BY MRS. IDY. T. IMIYOHO DEPUTY DIRECTOR/LAGOS ZONAL OFFICER NATIONAL OFFICE FOR TECHNOLGY...
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DEVELOPING NIGERIAN DELICACIES INTO BUSINESS FRANCHISE BY MRS. IDY. T. IMIYOHO DEPUTY DIRECTOR/LAGOS ZONAL OFFICER NATIONAL OFFICE FOR TECHNOLGY ACQUISITION AND PROMOTION (NOTAP)
BY MRS. IDY. T. IMIYOHO DEPUTY DIRECTOR/LAGOS ZONAL OFFICER NATIONAL OFFICE FOR TECHNOLGY ACQUISITION AND PROMOTION (NOTAP)
BY MRS. IDY. T. IMIYOHO DEPUTY DIRECTOR/LAGOS ZONAL OFFICER
NATIONAL OFFICE FOR TECHNOLGY ACQUISITION AND PROMOTION
(NOTAP)
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Key Words Development Nigerian Delicacies Franchisor/
franchisee
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Development Progress Growth
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Nigerian Delicacies Delicious foods from the natural
environnent included into the cultural use patterns of the Nigerian
people
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Franchise
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Franchising is a contractual relationship between the
franchisor and the franchisee It can be described as a business
marriage between an existing business (the franchisor) and the new
comer into the business ownership (the franchisee).
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Who is a franchisor/ franchisee Franchisor the person or
company that grants the franchisee the right to do business under
their trademark or trade name Franchisee the person or company that
gets the right from the franchisor to do business under the
franchisors trademark or trade name
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Types of franchising Two major types namely Product
distribution franchises Franchisee simply sell the franchisors
products. Supplier-Dealer relationships. Franchisor licenses its
trademark and logo to the franchisees but typically Does not
provide them with an entire system for running their business Some
familiar product distribution franchises include: Soft drinks (
Pepsi /Coca cola) Oil and Gas ( Exxon Mobil) Automobile ( Ford
Motor )
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Production distribution
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Business format franchise This is characterized by an ongoing
relationship between the franchisor and the franchisee. The
relationship includes not only the product but also enables the
franchisee to acquire the right to use the franchisors entire
business system ( business name, goodwill, product and services,
operating manuals, standard marketing procedures, system and
support facilities)
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Business franchise
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Before a franchisee can exist, a franchisor must be born. A
franchisor is an entrepreneur and someone whose role of
entrepreneurship is economic development. His role includes
initiating change in the structure of business and society. This
change is accompanied by growth and increased output which allows
some wealth to be divided among various participants.
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To be a franchisor is dependent on two things: To have a
successful and proven business system and Secondly; To have the
expertise, resources and commitment to make the business grow. To
become a franchisor will therefore require from the entrepreneur to
invest in time energy and financial reserves into learning and
applying new business skills.
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A franchisor must also be equipped and prepared to license
knowledge to other business people. Seid et al (2006.261) believes
that the real question to ask when considering franchising as a
method to expand is whether the entrepreneur should franchise his
business or not. According to them Not everything should be
franchised. You have to have a concept that you can teach and thats
very simple for the franchisees to execute.
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There has to be an advantage to franchising for you
(franchisor) and your future franchisees, and the concept has to be
able to make money. To become a franchisor it is therefore
important to determine whether or not the business concept is
franchisable. Franchising is about relationship and the bottom line
is that franchisability means that the franchisee is not the guinea
pig in the relationship
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Business system
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FRANCHISABILITY OF A BUSINESS SYSTEM Often the decision to
franchise can be taken too early for reasons unrelated to the
desire to expand or to build a brand. For instance, the decision
could be based on obtaining finance to cover operating costs or
recoup losses of the existing business. The warning flags when
deciding to franchise a business are:
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- A concept/idea only cannot be franchised In todays fast-paced
world, uniqueness is a fleeting thing. You might have a totally new
and unique franchise concept. but before long.\, the copycat
operators will be climbing on the bandwagon. - The business does
not show a clear potential for growth. - The business currently
does not achieve a reasonable return on investment. - The business
has a limited operating history. The rule of thumb is that a
prospective franchisor should ideally be able to prove that the
business to be franchised has yielded at least three successive
years of profitable trading.
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Do you have a unique concept? . The general criteria to review
when considering whether a business can successfully be franchised
include
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Tried and tested
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A Tried and Tested Business Concept The business to be
franchised must have been in operation for a reasonable period to
make sure it works. It is advisable that a two to three year period
is appropriate to give the potential franchisor a better indication
of viability. It is also important for the potential franchisor to
gain experience on the seasonality of the business, customers,
suppliers, competition, positioning and branding. Knowledge on
other aspects such as operating costs, pricing strategies and
locations that work and those that dont work for the business
concept will be extremely helpful when deciding to expand
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Consumer demand
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Consumer Demand A business must have a measurable set of
results to determine whether sufficient consumer demand exists for
the brands products or services in the targeted market. It is
therefore that a well entrenched consumer demand or trend exist and
that the product and/or service will be in demand for the
foreseeable future. The business must ideally be able to
distinguish itself from the competition and have a high loyalty
customer base.
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Operational system
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The business needs to be based on a set of refined and unified
operating processes that have been tested and proven in operation.
These systems must be documented in a manner that communicates them
effectively to franchisees through operations manuals and training
programme.
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The system must also enable standardization in the way the
product and/or services are offered. It must be able to deliver the
overall image and appearance to the franchisee namely, the design,
dcor, signage, site criteria and layout. In franchising it is
important to present the same look, feel and experience.
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Can the knowledge to operate the system be transferred?
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Franchisees and their staff need to be trained on how to run
the business. A franchisee will not know much about managing a
particular business. A business must be able to thoroughly educate
a prospective franchisee in a relatively short period of time.
Factors to consider are the:
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Is there a specialized nature of the skills required which will
make it difficult to find prospects and; Does the business have the
expertise to train franchisees effective and efficiently in the
skills needed by them to succeed
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Economic requirements
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A franchised business must be profitable. The franchisees will
be expected to invest financially and personally to acquire a
franchise and thereafter to pay continuing fees (royalties) and
other fees, such as for marketing (advertising) and additional
training to the franchisor.
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The profit margins on the product or services must be
sufficient to cover these various fees, the franchisees debt (loan
to acquire franchise) payment, and still allow for an adequate
profit and return on investment over the contract period. Other
issues to consider are:
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Does the type of business have any short term or seasonal cash
flow problems exist it could affect a franchisees total investment
depending on when a franchise is acquired. Will the franchisee be
profitable. How many prospective franchisees can afford the
franchise? Can the break-even point in a franchised outlet be
reached over a relatively short period of maybe 12 to 18 months or
shorter?
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Differentiation
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The business must be adequately different from its franchised
competitors. The business should have some sort of unique selling
point which will give it the competitive advantage required to
pursue success in the market. This advantage could be in the form
of a differentiated product or service, a different target
market/s, a lower investment cost, a unique marketing strategy
which can include the aura of experience in supporting the business
or the acknowledged brand.
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Suitability to Adapt The business concept must be easily
adaptable to be reproduced in any location. Consumer tastes and
preferences can vary depending on the market and/or geographic
area.
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Capital Needed to Franchise A prospective franchisor will need
capital to develop the franchise system. The funds and resources
required will be needed to build the infrastructure and to
implement the franchise programme. (advertising, recruiting,
training etc).
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The capital required will also depend on the scope of the
expansion plan. If an aggressive expansion is the target then the
start-up costs can be quite high. It is therefore important that
the prospective franchisor is financially stable and does not rely
on the franchisees to provide him/her with the finances needed to
grow
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The necessary resources are available to meet the franchisors
commitments to existing and new franchisees. The right people are
in place to operate and grow the franchise business but more
important, to support and assist franchisees when required
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Commitment
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To be successful as a franchisor a different approach to
managing the business will be required. The prospective franchisor
must also be emotionally and financially committed to build a
long-term, mutually rewarding relationship with their
franchisees.
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It is also necessary when franchising to be aware of the
continual need to ensure the system remains competitive through new
products and/or services, innovation, marketing strategies and
support to the franchisees.
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Ensure that there is a direct link between the relationship
with the franchisees and profit. A good relationship will make it
easier for the franchisor to introduce changes to the system and to
motivate franchisees to look after their customers/clients more
efficient and effectively.
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LEGAL CONSTRAINTS
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A good franchisor must have a vision for the future of his
business concept and the strategy and determination for continued
growth and success. A good relationship between the franchisor and
franchisee is critical for the success of both parties. Since
franchising establishes a business relationship for years, the
foundation must be carefully built by having a clear understanding
of the franchise program
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There are two main franchising legal documents: Disclosure
Document and Franchise agreement The advice of an experienced
franchise attorney should be sought to help a prospective
franchisor understand the legal issues and to protect them from
making costly mistakes.
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STRONG MANAGEMENT
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A strong management team will make a valuable contribution to
the success of the franchise development programme. The prospective
franchisor will not in all circumstances find it easy to take
everything on his/her shoulders. Being in control of a franchise
system requires a person to wear various hats for which he or she
may not always have the time, experience and/or knowledge. This
will include activities such as marketing, human resources
(recruitment), finances, sales, training and operational
management
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Critical to the continued success of a franchise is support
which franchisees required; Field officers need to be recruited and
trained; management systems need to be created and implemented;
accounting systems need to be on-line; procurement and logistics
must be in place catering for the expected scale of the enterprise.
The costs are all up-front and need to be funded by the
franchisor
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The cost of franchise recruitment is often under estimated
first, you need advertising and promotional materials- brochures,
videotapes, CDs, printing adverts, show stands, posters, website
and e-mail. Others are sales staff, pay travel expenses, telephone,
fax, media space, trade exhibition space and investment management
time.
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PLANNING
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Many endeavors where a business expands through franchising
stumble due to a lack of adequate advanced planning. Failure to
plan appropriately can for instance, result in the initial under
capitalization, cash-flow problems and panic management. An
appropriate strategy to implement franchising as a mechanism to
expand and/or grow an existing business therefore needs to be
carefully planned and developed. This will ensure that franchising
is pursued in a controlled manner and the steps required are:
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Feasibility Study A feasibility analysis evaluates most, if not
all, risk associated with an undertaking planning to grow a
business through franchising. These studies are in fact a low cost
risk management tool. It is also a controlled process for
identifying problems and opportunities, analyzing the strengths and
weaknesses of the business and identifying any modifications to the
business concept necessary for the realities of the market.
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A good feasibility study will not only help to reduce risk and
uncertainties but will make it possible to determine objectives and
define what is needed for a successful outcome when franchising. A
feasibility study must also formally assess the viability of the
business as a franchise.
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Other factors that are also an integral part of a feasibility
study when planning to franchise are: How much of the estimated
market each franchisee can serve. This is usually in terms of the
allocation of a marketing area. On this basis it can be determined
how many franchisees the market can accommodate. A range of royalty
(management service) fees can then be applied to determine the
potential income per franchisee. To determine the basic maintenance
cost needed for the franchise system. This can be established for
instance, by dividing the average income expected to be generated
from a franchisee into the estimated operating cost to determine
how many franchisees are needed to meet basic maintenance
costs.
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A feasibility study also looks at the viability of an idea with
the emphasis on identifying potential problems and attempts to
answer the important questions such as: Will the business work as a
franchise What is needed to ensure success How much investment is
required Have alternatives been considered Is the design or
location economically justified Can the operations be a financial
success and managed.
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The information gathered through a feasibility study must be
incorporated in a business plan. The business plan is a more
detailed and in depth document that sets out the vision and
direction for a business to expand through franchising.
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Pilot operation
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A critical factor before embarking on setting up a franchise
system is the pilot operation. Although one pilot operation of the
business would seem to be the general norm of potential
franchisors, it is advisable to have more than one pilot outlet in
different areas. The pilot operation/s will assist the potential
franchisor to:
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Understand the operational dynamics of a franchise system.
Provide valuable insights into the business operations, customer
appeal etc. which will allow time to improve the business processes
and evaluate supplier services before presenting the final
franchise operation to potential franchisees and ; To assess the
viability, profitability and consumer/client demand for the
franchise product
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Testing the business through the pilot operation approach is an
invaluable tool for managing future risk and a possible breakdown
in the relationship with franchisees. Admittedly such an approach
can be costly and time consuming if done correctly. On the other
hand it gives the potential franchisor more knowledge and
experience but above all, peace of mind when developing the
franchise system.
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STRUCTURE FRANCHISE OPTIONS In the early planning stage to
franchise a business it is advisable to consider various structural
operational systems in order to: Manager the risk Provide the most
effective and efficient means to penetrate the market and; Ensure
that as franchisor the resources are available to service the
franchisees needs
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There are generally two basic methods used to structure a
franchise system, namely Single unit (direct/Individual) Franchise
A single franchisee acquires the right to operate ONE franchise
unit and manage the franchisors business from a location within a
defined marketing area.
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Multi Unit Franchise Area Franchise: The franchise rights for a
particular geographic area are granted to an area developer. The
area franchisee may then either develop individual franchise units
for its own account or find independent franchisees to develop
franchise units. In the latter instance the area developer can have
an equity interest in its area franchisees. The area developer
usually commits to the franchisor to develop a certain number of
units within a specified time period
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Master (or Regional) Franchising: The franchisor grants the
development rights in a particular market, usually a country or
region, to a master franchisee who then takes on the
responsibilities of the franchisor in the particular country or
region. The master franchisee then develops the franchise system
within the country or region. The development is in full accordance
with the franchisors standards and quality control.
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The individual franchise system normally generates the highest
revenue for the franchisor. On the other hand however, this
structure also requires a higher service level as a larger number
of franchisees will need to be supported.
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Conclusion Although any type of business can be franchised, not
every franchise succeeds. There is no doubt that franchising offers
an ideal blueprint for business success, but if the foundation of
the franchise is not solid there is little chance of success. Being
financially sound, having a strong management strategy, a strong
brand and a family of motivated and profitable franchisees all go
together to achieve long term success of the franchise.