Presentation Transcript

1. Franchise Business Model

2. Opportunities in Franchising model Home markets saturated !!!! Attractive opportunities overseas Lack of/relaxation of regulations in most countries Expansion of international trade Exposure to international media
3. What is franchising? A franchise operation is a contractual relationship between the franchisor and franchisee in which – The franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in areas such as know-how and training; wherein The franchisee operates under a common trade name, format and/or procedure owned or controlled by the franchisor, and in which the franchisee has or will make a substantial capital investment in his business from his own resources.
4. What is franchising? Use of franchisor’s trade name, format, system and/or procedure under licence Means to raise capital and expand quickly Assistance to franchisee Marketing, management, advertising, store design, standards specifications Payment by franchisee by way of royalty, licensee fee or other means Legal and commercial arrangement concerning the successful business of a franchisor
5. What is franchising? 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
6. TYPES OF FRANCHISE 3 main types of franchise: Product distribution franchise; Business format franchise; and Management franchise.
7. 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, this type of franchise will also include some form of integration of the business activities.
8. PRODUCT DISTRIBUTION FRANCHISES Examples of famous product distribution franchise:
9. PRODUCT DISTRIBUTION FRANCHISES Produces the syrup concentrate Sells the syrup concentrate FRANCHISEE Produces the final drink Retail Stores Vending Machine Operators Restaurants & F&B Outlets
10. 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.
11. Famous Examples
12. BUSINESS FORMAT FRANCHISING - outlet in Sale, Australia outlet in Marseille, France
13. MANAGEMENT FRANCHISE A form of service agreement. The franchisee provides the management expertise, format and/or procedure for conducting the business.
14. Famous Examples
15. 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
16. WHY FRANCHISE? Franchises offer important pre-opening support: site selection design and construction financing (in some cases) training grand-opening program
17. 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
18. Common considerations of franchisors Developing franchise concept Market research Familiarity with local laws and regulations Providing training and support to franchisees
19. Common considerations of franchisors Criteria for choosing franchisees Control over franchisees Supply of products/materials to franchisees Intellectual property rights issues, e.g. trade mark registration
20. Common considerations of franchisees Demand Profitability of franchise, and length of time required to recoup investment Track record of franchisor Support rendered to other franchisees
21. Common considerations of franchisees Experience and profitability of other franchisees Existence of competition Capital required Demands of franchisor, e.g. income projections, deadline to open more franchise outlets
22. Franchisor–Franchisee relationship Regulated by contract which usually covers: Initial fee Royalty fee/Management fee Capital required from franchisee Territory/Area of operation Duration of license and renewal IPRs Termination
23. BE CAREFUL The franchisee is not completely independent. In addition to the initial franchise fee, franchisee must pay ongoing royalties and advertising fees. Franchisee must be able to balance restrictions and support provided by the franchisor with their own ability to manage the business
24. BE CAREFUL A damaged image or franchise system can result if other franchisees perform poorly or the franchisor has financial problems. The duration of a franchise is usually limited and the franchisee may have little or no say concerning termination
25. Common Mistakes of Prospective Franchisees Not reading, understanding and/or asking questions about the franchisee agreement and other legal documents Not understanding the responsibilities of a franchisee and the rights and obligations of a franchisor Not seeking sound legal and financial advice Not verifying oral representations of franchisor
26. Common Mistakes of Prospective Franchisees Not analyzing the local market in advance Not analyzing the competition Not making thorough due diligence of the franchisor Not choosing the right location
27. Conclusion Franchising – a great model for SMEs Proven formula for success Due diligence Central role of IPRs Avoidance of dispute