Franchising 111

8/8/2019 Franchising 111

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A. Simple definitions of franchising

B. Licensing the system & the Proprietary Marks

C. Franchising origins & formats

D. Types of Franchising Agreements

E. Franchise search and selection criteria

F. Franchising strategies

G. Advantages & Disadvantages of Franchising

Contents


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1. Franchising is a unique System for expanding a certainbusiness .

2. Franchising is a Strategy for distributing goods & services.

3. Franchising is a Legal & Commercial Relationshipbetween the business owner (Franchisor) and the businessoperator (Franchisee).

4. Franchising involves a License to operate a business usinga known Brand name and Proprietary Marks.

Simple definitions


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All Tangible Business components (Decoration, Equipment, POS,signs, Furniture, etc)

The Operations Manuals

The Know How Techniques

The Training (classroom & on the job)

The Support (Business Plan preparation, Store Location, Store design,Equipment purchasing, Recruiting, Marketing, Operations,

Financial, ongoing support services )

Seminars & workshops

The System in Franchising

Trade Name (s)

Trade Mark (s)

Patent (s)

Logo (s)

Emblem (s)

Motto (s)

Other Proprietary Marks / copyrights

The Proprietary Marks in Franchising


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Franchising takes place when the owner of the unique &distinctive business (FRANCHISOR)

Licenses

To the new operator (FRANCHISEE) to use its Trade name,Proprietary marks and system according to the terms ofthe Agreement (FRANCHISE AGREEMENT) and for certainfees.

Franchising from a Legal Point of view


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LICENSE

FranchisOR System Proprietary FranchisEE

Marks

Must be in a written form

For a specific region

For a limited time frame (term)

Should specify whether exclusive or not

Defined number of stores

May vary in case of Agreement breach

In Exchange for

Initial Franchise Fee

Royalty Fees

Other Fees

The Grant of Rights from franchisor to franchisee


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RECEIVING Franchise Fee & Royalties

FRANCHISOR License FRANCHISEE

GIVING the License for System & Proprietary Marks

The Franchise relationship : The Exchange

Company owned outlets

Agency

Distributorship

Licensing

Partnership / Joint venture

Other Forms of Business Expansion


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Franchisor

Franchisee

Franchise Agreement

License

System

Proprietary Marks

Initial Franchise Fee

Royalties

Key Terms so far


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Middle-Ages The origins of the word are French.Franchise was the synonym of grantedprivilege

1858 Singer (famous sewing machines brand )was the first to sell rights to distribute themachines & train customers.

1950s Coca-Colas Expansion by shifting theburden of manufacturing & distributing toFranchisees

Same with Famous Car Dealers and OilCompanies (Convenience stores)

The Origins of Franchising

(a) Business Format Franchising

(b) Product Format Franchising

The Two Formats of Franchising


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Franchisor may or may not be a Manufacturer

License covers system + Proprietary Marks

Franchisee Follows strict & uniform way to operate &promote Franchise

Example : Mc-Donalds, Pizza Hut, Starbucks.

(a) Business Format Franchising

Franchisor is Typically a Manufacturer

License covers Proprietary Marks only

Franchisee may or may not use same marketing effortsas Franchisor

Example : Ford, GM, Coca-Cola

(b) Product Format Franchising


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Example of Franchise Sectors and BrandsSubway

Debenhams

Kwik Kopy

Citroen

Fuddruckers

Hilton

Pizza Hut

GNC

5aSec

Ford

Chillis

Marriott

Pepsi-Cola

McDonalds

Zara

Avis

General Motors

Applebee's

Sheraton

Coca-Cola

Fast Food

Retail

Service

Automotive

Restaurants

Lodging

Beverage

1. To own, register & protect the Proprietary Marks

2. To be an excellent communicator

3. To constantly seek manageable expansion

4. To constantly develop the system (R&D) & solve

problems5. To ensure consistency in service / product delivery

6. To Employ experienced staff & invest enough capital

7. To support Franchisees & provide training & manuals

8. To maintain value for Franchisees

9. To abide by the Franchise Agreement

The Franchisors obligations & duties


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Allocate Time and effort to operate the Franchise

Use Proprietary Marks & system appropriately

Abide by confidentiality & non competency agreement

Train and Motivate team members

Pay royalties & other dues on time

Avoid breaching the Franchise Agreement

The Franchisees obligations & Duties

Commitment to franchise partnership

Commitment to learn

Commitment to succeed

Commitment to cooperate

Commitment to communicate

Commitment to serve customers

Commitment to develop business & staff

Commitment to be unique

What kind of Commitment is requested ?


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(A) Single Unit Franchise Agreements (SUA)

(B) Multi Unit Franchise Agreements

i Master Franchise Agreement (MFA)ii- Area Development Agreement (ADA)

iii- Multiple single units Agreement (MSU)

Types of Franchising Agreements


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SUA MFA ADA MSU

X1 X3 X1 X3

X X X X X

X2 X4 X2 X4

OR OR

X1 X2

X X

A B X1 X2

OR

A B

X

C D

Types of Franchising Agreement (contd)

Master Franchise Agreement

Master Franchisee

Area Development Franchise Agreement

Area Development Franchisee

Multi Unit Franchise Agreement Multi Unit Franchisee

Single Unit Franchise Agreement

Single Unit Franchisee

Trademarks (Marks, Brand Name, Logo,)

Additional Key Terms


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Internet

Magazines

Exhibitions

Franchise Associations

Newspapers

Franchise Directories

Referrals

Existing Franchises

Where to look for a Franchise ?


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1. The Franchise costs and expected returns

2. The Brands Equity

3. The nature of the franchise : Demand and competition

4. The Franchisors Background and commitment

5. The Franchisors support

6. The Degree of personal Involvement

Which Franchise to choose : Main selection criteria

The Franchise Information Package (The franchise kit)

The Uniform Franchise Offering Circular (UFOC)

The Franchise Agreement

The Main Franchise Documents to review


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Passion about the franchise business

Good financial capabilities

Business Acumen

Desire to succeed

What is the franchisor looking for ?


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(a) Expanding by selling Franchise Rights to prospectFranchisees

i- Offering Rights only

*)Master Rights

**) Area Development Rights

***) Single Rights

ii- Offering Turn-key solutions

iii- Offering (i) or (ii) with Full or partial financing

(b) Expanding by establishing and operating new stores

(c) Expanding by a combination of (a) & (b)

(d) Expanding thru conversion strategy(e) Expanding thru Retro-Franchising

Types of Franchising Strategies

Its ultimate Goal is increasing profitability, distribution andBrand equity

It offers a cost effective mean of business expansion as itrequires minimal capital commitment from Franchisor

It is an optimum method to reach International Markets whereFranchisor has no knowledge or experience .

It offers sometimes a Complete business solution for nonexperienced operators

It offers several expansion alternatives

It offers an opportunity to stimulate entrepreneurship at arapid pace

Why would we consider Franchising a successful strategy ?


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1. Proven & tested concept

2. Reduces the risk of failures associated with newbusinesses

3. Operating under a recognized brand name

4. Faster learning curve

5. Start-Up Assistance

6. Easier for obtaining Financing

7. Collective purchasing power

8. Synergy created by associating with Franchisees

Advantages of Franchising


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The Statistics supports Franchising

1. Lack of Business Experience

2. Shortage of capital

3. Bad location for business

4. Bad Management of Inventory

5. Over Investment in Fixed Assets

6. Absence of Financing options

7. Use of capital for personal purchases

8. Competition

Main reasons for failures of small projects


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Franchisee is committed to pay Franchise Fee & Royalties

Franchisee has to report constantly to Franchisor

Some Lack of independence & Freedom

Limited Geographical Area & defined Franchise term

Control over permitted products & services

Major Franchisor problems may someday affect your business

Disadvantages of Franchising