Description
This ppt about explains what is frachising and different types of franchising.
Entrepreneurship Franchising
History of Franchising
- Contrary to popular belief, franchising was not invented in America - it first emerged in Britain in the Middle Ages when the Church paid a lump sum to the Government for the right to collect Taxes. - Next Came the Tied-House agreements between Brewers and Pubs in the 1700's. - Franchising impacted the U.S. when the Singer Sewing Machine Company initiated a manufacturerretailer distribution franchise system after the Civil War. - Modern day franchising started out as an exclusive licensing process by auto manufacturers to their distributors about 100 years ago. - Soft drink producers realised that shipping water was very expensive, so local franchising was started.
What is Franchising?
“A management whereby the manufacturer or sole distributor of trade marked product or services gives the exclusive rights of local distribution to independent retailers for their payment and conformance to standardized operating procedures.”
At least two levels of people are involved in the franchise system: 1. The Franchiser, who lends his trademark / trade name and a business system 2. Franchisee, who pays a royalty and often an initial fee for the right to do the business under the franchiser’s name and system Franchising generally represents an opportunity for an entrepreneur to start and expand the business.
Franchise Types
Product Franchising
Selling of the finished goods with just mere display of the goods, which facilitates easy accessibility of the product to the customer and the actual sales transaction, without any value addition. Process Franchising Outlets are granted to use the brand name and process of the franchiser. The recipe must be the same. The process and recipe are generally patented by the parent company.
Franchise Types Cont'd...
Business Format Franchising
Name, sale and method of doing the business are transferred with knowledge of conducting the outlet with effective follow up mechanism by the franchiser
Shifts in the Franchise Industry in USA
• Fast Food is one of the oldest categories in franchising ?There were 19 hamburger entries in 1988 but only 13 in 1980. ? Pizza grew from 26 to 35 ?Domino’s grew from 90 franchise and 69 company owned stores to 3065 and 1531 respectively. ?Mc Donald’s growth is due to franchising • The 80’s brought a variety of new industries: ?Photo finishing ?Video cassette and VCR rentals ?Instant printings,desktop publishing ?Business services – instant office, FAX etc. ?Computer retailing ?Automobile retailing ?And many more …………
Areas of Franchising
Apparel and Accessories Beauty & Health Business/Personnel Services Children's Products & Services Decorative Products Services Fast Food/Bakery Goods Hotels & Motels Pets Printing Services Real Estate Restaurants Security Systems Travel Related Services Automotive Building Products and services
Computer related Products and Services Education Related Services Frozen Desserts Maintenance Services Photographic Services Publishing Services Recreation Retail Business Services and many others……..
Advantages to the Franchisee
• Under franchising there are little chances of failure as compared to risk normally associated with start up business. Benefit and use of the business experience of others. Reduced expenditure on Advertising & promotion at a per unit level. Opportunity to start a proven business with limited capital. Franchiser available for assistance and guidance Cost savings when purchasing supplies through the franchiser Access to R& D & product development, efforts that the franchiser had invested in.
•
• • • •
•
Advantages to the Franchiser
• • • •
• • • • • • •
Quick expansion, with less Capital Investment Less Number of Employees Fast and well controlled distribution of its products Product and quality standards as per his specifications Limited Risk Factor Risk is spread Larger Market share in a short time Lean Organization Structure Ongoing Revenue from Royalties and Franchise Fee Integrated Public Image Growth
Disadvantages
Franchiser • Failure of the franchisee to operate franchise properly. • High Training efforts Franchisee •Revenue outflow •Limited freedom •Operating restrictions • Inability of the franchiser to provide promised services •Detailed and open financial records
• Difficult to maintain Quality
• Risk to reputation • Loss of Business secrecy
Ask Questions about…
• • • • • • • • • • • The Franchiser Company The Product or Service Earning Potential Location Territorial Rights Premises / Logos /Symbols Training and Assistance Controls Advertising and Promotion Investment and fees Funding
How the Franchiser is Paid
• • • • • • • • • Royalty Lump Sum Payment Share of Brand Advertising Higher Price of Key & Secret Materials Overcharging for Plant & Machinery Cost of Manual of Procedures Training Charges Soft-ware Licences Visit Fees
The Franchise Document
- Obviously, this is the single most important issue to deal with prior to paying the franchiser. Get advice! - Have your lawyer and accountant review the contract with you and ask many questions. - What is the duration and renewal rights? - Is there a renewal fee? - Any annual minimum material purchase requirement? - Are there any other costs or payments? - Is there a Royalty payment? Reasonable? - Is there a sales quota? Is it a basis of default? - What are the termination clauses? - Do you have the right to resell, renew or reassign the franchise? Under what conditions?
More on the Document
- What are conditions to terminate the franchise? - Can you give the franchise to your family? When? - Do the franchise term and the building lease renew at the same time? Do you have rights to do both? - Has the franchiser the right to repurchase the franchise? When and at what price? - Do you have the right to all future innovations and new products offered by the franchiser? - How do you settle disputes? - Are you restricted to offer only the franchiser's products or services? - Do you have to take part in all promotions and special offers? Can you opt out? - There are many issues here and it is worth some real effort to make sure you are satisfied about everything
Legal Aspects of Franchise
• Take assistance of experienced lawyer in contract or franchise agreement Franchise Agreement contains all requirements and obligations of the franchisee like • Franchiser’s Obligation • Franchisee’s Obligation • Training • Advertising and Promotion • Territory Coverage • Renewable Terms • Financial Requirement • Schedule of Payment & Royalties to be paid • Termination of the Franchise
Protect Yourself
- Insist that the Franchiser holds your deposit in trust until your franchise outlet is open and operating. - there have been cases where the franchiser got into financial problems before the store opened and the franchise fee could not be recovered. - Don't sign anything in a hurry, complete due diligence, investigate and use your professionals: Banker , Lawyer , Accountant - Franchise businesses are the wave of the future for many types of enterprises. - They are very successful most of the time but like anything else, it is no guarantee against failure. - `Also, there are unscrupulous people and the “buyer beware” slogan should not be forgotten.
The Stages
A. Initial Period, heavy reliance on the franchiser for training, assistance. High degree of satisfaction. B. Familiarity with systems and methods. Franchiser has less daily involvement but still exerts control. C. Resentment of the control and having to pay royalty payments. Considers selling the franchise and opening their own independent business. D. Lowest level, great resentment against the franchiser. Feels that s/he has done it all on their own. May seek early termination of contract. E. Recognition of the importance of the franchiser's role in the success and reconciles his/her feelings. F. Settles down to a constant acceptable level of satisfaction. The relationship is now stable.
doc_276473111.ppt
This ppt about explains what is frachising and different types of franchising.
Entrepreneurship Franchising
History of Franchising
- Contrary to popular belief, franchising was not invented in America - it first emerged in Britain in the Middle Ages when the Church paid a lump sum to the Government for the right to collect Taxes. - Next Came the Tied-House agreements between Brewers and Pubs in the 1700's. - Franchising impacted the U.S. when the Singer Sewing Machine Company initiated a manufacturerretailer distribution franchise system after the Civil War. - Modern day franchising started out as an exclusive licensing process by auto manufacturers to their distributors about 100 years ago. - Soft drink producers realised that shipping water was very expensive, so local franchising was started.
What is Franchising?
“A management whereby the manufacturer or sole distributor of trade marked product or services gives the exclusive rights of local distribution to independent retailers for their payment and conformance to standardized operating procedures.”
At least two levels of people are involved in the franchise system: 1. The Franchiser, who lends his trademark / trade name and a business system 2. Franchisee, who pays a royalty and often an initial fee for the right to do the business under the franchiser’s name and system Franchising generally represents an opportunity for an entrepreneur to start and expand the business.
Franchise Types
Product Franchising
Selling of the finished goods with just mere display of the goods, which facilitates easy accessibility of the product to the customer and the actual sales transaction, without any value addition. Process Franchising Outlets are granted to use the brand name and process of the franchiser. The recipe must be the same. The process and recipe are generally patented by the parent company.
Franchise Types Cont'd...
Business Format Franchising
Name, sale and method of doing the business are transferred with knowledge of conducting the outlet with effective follow up mechanism by the franchiser
Shifts in the Franchise Industry in USA
• Fast Food is one of the oldest categories in franchising ?There were 19 hamburger entries in 1988 but only 13 in 1980. ? Pizza grew from 26 to 35 ?Domino’s grew from 90 franchise and 69 company owned stores to 3065 and 1531 respectively. ?Mc Donald’s growth is due to franchising • The 80’s brought a variety of new industries: ?Photo finishing ?Video cassette and VCR rentals ?Instant printings,desktop publishing ?Business services – instant office, FAX etc. ?Computer retailing ?Automobile retailing ?And many more …………
Areas of Franchising
Apparel and Accessories Beauty & Health Business/Personnel Services Children's Products & Services Decorative Products Services Fast Food/Bakery Goods Hotels & Motels Pets Printing Services Real Estate Restaurants Security Systems Travel Related Services Automotive Building Products and services
Computer related Products and Services Education Related Services Frozen Desserts Maintenance Services Photographic Services Publishing Services Recreation Retail Business Services and many others……..
Advantages to the Franchisee
• Under franchising there are little chances of failure as compared to risk normally associated with start up business. Benefit and use of the business experience of others. Reduced expenditure on Advertising & promotion at a per unit level. Opportunity to start a proven business with limited capital. Franchiser available for assistance and guidance Cost savings when purchasing supplies through the franchiser Access to R& D & product development, efforts that the franchiser had invested in.
•
• • • •
•
Advantages to the Franchiser
• • • •
• • • • • • •
Quick expansion, with less Capital Investment Less Number of Employees Fast and well controlled distribution of its products Product and quality standards as per his specifications Limited Risk Factor Risk is spread Larger Market share in a short time Lean Organization Structure Ongoing Revenue from Royalties and Franchise Fee Integrated Public Image Growth
Disadvantages
Franchiser • Failure of the franchisee to operate franchise properly. • High Training efforts Franchisee •Revenue outflow •Limited freedom •Operating restrictions • Inability of the franchiser to provide promised services •Detailed and open financial records
• Difficult to maintain Quality
• Risk to reputation • Loss of Business secrecy
Ask Questions about…
• • • • • • • • • • • The Franchiser Company The Product or Service Earning Potential Location Territorial Rights Premises / Logos /Symbols Training and Assistance Controls Advertising and Promotion Investment and fees Funding
How the Franchiser is Paid
• • • • • • • • • Royalty Lump Sum Payment Share of Brand Advertising Higher Price of Key & Secret Materials Overcharging for Plant & Machinery Cost of Manual of Procedures Training Charges Soft-ware Licences Visit Fees
The Franchise Document
- Obviously, this is the single most important issue to deal with prior to paying the franchiser. Get advice! - Have your lawyer and accountant review the contract with you and ask many questions. - What is the duration and renewal rights? - Is there a renewal fee? - Any annual minimum material purchase requirement? - Are there any other costs or payments? - Is there a Royalty payment? Reasonable? - Is there a sales quota? Is it a basis of default? - What are the termination clauses? - Do you have the right to resell, renew or reassign the franchise? Under what conditions?
More on the Document
- What are conditions to terminate the franchise? - Can you give the franchise to your family? When? - Do the franchise term and the building lease renew at the same time? Do you have rights to do both? - Has the franchiser the right to repurchase the franchise? When and at what price? - Do you have the right to all future innovations and new products offered by the franchiser? - How do you settle disputes? - Are you restricted to offer only the franchiser's products or services? - Do you have to take part in all promotions and special offers? Can you opt out? - There are many issues here and it is worth some real effort to make sure you are satisfied about everything
Legal Aspects of Franchise
• Take assistance of experienced lawyer in contract or franchise agreement Franchise Agreement contains all requirements and obligations of the franchisee like • Franchiser’s Obligation • Franchisee’s Obligation • Training • Advertising and Promotion • Territory Coverage • Renewable Terms • Financial Requirement • Schedule of Payment & Royalties to be paid • Termination of the Franchise
Protect Yourself
- Insist that the Franchiser holds your deposit in trust until your franchise outlet is open and operating. - there have been cases where the franchiser got into financial problems before the store opened and the franchise fee could not be recovered. - Don't sign anything in a hurry, complete due diligence, investigate and use your professionals: Banker , Lawyer , Accountant - Franchise businesses are the wave of the future for many types of enterprises. - They are very successful most of the time but like anything else, it is no guarantee against failure. - `Also, there are unscrupulous people and the “buyer beware” slogan should not be forgotten.
The Stages
A. Initial Period, heavy reliance on the franchiser for training, assistance. High degree of satisfaction. B. Familiarity with systems and methods. Franchiser has less daily involvement but still exerts control. C. Resentment of the control and having to pay royalty payments. Considers selling the franchise and opening their own independent business. D. Lowest level, great resentment against the franchiser. Feels that s/he has done it all on their own. May seek early termination of contract. E. Recognition of the importance of the franchiser's role in the success and reconciles his/her feelings. F. Settles down to a constant acceptable level of satisfaction. The relationship is now stable.
doc_276473111.ppt