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WHAT IS FRANCHISING?
An arrangement whereby a party (franchisor), who has developed a way of running a business format/system successfully, licenses the rights to operate that format/system using his trademark, name or other IP rights to another party (franchisee)
The licence involves the franchisor granting a right to use the format/system, trademark, name or other IP rights in exchange for an initial fee and annual royalty.
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WHAT IS FRANCHISING?
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“Franchising allows people to go into business for
themselves, not by themselves”
WHY FRANCHISE?
Franchises offer important pre-opening support: site selection design and construction financing (in some cases) training grand-opening program
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WHY FRANCHISE?
Franchises offer ongoing support training national and regional advertising operating procedures and operational
assistance supervision and management support increased spending power, access to
bulk purchasing and economies of scale
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DISADVANTAGES
The franchisee is not completely independent.
In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising fees.
Franchisees must be careful to balance restrictions and support provided by the franchisor with their own ability to manage their business
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DISADVANTAGES
A damaged, system-wide image can result if other franchisees are performing poorly or the franchisor runs into an unforeseen problem.
The term (duration) of a franchise agreement is usually limited and the franchisee may have little or no say about the terms of a termination
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ASSESSINGFRANCHISING OPPORTUNITY
Successful franchising essentially involves trust and understanding between the franchisor and franchisee
Franchisor’s financial position and track record
How thoroughly has the business been market tested
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ASSESSINGFRANCHISING OPPORTUNITY
How well the format/system works in practice (Are existing franchisees pleased with their business? Any bad news?)
Does the business have staying power? Or is it based on something which is temporarily fashionable?
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HOW TO ASSESS A PROSPECTIVEFRANCHISE?
Assess the reputation and reliability of the franchisor
Find out the demand for the goods/services offered in the franchise
Do sales projection Find out from other franchisees the support
services provided Work out the amount of capital that is needed
upfront
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HOW TO ASSESS A PROSPECTIVEFRANCHISE?
Work out the amount of cash that is needed under the worst case scenario
Go through the contract thoroughly with a lawyer concerning , in particular, rights of the franchisee obligations of the franchisor terms of termination restriction on business entered after termination resolution of disputes
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WHAT IS INVOLVED IN FRANCHISING?
Tenure/Period of contract
Initial fee
Royalty/management fee
Renovation cost
Territory
Supply of goods and services
Compliance with contract
Terms of termination
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WHAT SHOULD A COMPANY DO TO GET READY TO BE A FRANCHISEE?
Conduct feasibility study
Set up systems/procedures and support functions
Study the operations manual Register trademarks and other IP rights
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TYPES OF FRANCHISE
Generally there are 2 main types of franchises:
Product distribution franchises; and
Business format franchises.
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PRODUCT DISTRIBUTION FRANCHISES
A product distribution franchise model is very much like a supplier-dealer relationship.
Typically, the franchisee merely sells the franchisor’s products. However, these type of franchises will also include some form of integration of the business activities.
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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
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BUSINESS FORMAT FRANCHISING
In business format franchises, on the other hand, the integration of the businesses is more complete.
The franchisee not only distributes the franchisor’s products and services under the franchisor’s trademark, but also implements the franchisor’s complete method to conduct the business itself.
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FRANCHISING ACROSS WORLD
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Feasibility of Franchising
Franchising is a more feasible option of business expansion than starting own outlets
FRANCHISING…..
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Success of Franchising
Franchisors’ Improvement in Average Monthly Sales since Franchising
FRANCHISING…..
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Success of Franchising
Franchisors’ Improvement in Average Monthly Net Profit since Franchising
FRANCHISING…..
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Success of Franchising
Franchisors’ Improvement in Average Monthly Sales since Franchising
FRANCHISING…..
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Reason for Franchising
2/3 of franchisees felt that economies of scale in bulk purchasing encouraged them to consider franchising
FRANCHISEES…..
Generally young and well educated 62% below 40 years old 57% had post-secondary education 32% own their own outlets 46% occupy the outlets as tenants
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FRANCHISING…..
Franchising helps existing businesses do better. Franchisees’Response to the Statement:“Joining a Franchise has Helped Me to Do Better than Before.”
FRANCHISING…..
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Business Performance
Percentage Increase in Average Monthly Sales for Franchisees who were Previously Running a Business in the Same Trade
FRANCHISING…..
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Business Performance
Percentage Increase in Average Monthly Net Profit for Franchisees Previously Running a Business in the Same Trade