franchising. what is a franchise? license to use an established brand use is very restrictive –...
TRANSCRIPT
What is a Franchise?
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
Buying a name/reputation Established markets Technical/management assistance Standardized procedures Quality standards Selection of location Facility design Quicker cash flow
Disadvantages of franchising
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 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?
Royalties Amount? 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
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 PerspectiveAdvantages
Faster growth Lower capital requirements Motivation – franchisors are owners of
the franchise Control of locations Revenue stream – franchise
fees/royalties
The Franchisor’s PerspectiveDisadvantages
Reduced control Profit sharing Greater commitment to operating
support Problem franchisees???
TYPES OF FRANCHISE
3 main types of franchise:
Product distribution franchise; Business format franchise; and Management franchise.
A product distribution franchise model is very much like a supplier-dealer relationship.
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
Produces the syrup concentrate
Sells the syrup concentrate
FRANCHISEE Produces the final drink
Retail Stores
Restaurants & F&B Outlets
Vending Machine Operators
PRODUCT DISTRIBUTION FRANCHISES
BUSINESS FORMAT FRANCHISING
In a business format franchise, the integration of the business is more complete.
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.
MANAGEMENT FRANCHISE
A form of service agreement.
The franchisee provides the management expertise, format and/or procedure for conducting the business.
Why is franchising important to SMEs?
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
Franchising
You are in a business for yourself, but not by yourself. The franchisor is always there to help.
Running your own business by duplicating the success formula of the franchisor
Franchise Success Rate VS Traditional Retail
100
0
50
100
12
34
56
78
910
50
0
Franchise90%
Franchise90%
TraditionalRetail
25%
TraditionalRetail
25%Years
%%
47 (43%)64 (57%)
FOREIGN
LOCALLOCAL
PFA Founding PFA Founding YearYear
2003
1999
1995
19801970
2003
1999
1995
19801970
306 (60%)202 (40%)202 (40%)
FOREIGNLOCALLOCAL
508508
330 (44%)
420 (56%)420 (56%)
FOREIGNLOCALLOCAL 750+750+
111111
45-50
15-20
Franchise Growth in the Philippines
Foreign VS Local
19951995 1996 1997 1998 2000 2001 2003 1996 1997 1998 2000 2001 2003
70%70%
30%30%
47%47%
53%53%
46.8%46.8%
53.2%53.2%
40%40%
60%60%
41%41%
59%59%
46%46%
54%54%
345345
franchisesfranchises
405405
franchisesfranchises4848%%52%52%
FoodFood
Non foodNon food
Ratio of FranchisorsFood VS Non-Food
The Philippine Franchise Association
Composed of 150 members [from the industry leaders such as McDonald’s, Pizza Hut, 7- eleven, Jollibee, Netopia, Caltex, STI, Francorp] Member of Asia Pacific
Franchise Confederation, World Franchise Council
Recognized by the International Franchise Association
The Philippine Franchise Association
Aims to make the Philippines the “Franchise Hub of Asia”
PLAYED a crucial role in the growth of Philippine franchising
The Philippine Franchise Association
Networking with the
International community
Franchise Excellence
AwardsREGIONAL FRANCHISE
SHOWS
ANNUAL FRANCHISE
CONFERENCE AND EXPO
Our key activities/events
Certified Franchise Executive Program
Franchise Expos in UK,
US, China, Indonesia, etc
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 $ earnerFranchising to become top $ earner
• Export of top Philippine franchisors• Export of top Philippine franchisors
Local franchisors have penetrated the US, and Asia but has yet to conquer the European market
Food & Non-FoodFood & Non-Food