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 IssueQuestions to Resolve Franchise feeAmount? One time? Per unit? RoyaltiesAmount? Percentage of net or gross? Sliding scale? Quality controlQuality specs? Monitoring practices? Rewards? Sanctions? AdvertisingFee? Local budget? National? Intensity? Messages? OfferingsProduct line? Product mix? Requirements? Alternatives? EquipmentRequired? Additional? Financing? LocationSite selection requirements? Franchisor aid? Financing? OperationsSigns? Hours? Maintenance? Décor? Personnel policies? ReportingTypes? Frequency? Auditing? Sanctions? DisputesResolution methods? Equity of resolution process? TerminationTiming? 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 Perspective Advantages  Faster growth  Lower capital requirements  Motivation – franchisors are owners of the franchise  Control of locations  Revenue stream – franchise fees/royalties

The Franchisor’s Perspective Disadvantages  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A product distribution franchise model is very much like a supplier-dealer relationship. T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

 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 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 Franchise 90% Franchise 90% Traditional Retail 25% Traditional Retail 25% Years % %

47 (43%) 64 (57%) FOREIGN LOCAL PFA Founding Year (60%) 202 (40%) FOREIGN LOCAL (44%) 420 (56%) FOREIGN LOCAL Franchise Growth in the Philippines Foreign VS Local

% 30% 47% 53% 46.8% 53.2% 40% 60% 41% 59% 46% 54% 345franchises 405franchises 48 % 52% Food Non food Ratio of Franchisors Food 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 Awards REGIONAL 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 $ earner Export of top Philippine franchisors Local franchisors have penetrated the US, and Asia but has yet to conquer the European market Food & Non-Food