchisee) for the purpose of organizing and managing business, where the parties are mutually benefited
• Franchise

  • An agreement or license between two parties, which gives a person or group of people (the franchisee) the rights to market a product or service using the trademark of another business (the franchisor)
  • Franchise is one form of exclusive retailing
  • It is a method of marketing which is lying between entrepreneurship and employment
  • A franchiser is an independent business person who abides by the marketing plan of the financier and pays him a fee for the use of his brand and known-how
• Franchise


  • The agreement to the franchise is a standard printed agreement which deals with rights and obligations of the licensor and licensee
  • The term 'franchise' has its origin in the French word 'affranchir' which means to 'to free'
  • The local dealer who acts as a 'franchisee' and operates at a lesser cost by using his local market, knowledge
  • The franchisee will be able to do business successfully without risks by utilizing the good-will attached to the brand name of the franchiser
• Franchising (according to IFA)


  • A contractual relationship between the franchiser and franchisee in which the franchiser offers or is obligated to maintain a continuing interest in the business of the franchisee in such area as know-how and training
  • The franchisee operates under a common trade name, format and procedure owned and controlled by the franchiser
  • The franchisee has or will make a substantial capital investment in his business from his own resources
• Major types of franchises

  • Business format franchises (e.g. McDonald's, Domino's)
  • Product franchises (e.g. Tommy Hilfiger, Bata)
  • Manufacturing franchises (e.g. soft drink bottlers)
  • Business opportunity ventures (e.g. vending machine routes)
• Retailer brands and companies often look toward franchising as a key operating model for expansion from scale, geographical coverage, and time perspectives
• Advantages of buying a franchise

  • Higher success rate
  • Assistance
  • Cost reduction
  • Star power
  • Profits
  • Marketing assistance
  • Staff training
• Higher success rate


  When entrepreneurs buy a franchise, they buy an established concept that has been successful. Franchisees stand a much better chance of success than people who start independent businesses.
• Assistance


  When entrepreneurs buy a franchise; they get all the equipment, supplies and instruction or training needed to start the business.
• Cost reduction

  Franchisor can afford to buy in bulk and pass the savings to franchisees. Inventory and supplies will cost less than running an independent company. For example, running a courier company on own could be a difficult task. But by being a franchisee of Overnite Express, the franchisee can save money.
• Star power


  Many well-known franchises have national brand-name recognition. Buying a franchise can be like buying a business with built-in customers. For example, buying a franchise of Aptech will help to attract customers easily.
• Profits


  A franchise business can be immensely profitable. The probability for a small business to succeed is high as they have the backup and support of well established big business enterprises.
• Marketing assistance


  When a business is associated with a franchisor then the big-business themselves help in corporate marketing of the goods of the small industry or business they are providing support for.
• Staff training


  The franchisor provides all the necessary training to the franchisee or small business staff and provides additional resources and decision-making capabilities to a small business.
• Disadvantages of buying a franchise

  • Control
  • Ongoing costs
  • Lack of support
  • Expensive
  • Time consuming
  • Misunderstanding
• Control


  Some franchisors exert a great degree of control. No decision can be taken by the franchisees without consulting the franchisor.
• Ongoing costs


  Besides the original franchise fee, royalties, a percentage of franchise's business revenue, will have to be paid to the franchisor each month.
• Lack of support


  All franchisors do not offer the same degree of assistance in starting a business and operating it successfully. Assistance is provided only at the time of starting the business.
• Expensive


  Buying a well-known franchise is very expensive. Entrepreneurs must have the ability to arrange the necessary finance.
• Time consuming


  Lot of time is required while selecting a franchise. A complete and thorough research is required to select the right franchise and to determine whether it would work for the business or not.
• Misunderstanding


  Franchise is a complex procedure and disputes may arise between the franchisee and franchisor.
• Franchising


  • Two Parties: Franchiser and Franchisee
  • Written Agreement between Franchiser and Franchisee
  • Exclusive Right: Franchiser owns brand/trademark and allows Franchisee to use it in specific area under license
  • Payment: Franchisee makes initial payment and pays regular license fee
  • Support: Franchiser provides assistance in marketing, equipment, systems, staff training, record keeping
  • Restrictions: Franchisee must operate business as per Franchiser's policies, cannot compete or disclose confidential information, Franchiser cannot terminate agreement before expiry except for 'good cause'
  • Specified Period: Agreement for a specific period, renewable with mutual consent
• Business Format Franchises


  A company expands by supplying an established business concept/format, including its brand name, symbol, and/or trademark to independent business owners
• Business Format Franchises

  • The franchisee acquires the right to use or follow a business format and also the best practices and processes associated with it
  • The franchiser company generally assists the independent owners significantly in launching and operating their businesses
  • The business owners pay fees and royalties to franchiser
  • The franchisee acquires the right to use all the elements of a fully integrated business operation
• Business Format Franchises

  • McDonald's
  • Domino's Pizza
  • KFC
• Product Franchises


  The franchisee gets the right to use the brand/trade names, trademark, and/or products from the franchiser
• Manufacturing Franchises


  The franchiser offers the right to produce and sell goods to a manufacturer under its brand name and trademark
• Manufacturing Franchises

  • Soft drink bottlers and canners
• Business Opportunity Ventures


  An independent business owner buys and distributes the products from one company, which supplies the business owner with clients or accounts, in return of which the business owner pays the company a pre-decided fee
• Business Opportunity Ventures

  • Coffee vending machine
• Retailer brands and companies often look toward franchising as a key operating model for expansion from scale, geographical coverage, and time perspectives
• Gap's franchise arrangement with Arvind in India


  • Arvind has invested in infrastructure
  • Gap is providing support in terms of brand name, merchandise, layouts, fixtures, and so on
  • Arvind sources the merchandise from Gap's global sourcing
  • Gap has manufacturing facilities in and around India