franchise know-how and the art of reproduction franchise know-how & the art of reproduction...

FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION

Franchise Know-how&

The Art of ReproductionRamon Vinay

President,Francorp International

FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE 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

• 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.

Partial client list

International Middle East

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

The players in franchising

Franchisor

Franchisees

Franchisor

Franchisees

Customers

The players in franchising• Franchise agreement• Trademark license• Training/Ops. Manuals• Operational support• Marketing• Procurement• Other services

Franchisor

Franchisees

Customers

The four generations in franchising

1. Imported foreign franchises2. 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

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 +

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

• 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.

The 4 major problems:

• 1.- Financial resources• 2.- Staffing• 3.- Competition• 4.- TimingThe solution…

OPMOther People’s Money

Motivations to buy a franchise

• Permanent–Profits–Status

Motivations

• Variable–Speculative investment–Expand investment portfolio–Patrimony–Occupational therapy

Motivation

•Incidental–Productive use of candidate’s land

Creating a franchise program of the

highest professional level

in 5 easy steps

Franchise structure

Franchise

Franchise structure

Franchise

Strategic

Franchise structure

Franchise

Strategic Legal

Franchise structure

Franchise

Strategic Legal

Operational

Franchise structure

Franchise

Strategic Legal

Marketing Operational

Certainty: to ensure success

as much as possible

Define your goals

•Trans-generational•Exit strategy•Market domination•Profits

Certainty

•Strategic•Legal•Operational•Marketing

Strategic planning

Every single decision is

made in advance

Every decision should have a financial,

organizational, logistical and political

evaluation

Legal documentation

Everything you commit to -and everything your franchisees commit to-

is feasible and profitable

Operations Manuals

•Quality assurance•Operational efficiency•Operational effectiveness

Marketing campaign

• The RWA factor–Ready, willing and able

• Qualified candidates vs simply interested parties

Step 1:Franchisability

• 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?

Step 2:Strategic Planning

Strategic planning

• Vision, Goals and objectives• Competition–Other franchises- investment opportunities

• Franchise formats• Franchisee profile• Costs• Services

• Franchise market–Benchmarking

» Initial fee, Initial investment, Agreement term, services

• Consumer market–Know your business–Know your customer–Marketing / advertising

• Formats to grant franchises1. Joint venture 2. License3. Master4. Regional5. Individual6. Multi- unit7. Area development8. Conversion9. Retro- franchise10.Co-branding

• Franchisee profile –Age–Resources –Shares business vision–Owner- operator / absentee–Investor–Attitude

• 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?

• Revenue sources protection program–Operational– Site selection criteria– Strategic

• Business sources protection– Store– Telephone numbers– @- commerce– Client data base

• Territory–Boundaries–Criteria• Population• Distance• Socio – economic level• Level of sales

–Stationary vs pro-active

• System growth –Geographical definition• Business characteristics

–Computers vs food

• Marketing needs–Regional/ national

• Service capabilities• Distance, staffing, communications, costs

• Supply–Capabilities/limitations–Critical vs non-critical

• Secondary–Commissary (virtual,

administrative)–Time, price, quality

• Designated suppliers• Authorized suppliers

• Pricing, promotions, discounts–Criteria–Design–Costing–Participation • Institutional• Opportunistic• Local/ regional

• Services to franchisees–Business plan –Site selection–Unit development• Remodeling

–Soft / grand opening–Marketing–Training

• Operations Manual• Administration Manual• Chart of accounts• Human Resources manual• Operational /administrative

software

• Training– Initial –Permanent –Permanent assistance–Centralized marketing–Other• Staffing to serve the system

• Franchise fee–Recovery of investment in franchise program•Floor value•Ceiling value•Perceived value

• Royalties–Percentage / flat fee–Gross sales / net sales– Incentives • (higher revenue-lower rate)

–Proformas• Expenses• Re- investment

• Advertising fee–Regional–Local–National•Media•Budget•Creative material

• Committees–Operations–Marketing–Public Relations•Cement relations•Consolidate strength•Provide accurate feedback

• Costs–Franchise program structuring–Operations Manuals–Software–Pre- operational assistance–Soft / grand opening assistance–Permanent assistance–Commissary

“X” factor

Royalties

Expenses

“X” factor

Royalties

Expenses

Your strategic decisions are

not negotiable!!

• Absence of strategic planning–Anarchy / damage to prestige–Rushed decisions–Wrong franchisees–Lack of consistency in:• Territories• Fees• Controls

Franchise structure

Franchise

Franchise structure

Franchise

Strategic

Step 3:Legal

documentation

• Franchise agreement• Disclosure documents• Loan agreements• Rental/leasing agreements– (equipment, site, others)

• Supply agreements• Others

• The franchise agreement–Not negotiable (certainty)

–Based on strategic decisions–Terms–Renewal (conditions- period – cost)

–Prevent litigation–Eliminate conflicts–Sales tool

• 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

Strategic Legal

Step 4:Operations

Manuals

• 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

• 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

• Virtues–Style•Understanding / Acceptance /Trust

–Scope• ... To the last nut and bolt

• O/M Outline (partial)

– Site selection– Remodeling– Pre- opening– Administration–Marketing– HR–Maintenance

– Advertising– Security– Recipes–Merchandising– Training– Customer service– Others

• 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

• Training programs– Initial training• Unit manager• Staff

–Permanent training• Frequency• Purpose

–Training to replacement staff

• Training–Costs–Training facilities–Materials–Diplomas / pins

• Absence of training programs–Anarchy–Low productivity–High cost or corrective training–High turn around–Risk of breach of agreement

Franchise

Strategic Legal

Operational

Step 5:Franchise

marketing and sales

• Franchise marketing–Selling clothing vs selling boutiques–Franchise marketing is highly sophisticated

• The only goal of a franchise marketing program is to generate :

ready, willing and able candidates

• 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”

• Marketing formula– Product = franchise–Market = franchise market– Competition = other franchises*

• Motivations• Existing• Induced

*Competition will be any other investment opportunities in the open market

•Marketing materials–Brochures, FAQ’s, Model P&L’s–Ads–Videos–Seminars / trade shows–Direct mail–Internet

• 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 sales program–Purpose:•To turn RWA candidates into franchisees

–Requires effective strategy and execution

• The franchise sales process–Reffer to the Strategic Planning–Ensure operational profile–Determine motivations–Consider influences• Operator• Spouse• Others

–Determine psychological profile

• Process–Customize presentations–Ensure step by step understanding–Visits to operational units–Visits to headquarters–Empathy with the organization

• Process–Franchises are not sold pounding on the table…–Your job is to help the candidate to achieve his goal of buying the franchise

• Absence of a professional sales program–Lack or organized activities–Disorient the candidate–Unstable process–Sell to non- qualified prospects–Lose RWA candidates

Franchise structure

Franchise

Strategic Legal

Marketing Operational

Conclusions

• 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

Questions?

• Thank you very much for your time, your attention and your patience.

• ramonvinay@francorpmexico.com

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