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October 16, 2013 1
October 16, 2013 2
Session 1Franchising 101 – Building The Strategy
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Good morning India!Mike AdamsManaging DirectorFranchise Asia Pacific Pty LtdSydney, Australia
• 30yr franchise veteran• Developing brands & people throughout Asia Pacific• CEO/BoD & Asia experience India, SEA & China • Forte for establishing multi-outlet distribution channels• Franchise know-how across multiple industries &
business formats
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Why India – market drivers• BRIC+2 countries = allegedly 40% world’s growth during next decade
• Phenomena driven by “Emerging Middle Class” which has…– Disposable income -> greater freedom of choice– Desire to live like the West– Changing values / eroding class structures
• India = 1.2B pop & narrower band of wealth spread than some• Colonial heritage left infrastructure, bureaucracy & English language• Largest English speaking nation in the world• More western centric business psyche than China• World’s 4th largest economy
• Allegedly 100M middle class 2009 -> projecting 580M by 2025?• India is potentially the largest BRIC market globally?
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What is a franchise?An agreement (license) between two parties, where the…
• Franchisor grants the franchisee a license (system) to market a• Product or service, using• Brand / trademark• Operating methods of a proven business format
• In exchange for a recurring payment (royalty)• For a set period of time (term), and • Provides support to the franchisee for…
• Initial start-up• Ongoing
• It is in effect, “leasing” a business!
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Corporate v. franchise terminology
Franchisor
Master Franchisee
Unit / Sub Franchisee
Head Office
Regional Office
Business Unit / Store
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For franchisor - why franchise?Why franchise my business…
• Leverage resources – access to capital & other resources for growth• Growth via an outsourced sales & distribution channel• ROI – return on investment• Leverage the franchisee’s local market knowledge domestic & contacts• Entrepreneurial management style - more motivated to maximize sales &
profits than salaried staff • Local knowledge an important source of new marketing & product
concepts
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Is my business ‘franchisability’?“Franchisability” of your business depends upon…
• Franchisor credibility • Market / product differentiation • Knowledge transferability • Market adaptability • Proven / successful prototype• Documented systems • Franchise affordability • Franchise ROI • Market conditions & trends• Franchisor capital availability • Stakeholder relationship commitment• Strength of management team
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When to franchise?When & only when, you have developed….
• Market scalability & scope research• Proven & durable business format• Stand-a-lone (clone-able) business• Systematized the business• Documented business processes• Company track record
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Franchisor advantages The franchisor gets easier access to capital for rapid growth The franchisor leverages the franchisee’s knowledge of the
domestic market & regulations Franchisees are far more motivated to maximize sales and
profits than salaried branch managers. Franchisees are an important source of new marketing and
product concepts
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Sourcing franchisees• Greenfield franchisee start-up• Sell company outlets• Competitor conversion• Franchisee selection criteria & process• You “grant” a franchise, not sell
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Franchisee advantages
• Proven business model - increased chances of business success• Independence to operate business - in business for yourself, but not
by yourself• Established brand recognition & acceptance • Access to pre-sold customer base which can take years to establish• Established methods & quality - proven product, service & methods• Access to bulk purchasing• Consumer branding attraction for quality & consistency • Pre-opening support…
• site selection, design / construction, training, grand-opening program
• Ongoing support…• Training, advertising, operating procedures & assistance, ongoing support
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Franchisee’s disadvantages• Lack of independence – in business for yourself, but not by yourself• Must operate according to procedures & restrictions set by franchisor• Include products or services offered, pricing & territory. • Initial franchise fee (goodwill), plus ongoing royalties & advertising
contributions• Must balance restrictions & support with own ability / skills• Damaged, system-wide image can result if other franchisees
performing poorly, or franchisor runs into problems• Limited tenure & franchisee may have little or no say about
termination or renewal terms
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Franchisee start-up costs• Start-up costs / initial investment - CAPEX
• Initial franchise fee (goodwill)• Leasehold improvements• Fixtures & fittings • Plant & equipment• COGS Inventory (product)• Various utilities, deposits, advisor fees, etc• Working capital (through to break-even)
• Ongoing operating P&L expenditure – OPEX
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Franchising killers!• Corporate mentality staff • Franchisee’s don’t require support• Business can survive on royalty alone• Store selection criteria• Franchisee selection criteria• Unproven business format
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Constraints franchising faces in India• Lack of franchisor vision
– Franchisor executive themselves– Ability to credibly impart the vision to franchisees
• Lack of systems & process – Ops manual is malleable & legal extension of franchise agreement
• Skills & experience within franchisor team– Hiring wrong people / not hiring the company’s needs
• You “grant” a franchise – not sell– Signing up anyone with a “heartbeat & cheque book” – Lack franchisee & location selection criteria & process– Too eager to grow the channel at expense of the network
#1 Fix: Gov’t legislation for Prior Disclosure?
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Franchise Knowledge Series International Workshop on Franchising & Business Growth
20 October, 2013