Franchising
Definition:
A form of business organization in which a
firm, which already has a successful
product or service (the franchisor) enters
into a continuing contractual relationship
with other businesses (franchisee)
operating under the franchisor's trade
name and usually with the franchisor's
guidance, in exchange for a fee.
Two Parties :
 Franchisee
An entrepreneur whose power is limited by a contractual
agreement with a franchisor
 Franchisor
The party in the franchise contract that specifies the
methods to be followed and the terms to be met by the
other party
Authority and Control..
Control is with the parental company
(Franchisor).
The Franchisor have the Authority to
cancel the contract of a franchisee
whenever they want.
Growth of Franchising
Franchising originated after
the First World War with
the development of petrol
stations and motor vehicle
dealerships. Today there
are many examples of franchising,
and it is particularly prominent in the
food, service and retail industries.
Continued……
Singer Sewing Machine – first franchise
(mid-19th century)
Automobile (e.g. Ford)
Petroleum products (e.g. Shell)
Soft drinks (e.g. Coca Cola)
Food and restaurants (e.g. McDonald’s,
Starbucks)
Reasons for franchising …..
Home markets saturated – attractive
opportunities overseas
Relaxation of regulations in most countries
Expansion of international trade
Exposure to international media
The 20 Fastest-Growing Franchises 1.
Subway:
2.
McDonalds:
3.
Liberty Tax Service:
4.
Sonic Drive-In Restaurants:
5.
Inter Continental Hotels:
6.
Ace Hardware:Home improvement store
7.
Pizza Hut:
8.
Circle K:
9.
Papa John’s Intl:
Submarine sandwiches & salads
Hamburgers, chicken, salads
Income-tax preparation
Pizza, pasta, wings
Convenience store
Pizza
USA (44 franchises)
11.
Jiffy Lube Intl:
12.
Instant Tax Service:
13.
Baskin-Robbins USA:
14.
KFC Corp:
Chicken
15.
Jani-King:
Commercial cleaning
16.
Dairy Queen:
17.
Super 8:
18.
Arby’s:
19.
Jan-Pro:
20.
Taco Bell:
Fast oil change
Ice cream
Hotels
Sandwiches
Commercial cleaning
Quick-service Mexican
Top 12 Low-Cost Franchises - 2010
 H & R Block
Tax preparation and electronic filing
$26,427 - $84,094
 Jani-King Commercial cleaning $11,400 - $35,050
 Jan-Pro Intl Commercial cleaning $3,145 - $50,405
 Kumon Math Centers Supplemental education $32,958 - $131,070
 Stratus Building Solutions Commercial cleaning $3,450 -$57,750
 Jazzercise Inc Dance fitness classes $2,980 - $75,500
 Instant Tax Service Retail tax preparation $39,000 - $89,000
 Vanguard Cleaning Commercial cleaning $8,125 - $38,100
 ServiceMaster Clean Disaster cleaning $20,926 - $132,623
 Bonus Building Care Commercial cleaning $9,000 - $15,000
 Merry Maids Residential cleaning $24,750 - $59,450
 Anago Cleaning Systems Commercial cleaning $8,543 -$55,306
Categories of Franchising
Four main categories:
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
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Product and trade name franchises
Manufacturing and production franchises
Business format or system franchises
Management franchising
1.Product and trade name
Franchises
Product and trade name franchises are
arrangements where franchisees are granted
the right to distribute a manufacturer's product
within a specified territory or at a particular
location, using the manufacturer's trade mark or
trade name, in exchange for fees or royalties.
Petrol stations are a prime example of this.
2.Manufacturing and production
Franchises
A process or manufacturing franchise is an
arrangement where a franchisor provides
an essential ingredient or know-how to a
processor or manufacturer. Franchises of
this nature are common, for instance, in
the soft-drink industry.
Examples of famous Manufacturing and
production franchises
2.Manufacturing and production franchises
Example:
Produces the syrup
Sells the syrup
FRANCHISEE
Produces the final
drink
Retail Stores
Restaurants &
F&B Outlets
Vending
Machine
Operators
3.Business format or system
Franchises
Business format or system franchises add
an extra layer, including a business plan,
management system, location,
appearance, image, and quality of goods
and services.
Famous Examples
3.BUSINESS FORMAT FRANCHISING
outlet in
Sale, Australia
outlet in
Marseille, France
4.Management Franchising
A form of service agreement.
The franchisor provides the management
expertise, format and procedure for
conducting the business.
Famous Examples
An Attractive Franchise Opportunity Includes:
 Registered trademarks
 Successful prototype stores with a track record of
profitability and a positive reputation
 A business that can be systematized so that it can be
easily replicated.
 A product or service that can be successful in many
different geographic regions.
Advantages of franchising
The Franchisor:





Less capital required
Rapid expansion
Retaining control
Dedicated owner operators
Benchmarking
The Franchisee:
 A proven system




Start up assistance
Ongoing assistance
Joint advertising
Easier to obtain finance
Disadvantages of Franchising
The Franchisor:
 High operating cost
 Reduced income per unit
 Poor franchisee selection
The Franchisee:
 Bad decisions by the Franchisor
 Restrictions on the sale of the business
 Restrictions on expansion/growth
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