Franchising ... Franchise ... These words are now on everyone's lips.
This type of business has now become very popular and continues to gain momentum.
There is a huge number of franchises around us. More than we can imagine.
The ancestor of the traditional form of franchising is considered to be Singer, who in the middle of the 19th century introduced a system of franchising relations with distributors for the production and maintenance of sewing machines. After that, franchising began to actively develop, primarily in America. Therefore, the overwhelming majority of the promoted global franchises are from the United States.
So, what is franchising?
The easiest way to consider this is by example of a well-known brand.
Let's take some recognizable, well-promoted, popular brand. Let it be McDonalds.
Assume you live in a small town where there is no McDonalds. You can open your fast food restaurant under this name. To do this, you need to conclude an agreement with McDonalds, acquire the right to use its trademark, pay a one-time entrance fee (Initial Franchise Fee) - usually this is 9-11% of the total starting costs. In this case, you become a franchisee, McDonalds is your franchisor.
You will receive a detailed package of instructions from McDonalds on your next steps: the charter of your organization; how to correctly design your unit in the corporate style, what elements must be present; how you need to properly train and manage personnel (sometimes the franchisor provides personnel training); what recipes and technologies you will need to use; how you will conduct sales; reporting requirements and other instructions. Most often, you will also receive a list of suppliers from whom (and only from them!) you can purchase products. This set will differ depending on the field of activity.
After that you find a suitable location, make the necessary preparations and open your restaurant.
In addition to the initial payment, you will need to pay a certain amount (Royalty Fee) to the franchisor every month - approximately 2-6% of your turnover/revenue or a fixed amount. Sometimes royalties may not be applicable.
Also, we will most likely talk about a monthly marketing fee - it can be 1-3% of turnover/revenue or a fixed amount.
The franchise scheme primarily works through brand awareness. After all, if in your small town there are two restaurants nearby, and one of them is McDonalds, and the second is an unknown brand, most likely people will go to you.
Therefore, a classic franchisor candidate is a brand that has at least three years of successful business behind it. Thus, we can say that franchising is a replication of success. Both parties benefit from this: the franchisor and the franchisee. And both sides are directly interested in each other's success.
“Franchising is not an equal partnership, especially because of the legal advantages of the franchisor over the franchisee. But under certain circumstances, such as transparency, favorable legal conditions, financial resources and proper market research, franchising can be a means of success for both the franchisor and the franchisee. " (Wikipedia)
Like with everything, franchising has its pros and cons.
You don't start a business from scratch: you get a promoted brand, a recognizable design, resources already invested in brand promotion, well-established technologies, proven suppliers, etc. - you use it all.
On the other hand, you must constantly share your income.
You have a certain degree of independence: where to choose a unit, who to hire as employees, how much effort, money and time to invest into the project, etc.
On the other hand, there is a number of restrictions - you must follow the rules established by the franchisor: for example, to maintain a certain design and decor (after all, the brand must be recognizable), to use certain suppliers (most likely, you will not be able to change them), to use the formed recipe , technologies and menus (you won't be able to change anything here either), etc.
There is one more important point. The franchising system itself is viable because both the franchisor and the franchisee have a direct stake in the overall success. The more successful the franchise is, the greater income the franchisee gets, and vice versa. For the franchisor, this is an opportunity to replicate his business, to increase his income, and to improve the awareness of the brand.
In addition, to a certain extent, it is easier for franchise units to survive in difficult times.
Therefore, if you want to do business without taking extra risks, and are also ready to invest certain funds in it, you can consider franchising.
How to choose the right brand for yourself? What to look for?
1. Of course, a successful, in-demand franchise will bring a lot of value.
But it will also cost more.
For example, here are the top 10 positions from the list of the 100 largest world franchising companies, which was made by Franchise Direct.
- McDonalds (fast food restaurant) - 38,695 units
- KFC (fast food restaurant) - 23,105 units
- Marriott (hotel) – 570 units for the Marriott brand (6,905 units across all Marriott International brands)
- Pizza Hut (fast food restaurant) - 17,175 units
- Burger King (fast food restaurant) - 18,840 units
- Domino's (fast food restaurant) - 17,020 units
- Dunkin' (fast food restaurant) - 12,960 units
- Subway (fast food restaurant) - 41,600 units
- Circle K (convenience store) - 11,150 units
- InterContinental Hotels & Resorts (hotel) - 215 units (5,895 units across all InterContinental Hotels Group brands)
Please, note: all the franchises except the last one were founded in the USA. InterContinental Hotel & Resorts is a British brand.
In addition, the majority of brands are fast food restaurants.
In this case, the choice depends on your financial capabilities.
2. Choosing the franchise by industry.
The main industry categories in franchising are HoReCa, retail, services, production.
HoReCa includes hotels, restaurants.
Retail - all kinds of shops.
Services. The spread here is huge. This can be medicine (laboratories, pharmacies, etc.), mobile communications, education, entertainment system, real estate, sports schools, recruiting services, banks (finance), accounting services, delivery, dry cleaning and laundries, and etc. etc.
Manufacturing is directly the producing of goods under an individual brand. This is the least developed area.
Here you can build on your own preferences, plus monitor the market in order to understand which of the categories may be the most promising at the moment.
Services is exactly the direction that has shown good growth in recent years and which, perhaps, should be looked at first.
3. Geography.
To be successful, a franchise will require you to be physically present at the unit. This must be taken into account when choosing a city or an area where your unit will be located.
4. Franchise rating.
It's a good idea to research the various rankings to identify the most successful, effective franchise for you.
5. Compare several similar options.
It will be great if you choose several options that meet similar criteria, and at the final stage compare them in order to make the most optimal choice for yourself.
The human factor will play a significant role at this stage. After all, a franchisor is a party with which you will have to interact constantly.
6. Communicate with existing franchisees.
It will be extremely useful to communicate with existing franchisees. From them you can get actual feedback and form a more real picture.
All these simple moments will help you choose the best option.
Everything is possible - the choice is yours!
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Can you start your own business using the advantages and experience of the promoted brand? Yes, you can. Such opportunities can be provided by franchising. What is franchising? How does it work? What are its pros and cons? How to choose the right franchise for yourself?
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