BUYING A MASTER FRANCHISE

Chantal ZIMMER

French franchise federation

INTERNATIONAL FRANCHISE CONFERENCE

ABU DHABI

FRANCHISE 2013

FRANCHISE 2013

• An agreement between a franchisor and a master franchisee in which the franchisor grants to the master franchisee the right to sub franchise the concept within an exclusive territory

• The master franchisee acts as a franchisor within the territory using the franchisor’s system and trade marks

• The master franchisee grants the right to sub franchisees within the territory to use the system and the brand and trade marks to develop their own business.

What is precisely a master franchise ?

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Specificities of the master franchise system:

• A three levels distribution channel: franchisor – master franchisee – franchisees

Master Franchise agreementSub Franchise agreement

• A two contractual relations

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• A geographical distance between the franchisor and the master franchisee

• A double transfer of a concept and of a franchise engineering package

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• A double position of the master franchisee: franchisee and franchisor

• The task for the master franchisee of establishing, maintening and supervising the franchise system in the country

• The long term master franchise agreement

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Advantages of the system for the master franchisee

• A marketing concept which efficiency is proven

• The learning of the franchisor’s mission: developing and animating a franchise network

• A gain of time

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Drawbacks of the system for the master franchisee

• Obligation to respect the concept

• Obligation to share the “profit” with the franchisor: entrance fees, royalties

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Conditions of success:

The cultural, legal, economic features of the target country call for concept adaptation and step by step commitment

- Piloting the business in the territory to adapt the concept to the consumer tastes and habits - marketing to adapt the final pricing, margins, to adapt the communication

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- Adaptation of the sub franchisee’s business model: entrance fee, royalties….

- Adaptation of the sub franchise agreement 

The specificities of the franchise system requires skilled staff: need of investment in the staff and in the organization;

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What should be the master franchise approach in a territory (country): a 3 steps pathway

Investigation of the cultural differences and concept acceptance

- Step 1: Market test – pilot operation• Test the concept• Test the adaptations : product- price- advertising

If the adaptations affect the core of the concept: withdrawal

If the the core of the business remains standardized, go to step 2

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- Step 2: Franchise test – franchise experimentation on a limited local territory• Receive and test the franchising engineering package

If the franchise does not work: withdrawal

If the franchise is profitable and works, go to step 3

- Step 3: Launching of the national network –Long term franchisor/master franchisee relationship

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Question: at which moment should the master franchisee sign the agreement?

Consequence: the level of the license fees?

• Does the franchisor conduct the pilot operation in order to adapt the concept and support the costs?

• Does the master franchisee conduct the pilot operation?

• Do both conduct the pilot operation?

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Other points for the potential master franchisee to check:

- The training provided by the franchisor• Regarding the concept• Regarding the master franchisee’s role as the franchisor for the territory

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- The assistance provided by the franchisor to the master franchisee during the duration of the agreement: • capacity of the franchisor to transfer know how and innovation to the master franchisee• human means – organization

- The development of the franchise network on the targeted market• Is there an obligation to first open some own stores before starting to franchise?

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How and where to find concepts to buy: The potential master franchise has to identify, on foreign markets, concepts that could be developed in his targeted country

• Concept on traditional market• Concept that is going to open a new market

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Where?

Franchise exhibitions, websites, specialized magazines etc…. FRANCHISE EXPO PARIS – International franchise expo - 500 concepts from all over the World

23- 26th March 2014 – PARIS

Website: www.franchiseparis.com

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Conclusion

The necessary conditions to succeed are that the franchising techniques are used well, by informed actors and are adapted to the specificities of the market- territory on which the franchise network will expand.

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 Thank you