FRANCHISING
What is a Franchise?
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License to use an established brand
Use is very restrictive – many rules to be followed.
Provide a proven successful business format
Entrepreneurship for people that are not
particularly entrepreneurial.
Advantages of Franchising
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Buying a name/reputation
Established markets
Technical/management assistance
Standardized procedures
Quality standards
Selection of location
Facility design
Quicker cash flow
Disadvantages of franchising
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Loss of independence
High initial fees
High royalties and advertising allowances
Contractual restrictions
Inapplicable advertising
Termination clauses
Not receiving promised help
Unsuitable products
Lack of competitive advantage
The Franchisee’s Perspective
Things to Look For
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Proven operating location
Credible top management
Skilled field support staff
A trade identity
A proprietary operations manual
Effective training programs
Disclosure and offering documents
Plans for advertising, marketing, PR and promotion
A communications system
Sufficient capital
Franchising Agreements
Issue
Questions to Resolve
Franchise fee
Amount? One time? Per unit?
RoyaltiesAmount? Percentage of net or gross? Sliding scale?
Quality control
Quality specs? Monitoring practices? Rewards? Sanctions?
Advertising
Fee? Local budget? National? Intensity? Messages?
Offerings
Product line? Product mix? Requirements? Alternatives?
Equipment
Required? Additional? Financing?
Location
Site selection requirements? Franchisor aid? Financing?
Operations
Signs? Hours? Maintenance? Décor? Personnel policies?
Reporting
Types? Frequency? Auditing? Sanctions?
Disputes
Resolution methods? Equity of resolution process?
Termination
Timing? Causes? Sanctions? Recourse?
Franchisee Guidelines
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Perform a self-evaluation
Investigate the franchisor
Study the industry and competition
Study the Uniform Franchise Offering Circular
Investigate the franchisor’s disclosure
Know your legal rights and retain counsel
The Franchisor’s Perspective
Advantages
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Faster growth
Lower capital requirements
Motivation – franchisors are owners of the franchise
Control of locations
Revenue stream – franchise fees/royalties
The Franchisor’s Perspective
Disadvantages
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Reduced control
Profit sharing
Greater commitment to operating support
Problem franchisees???
TYPES OF FRANCHISE
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3 main types of franchise:
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Product distribution franchise;
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Business format franchise; and
Management franchise.
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PRODUCT DISTRIBUTION
FRANCHISES
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A product distribution franchise model is very
much like a supplier-dealer relationship.
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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.
PRODUCT DISTRIBUTION
FRANCHISES
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Examples of famous product distribution franchise:
PRODUCT DISTRIBUTION
FRANCHISES
Produces the
syrup concentrate
Sells the syrup
concentrate
FRANCHISEE
Produces the final
drink
Retail Stores
Restaurants & F&B
Outlets
Vending Machine
Operators
BUSINESS FORMAT
FRANCHISING
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In a business format franchise, the integration of
the business is more complete.
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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.
Famous Examples
BUSINESS FORMAT
FRANCHISING -
outlet in
Sale, Australia
outlet in
Marseille, France
MANAGEMENT
FRANCHISE
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A form of service agreement.
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The franchisee provides the management
expertise,
format
and/or
procedure
for
conducting the business.
Famous Examples
Why is franchising important to
SMEs?
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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
PHILIPPINE FRANCHISE ASSOCIATION
Franchising
Running your own business
by duplicating the success
formula of the franchisor
You are in a business for yourself,
but not by yourself. The franchisor is
always there to help.
Franchise Success Rate VS
Traditional Retail
100
Franchise
90%
50
100
50
0%
% 0
1
2
3
4
5
Years
6
Traditional
7
Retail
8
925%
10
Franchise Growth in the Philippines
Foreign VS Local
2003 FOREIGN
LOCAL
330 (44%)
420 (56%)
750+
1999 FOREIGN 306 (60%)
508
LOCAL 202 (40%)
1995 FOREIGN 47 (43%) PFA Founding
LOCAL
1980 45-50
1970 15-20
64 (57%)
Year
111
Ratio of Franchisors
Food VS Non-Food
Food
41%
Non food
40%
46.8%
48
70% %
52%
30%
1995 1996
franchises
59%
47%
60%
53.2%
54%
405
franchises
53%
1997 1998
46%
345
2000
2001
2003
The Philippine Franchise
Association
 Composed of 150 members
[from the industry leaders such
as McDonald’s, Pizza Hut, 7eleven, Jollibee, Netopia,
Caltex, STI, Francorp]
 Member of Asia Pacific
Franchise Confederation,
World Franchise Council
 Recognized by
the International
Franchise
Association
The Philippine Franchise
Association
 PLAYED a crucial role in the
growth of Philippine
franchising
 Aims to make the
Philippines the “Franchise
Hub of Asia”
The Philippine Franchise
Association
Franchise
Our key activities/events
Franchise
Excellence
Awards
REGIONAL
FRANCHISE
SHOWS
Certified
Franchise
Executive
Program
Expos in UK,
US, China,
Indonesia, etc
Networking
with the
International
community
ANNUAL
FRANCHISE
CONFERENCE
AND EXPO
SMALL SCALE: SME Development
• Putting up of incubation
centers during franchise
shows
• Creation of new generation
of entrepreneurs thru
seminars, training
- how to franchise your
business
- how to acquire a franchise,
etc.
MEDIUM SCALE: Nationwide Development
Expand existing
franchise in the
Philippines into
nationwide
network of at
least 100 units
LARGE SCALE: International Promotion
Franchising to become top $ earner
• Export of top Philippine franchisors
Food & Non-Food
Local franchisors have penetrated the US, and Asia
but has yet to conquer the European market