Franchising

Today, you will…. Understand the principles of a franchise Appreciate the advantages and disadvantages of using franchises Identify a suitable start up location for a franchise

Franchises A franchise is an arrangement in which an established business name is sold to an individual or company, who can then start trading under that name. Many fast food restaurants such as KFC and Pizza Hut operate franchises. There are two parties involved in a franchise: The franchisor: the business selling the right to trade its product or service; The franchisee: the company or person buying the franchise.

Franchisee Rules You must use the franchisor’s suppliers You must use the franchisor’s equipment You must follow the franchisor’s rules and regulations You must give a share of your profit or sales to the franchisor

Why would someone set up a franchise and become a franchisee rather than set up under their own name?

Why would a company offer people franchises and become a franchisor?

Why Franchise? Franchisor Gets revenue for simply selling their name Gets expansion without having to spend But… Risks the franchisee being poor quality and ruining the reputation of the brand Franchisee Starts a business with a proven product which should do well. It is less risky than starting a business with an unknown brand Makes a profit more quickly than a normal new business But…. The franchisee has to pay the franchisor

Benefits of a franchise Training Equipment Materials to use for product/service Finding customers Back up services A brand name

The costs Initial start up – average start-up cost is £250,000 Then monthly payments - a percentage of sales Franchisors may charge high prices for their supplies – this affects profit

Advantages & Disadvantages AdvantagesDisadvantages The franchisor selects people from those who want a franchise. This eliminates people who are unsuitable for the job Initial investment might be high and payments through the running of the business may mean low profit Owners underestimate how much money is needed to set up a new business. A franchise has a start-up sum to cover everything The franchisee cannot sell the business without the permission of the franchisor The franchisee benefits from the advertising that the franchisor will do The franchisor can end the franchise arrangement at any point without reason A franchisor can offer ongoing support to the franchisee Some franchise businesses are more successful than others

What Franchise is this?

As you enter the restaurant … All mobile phones and potential sources of light go in a security locker

Dans le Noir? Business is owned by Ethik Investment Group One aim is to create awareness about disability in France and they promote the issues affecting people with disabilities Dans le Noir? gives able-bodied people the chance to experience what it is like to be blind Many employees of the Ethik and Dan le Noir? are registered blind Dans le Noir is profitable EVERY year

Dans Le Noir? A USP (unique selling point) and franchise: 10-year franchise Initial fee: £40,000 4% of turnover every year (with a minimum of at least £25,000) expected by the franchisor Additional charges for recruitment and training

Task If I was thinking of opening a new restaurant, it would be a good idea to choose to be a franchisee for Dans le Noir.

Using “treasoning”, write down your arguments for and against the idea. Then construct your answer.

Arguments for the idea Arguments against the idea Force: Thick or thin root? Thick or thin root? Thick or thin root? Roots holding the idea up

Examples Restaurant is profitable every year so I should make money from the restaurant High start-up cost of over £40,000 Big root Force 7

Where would you locate a Subway? Somewhere busy – more customers Easy access – good transport links Good parking facilities

Case Study Page 31 - ‘Over to you’ Answer questions 1-4. Remember!! 1 mark – 1 minute

Exam Zone…. Turn to page 32 and read ‘you should know’…. Jot down all the things you are not sure about. Have a go at practise exam questions (Page 33)