Franchising

Definition: A form of business organization in which a firm, which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisee) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee.

Two Parties : 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

Authority and Control.. Control is with the parental company (Franchisor). The Franchisor have the Authority to cancel the contract of a franchisee whenever they want.

Growth of Franchising Franchising originated after the First World War with the development of petrol stations and motor vehicle dealerships. Today there are many examples of franchising, and it is particularly prominent in the food, service and retail industries.

Continued…… Singer Sewing Machine – first franchise (mid-19 th century) Automobile (e.g. Ford) Petroleum products (e.g. Shell) Soft drinks (e.g. Coca Cola) Food and restaurants (e.g. McDonald’s, Starbucks)

Reasons for franchising ….. Home markets saturated – attractive opportunities overseas Relaxation of regulations in most countries Expansion of international trade Exposure to international media

The 20 Fastest-Growing Franchises - 1.Subway: Submarine sandwiches & salads 2.McDonalds: Hamburgers, chicken, salads 3.Liberty Tax Service: Income-tax preparation 4.Sonic Drive-In Restaurants: USA (44 franchises) 5.Inter Continental Hotels: 6.Ace Hardware: Home improvement store 7.Pizza Hut: Pizza, pasta, wings 8.Circle K: Convenience store 9.Papa John’s Intl: Pizza

11.Jiffy Lube Intl: Fast oil change 12.Instant Tax Service: 13.Baskin-Robbins USA: Ice cream 14.KFC Corp: Chicken 15.Jani-King: Commercial cleaning 16.Dairy Queen: 17.Super 8: Hotels 18.Arby’s: Sandwiches 19.Jan-Pro: Commercial cleaning 20.Taco Bell: Quick-service Mexican

Top 12 Low-Cost Franchises H & R Block Tax preparation and electronic filing $26,427 - $84,094 Jani-King Commercial cleaning $11,400 - $35,050 Jan-Pro Intl Commercial cleaning $3,145 - $50,405 Kumon Math Centers Supplemental education $32,958 - $131,070 Stratus Building Solutions Commercial cleaning $3,450 -$57,750 Jazzercise Inc Dance fitness classes $2,980 - $75,500 Instant Tax Service Retail tax preparation $39,000 - $89,000

Vanguard Cleaning Commercial cleaning $8,125 - $38,100 ServiceMaster Clean Disaster cleaning $20,926 - $132,623 Bonus Building Care Commercial cleaning $9,000 - $15,000 Merry Maids Residential cleaning $24,750 - $59,450 Anago Cleaning Systems Commercial cleaning $8,543 -$55,306

Categories of Franchising Four main categories:  Product and trade name franchises  Manufacturing and production franchises  Business format or system franchises  Management franchising

1.Product and trade name Franchises Product and trade name franchises are arrangements where franchisees are granted the right to distribute a manufacturer's product within a specified territory or at a particular location, using the manufacturer's trade mark or trade name, in exchange for fees or royalties. Petrol stations are a prime example of this.

2.Manufacturing and production Franchises A process or manufacturing franchise is an arrangement where a franchisor provides an essential ingredient or know-how to a processor or manufacturer. Franchises of this nature are common, for instance, in the soft-drink industry.

Examples of famous Manufacturing and production franchises

2.Manufacturing and production franchises Example: Produces the syrup Sells the syrup FRANCHISEE Produces the final drink Retail Stores Restaurants & F&B Outlets Vending Machine Operators

3.Business format or system Franchises Business format or system franchises add an extra layer, including a business plan, management system, location, appearance, image, and quality of goods and services.

Famous Examples

3.BUSINESS FORMAT FRANCHISING outlet in Sale, Australia outlet in Marseille, France

4.Management Franchising A form of service agreement. The franchisor provides the management expertise, format and procedure for conducting the business.

Famous Examples

An Attractive Franchise Opportunity Includes: 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.

Advantages of franchising The Franchisor:  Less capital required  Rapid expansion  Retaining control  Dedicated owner operators  Benchmarking

The Franchisee:  A proven system  Start up assistance  Ongoing assistance  Joint advertising  Easier to obtain finance

Disadvantages of Franchising The Franchisor:  High operating cost  Reduced income per unit  Poor franchisee selection The Franchisee:  Bad decisions by the Franchisor  Restrictions on the sale of the business  Restrictions on expansion/growth

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