Franchise Know-how
&
The Art of Reproduction
Ramon Vinay
President,
Francorp International
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Francorp’s credentials
• Created in 1976
• Serving 40 countries
• Developer of more than 4 thousand
franchise networks
• Consultant to more than 200 of the
world’s top 500 franchises
• Consultant to AMPM minimarkets,
number 2 among the world’s top 500
franchises for 2011, over McDonald’s*
•
*Entrepreneur 500 Franchises
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Francorp Middle East:
– Operating since 2006
• Dubai, Kuwait, Kingdom of Saudi Arabia,
Egypt, Jordan, Syria,Turkey, United Arab
Emirates, Lebanon.
– Over 100 franchise networks
developed in the region.
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Partial client list
International
Middle East
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
What is a franchise?
• A license to exploit a business model
and trademark, supported by the
transfer of know-how on the run the
business efficiently, based on the
franchisor’s experience, accompanied
with:
– Policies and procedures
– Permanent technical support and
supervision
– Leadership and full commitment to serve the
system
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The players in franchising
Franchisor
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The players in franchising
Franchisor
Franchisees
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The players in franchising
Franchisor
Franchisees
Customers
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The players in franchising
Franchisor
•Franchise agreement
•Trademark license
•Training/Ops. Manuals
•Operational support
•Marketing
•Procurement
•Other services
Franchisees
Customers
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The four generations in franchising
1. Imported foreign franchises
2. Local entrepreneurs start
franchising in the same types of
business
3. Local entrepreneurs start
franchising in other types of
business
4. Local entrepreneurs start
exporting local franchise
concepts
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Granting of a franchise
• The franchisee pays an Initial
Franchise Fee
• The franchisee pays a permanent
fee (royalty) to the franchisor on a
weekly basis
– Percentage of gross sales or fixed amount (or
both)
– A fee to contribute to a national marketing fund
• The franchisor provides know-how
and permanent advice and services
– Advertising –Training –Procurement +
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Why do businesses franchise?
• Capitalize on existing network
• Capitalize on production facilities/
-Acquire captive outlets
• Enter stock market
• Manage branding vs bricks
• Exploit sales opportunities
• Add value to trade name
• Internationalize
• Religion
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
-
• Franchising solves the 4 major
problems experienced by every
single business, from a modest
stand in a sidewalk selling falafel,
to the monster businesses with
thousands of outlets and
employees.
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The 4 major problems:
• 1.- Financial resources
• 2.- Staffing
• 3.- Competition
• 4.- Timing
The solution…
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Other People’s Money
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Motivations to buy a franchise
• Permanent
–Profits
–Status
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Motivations
• Variable
–Speculative investment
–Expand investment portfolio
–Patrimony
–Occupational therapy
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Motivation
• Incidental
–Productive use of
candidate’s land
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Creating a franchise
program of the
highest professional
level in 5 easy steps
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Strategic
Franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Strategic
Legal
Franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Strategic
Legal
Franchise
Operational
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Strategic
Legal
Franchise
Marketing
Operational
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Certainty:
to ensure success
as much as possible
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Define your goals
• Trans-generational
• Exit strategy
• Market domination
• Profits
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Certainty
• Strategic
• Legal
• Operational
• Marketing
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Strategic planning
Every single
decision is made
in advance
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Every decision should
have a financial,
organizational,
logistical and political
evaluation
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Legal documentation
Everything you commit to
-and everything your
franchisees commit to- is
feasible and profitable
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Operations Manuals
• Quality assurance
• Operational efficiency
• Operational
effectiveness
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Marketing campaign
• The RWA factor
–Ready, willing and able
• Qualified candidates vs
simply interested parties
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 1:
Franchisability
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Determine franchisability
– Financially viable?
• Both parties should make money
• Reproducibility
• Every single angle of the business
– Know-how transfer and services to
the system
– How competitive is your franchise
offer in the open market?
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 2:
Strategic
Planning
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Strategic planning
• Vision, Goals and objectives
• Competition
– Other franchises- investment
opportunities
•
•
•
•
Franchise formats
Franchisee profile
Costs
Services
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchise market
– Benchmarking
» Initial fee, Initial investment, Agreement
term, services
• Consumer market
– Know your business
– Know your customer
– Marketing / advertising
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Formats to grant franchises
1. Joint venture
2. License
3. Master
4. Regional
5. Individual
6. Multi- unit
7. Area development
8. Conversion
9. Retro- franchise
10.Co-branding
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchisee profile
–Age
–Resources
–Shares business vision
–Owner- operator / absentee
–Investor
–Attitude
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Revenue sources protection
program
–Is the permanence of our
trade name in the POS
critical to our success?
–If so, we should protect that
permanence over and above
all other considerations?
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Revenue sources protection
program
– Operational
– Site selection criteria
– Strategic
• Business sources protection
–
–
–
–
Store
Telephone numbers
@- commerce
Client data base
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Territory
– Boundaries
– Criteria
• Population
• Distance
• Socio – economic level
• Level of sales
– Stationary vs pro-active
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• System growth
– Geographical definition
• Business characteristics
– Computers vs food
• Marketing needs
– Regional/ national
• Service capabilities
• Distance, staffing,
communications, costs
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Supply
– Capabilities/limitations
– Critical vs non-critical
• Secondary
– Commissary (virtual,
administrative)
– Time, price, quality
• Designated suppliers
• Authorized suppliers
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Pricing, promotions, discounts
– Criteria
– Design
– Costing
– Participation
• Institutional
• Opportunistic
• Local/ regional
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Services to franchisees
– Business plan
– Site selection
– Unit development
• Remodeling
– Soft / grand opening
– Marketing
– Training
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
•
•
•
•
•
Operations Manual
Administration Manual
Chart of accounts
Human Resources manual
Operational /administrative
software
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Training
– Initial
– Permanent
– Permanent assistance
– Centralized marketing
– Other
• Staffing to serve the system
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchise fee
–Recovery of investment in
franchise program
• Floor value
• Ceiling value
• Perceived value
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Royalties
– Percentage / flat fee
– Gross sales / net sales
– Incentives
• (higher revenue-lower rate)
– Proformas
• Expenses
• Re- investment
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Advertising fee
–Regional
–Local
–National
• Media
• Budget
• Creative material
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Committees
–Operations
–Marketing
–Public Relations
• Cement relations
• Consolidate strength
• Provide accurate feedback
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Costs
– Franchise program structuring
– Operations Manuals
– Software
– Pre- operational assistance
– Soft / grand opening assistance
– Permanent assistance
– Commissary
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
“X” factor
Royalties
$
Expenses
T
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
“X” factor
Royalties
$
Expenses
LOSS
T
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Your strategic
decisions are
not negotiable!!
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Absence of strategic planning
– Anarchy / damage to prestige
– Rushed decisions
– Wrong franchisees
– Lack of consistency in:
• Territories
• Fees
• Controls
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Strategic
Franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 3:
Legal
documentation
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
•
•
•
•
Franchise agreement
Disclosure documents
Loan agreements
Rental/leasing agreements
– (equipment, site, others)
• Supply agreements
• Others
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• The franchise agreement
– Not negotiable (certainty)
– Based on strategic decisions
– Terms
– Renewal (conditions- period – cost)
– Prevent litigation
– Eliminate conflicts
– Sales tool
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Legal documentation with
no strategic base
– Lack of protection
– High risk of desertion
– High risk of “system piracy”
– Risk of franchisor breaching his
own franchisee agreement
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Strategic
Legal
Franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 4:
Operations
Manuals
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• The Operations Manual
– More than an attachment to the
franchise agreement: a clause
• Same strategic and semantic
basis of franchise agreement
• Operations guide
• Audit guide
• Textbook for training courses
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Virtues of the Operations Manual
– High efficiency in transferring
know-how
– Quality assurance
– The franchisees must be able to
carry 99% of the pre-operational
functions without the direct
involvement of the franchisor
– No gaps – no traps
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Virtues
–Style
• Understanding / Acceptance
/Trust
–Scope
• ... To the last nut and bolt
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• O/M Outline
(partial)
– Site selection
– Remodeling
– Pre- opening
– Administration
– Marketing
– HR
– Maintenance
– Advertising
– Security
– Recipes
– Merchandising
– Training
– Customer
service
– Others
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Absence of an Operations Manual
– Anarchy
– Impossible to audit
– Lack of consistency
– Excessive training time
– Lack of control over initial
investments
– Risk of breaching your own franchise
agreement
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Training programs
– Initial training
• Unit manager
• Staff
– Permanent training
• Frequency
• Purpose
– Training to replacement staff
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Training
–Costs
–Training facilities
–Materials
–Diplomas / pins
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Absence of training
programs
– Anarchy
– Low productivity
– High cost or corrective training
– High turn around
– Risk of breach of agreement
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Strategic
Legal
Franchise
Operational
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 5:
Franchise
marketing
and sales
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchise marketing
–Selling clothing vs
selling boutiques
–Franchise marketing is
highly sophisticated
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• The only goal of a franchise
marketing program is to
generate :
ready, willing and
able candidates
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Provide all the information needed
to allow the interested parties to
decide to continue (or not) with
the intention to acquire the
franchise (become a RWA)
• “I have the money and I want to
invest it with you”
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Marketing formula
– Product
= franchise
– Market
= franchise market
– Competition = other franchises*
• Motivations
• Existing
• Induced
*Competition will be any other
investment opportunities in the
open market
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Marketing materials
–Brochures, FAQ’s, Model
P&L’s
–Ads
–Videos
–Seminars / trade shows
–Direct mail
–Internet
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Advantages of a
professional marketing plan
– Consistence between goals and
actions
– Optimize marketing investments
– Measure results
– Optimize the use of time
– Focus on RWA candidates
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchise sales program
–Purpose:
• To turn RWA candidates
into franchisees
–Requires effective
strategy and execution
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• The franchise sales process
– Reffer to the Strategic Planning
– Ensure operational profile
– Determine motivations
– Consider influences
• Operator
• Spouse
• Others
– Determine psychological profile
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Process
–Customize presentations
–Ensure step by step
understanding
–Visits to operational units
–Visits to headquarters
–Empathy with the
organization
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Process
–Franchises are not sold
pounding on the table…
–Your job is to help the
candidate to achieve his
goal of buying the franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Absence of a professional
sales program
– Lack or organized activities
– Disorient the candidate
– Unstable process
– Sell to non- qualified prospects
– Lose RWA candidates
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Strategic
Legal
Franchise
Marketing
Operational
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Conclusions
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Professional planning of your franchise
program will increase the chances of
success
• Professional planning of your franchise
program will protect your interests at
all times
• Professional planning of your franchise
program will allow for a healthy,
constructive, litigation-free relationship
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Questions?
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Thank you very much for your
time, your attention and your
patience.
• ramonvinay@francorpmexico.com
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION