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FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise Know-how&
The Art of ReproductionRamon Vinay
President,Francorp International
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Francorp’s credentials
• Created in 1976• Serving 40 countries• Developer of more than 4 thousand
franchise networks• Consultant to more than 200 of the
world’s top 500 franchises• Consultant to AMPM minimarkets,
number 2 among the world’s top 500 franchises for 2011, over McDonald’s*
• *Entrepreneur 500 Franchises
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Francorp Middle East:–Operating since 2006
• Dubai, Kuwait, Kingdom of Saudi Arabia, Egypt, Jordan, Syria,Turkey, United Arab Emirates, Lebanon.
–Over 100 franchise networks developed in the region.
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Partial client list
International Middle East
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
What is a franchise?
• A license to exploit a business model and trademark, supported by the transfer of know-how on the run the business efficiently, based on the franchisor’s experience, accompanied with:– Policies and procedures– Permanent technical support and
supervision– Leadership and full commitment to serve
the system
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The players in franchising
Franchisor
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The players in franchising
Franchisor
Franchisees
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The players in franchising
Franchisor
Franchisees
Customers
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The players in franchising• Franchise agreement• Trademark license• Training/Ops. Manuals• Operational support• Marketing• Procurement• Other services
Franchisor
Franchisees
Customers
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The four generations in franchising
1. Imported foreign franchises2. Local entrepreneurs start
franchising in the same types of business
3. Local entrepreneurs start franchising in other types of business
4. Local entrepreneurs start exporting local franchise concepts
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Granting of a franchise
• The franchisee pays an Initial Franchise Fee
• The franchisee pays a permanent fee (royalty) to the franchisor on a weekly basis– Percentage of gross sales or fixed amount (or
both)– A fee to contribute to a national marketing fund
• The franchisor provides know-how and permanent advice and services– Advertising –Training –Procurement +
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Why do businesses franchise?
• Capitalize on existing network• Capitalize on production facilities/ -
-Acquire captive outlets
• Enter stock market• Manage branding vs bricks• Exploit sales opportunities• Add value to trade name• Internationalize• Religion
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchising solves the 4 major problems experienced by every single business, from a modest stand in a sidewalk selling falafel, to the monster businesses with thousands of outlets and employees.
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
The 4 major problems:
• 1.- Financial resources• 2.- Staffing• 3.- Competition• 4.- TimingThe solution…
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
OPMOther People’s Money
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Motivations to buy a franchise
• Permanent–Profits–Status
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Motivations
• Variable–Speculative investment–Expand investment portfolio–Patrimony–Occupational therapy
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Motivation
•Incidental–Productive use of candidate’s land
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Creating a franchise program of the
highest professional level
in 5 easy steps
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
Strategic
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
Strategic Legal
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
Strategic Legal
Operational
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
Strategic Legal
Marketing Operational
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Certainty: to ensure success
as much as possible
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Define your goals
•Trans-generational•Exit strategy•Market domination•Profits
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Certainty
•Strategic•Legal•Operational•Marketing
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Strategic planning
Every single decision is
made in advance
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Every decision should have a financial,
organizational, logistical and political
evaluation
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Legal documentation
Everything you commit to -and everything your franchisees commit to-
is feasible and profitable
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Operations Manuals
•Quality assurance•Operational efficiency•Operational effectiveness
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Marketing campaign
• The RWA factor–Ready, willing and able
• Qualified candidates vs simply interested parties
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 1:Franchisability
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Determine franchisability–Financially viable?• Both parties should make money• Reproducibility• Every single angle of the business
–Know-how transfer and services to the system–How competitive is your
franchise offer in the open market?
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 2:Strategic Planning
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Strategic planning
• Vision, Goals and objectives• Competition–Other franchises- investment opportunities
• Franchise formats• Franchisee profile• Costs• Services
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchise market–Benchmarking
» Initial fee, Initial investment, Agreement term, services
• Consumer market–Know your business–Know your customer–Marketing / advertising
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Formats to grant franchises1. Joint venture 2. License3. Master4. Regional5. Individual6. Multi- unit7. Area development8. Conversion9. Retro- franchise10.Co-branding
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchisee profile –Age–Resources –Shares business vision–Owner- operator / absentee–Investor–Attitude
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Revenue sources protection program–Is the permanence of our trade name in the POS critical to our success?–If so, we should protect that permanence over and above all other considerations?
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Revenue sources protection program–Operational– Site selection criteria– Strategic
• Business sources protection– Store– Telephone numbers– @- commerce– Client data base
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Territory–Boundaries–Criteria• Population• Distance• Socio – economic level• Level of sales
–Stationary vs pro-active
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• System growth –Geographical definition• Business characteristics
–Computers vs food
• Marketing needs–Regional/ national
• Service capabilities• Distance, staffing, communications, costs
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Supply–Capabilities/limitations–Critical vs non-critical
• Secondary–Commissary (virtual,
administrative)–Time, price, quality
• Designated suppliers• Authorized suppliers
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Pricing, promotions, discounts–Criteria–Design–Costing–Participation • Institutional• Opportunistic• Local/ regional
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Services to franchisees–Business plan –Site selection–Unit development• Remodeling
–Soft / grand opening–Marketing–Training
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Operations Manual• Administration Manual• Chart of accounts• Human Resources manual• Operational /administrative
software
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Training– Initial –Permanent –Permanent assistance–Centralized marketing–Other• Staffing to serve the system
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchise fee–Recovery of investment in franchise program•Floor value•Ceiling value•Perceived value
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Royalties–Percentage / flat fee–Gross sales / net sales– Incentives • (higher revenue-lower rate)
–Proformas• Expenses• Re- investment
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Advertising fee–Regional–Local–National•Media•Budget•Creative material
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Committees–Operations–Marketing–Public Relations•Cement relations•Consolidate strength•Provide accurate feedback
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Costs–Franchise program structuring–Operations Manuals–Software–Pre- operational assistance–Soft / grand opening assistance–Permanent assistance–Commissary
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
“X” factor
$
T
Royalties
Expenses
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
“X” factor
$
T
Royalties
Expenses
LOSS
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Your strategic decisions are
not negotiable!!
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Absence of strategic planning–Anarchy / damage to prestige–Rushed decisions–Wrong franchisees–Lack of consistency in:• Territories• Fees• Controls
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
Strategic
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 3:Legal
documentation
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchise agreement• Disclosure documents• Loan agreements• Rental/leasing agreements– (equipment, site, others)
• Supply agreements• Others
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• The franchise agreement–Not negotiable (certainty)
–Based on strategic decisions–Terms–Renewal (conditions- period – cost)
–Prevent litigation–Eliminate conflicts–Sales tool
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Legal documentation with no strategic base–Lack of protection–High risk of desertion–High risk of “system piracy”–Risk of franchisor breaching his
own franchisee agreement
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise
Strategic Legal
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 4:Operations
Manuals
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• The Operations Manual–More than an attachment to the franchise agreement: a clause• Same strategic and semantic basis of franchise agreement•Operations guide• Audit guide• Textbook for training courses
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Virtues of the Operations Manual–High efficiency in transferring
know-how–Quality assurance–The franchisees must be able to
carry 99% of the pre-operational functions without the direct involvement of the franchisor–No gaps – no traps
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Virtues–Style•Understanding / Acceptance /Trust
–Scope• ... To the last nut and bolt
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• O/M Outline (partial)
– Site selection– Remodeling– Pre- opening– Administration–Marketing– HR–Maintenance
– Advertising– Security– Recipes–Merchandising– Training– Customer service– Others
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Absence of an Operations Manual– Anarchy– Impossible to audit– Lack of consistency– Excessive training time– Lack of control over initial
investments– Risk of breaching your own
franchise agreement
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Training programs– Initial training• Unit manager• Staff
–Permanent training• Frequency• Purpose
–Training to replacement staff
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Training–Costs–Training facilities–Materials–Diplomas / pins
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Absence of training programs–Anarchy–Low productivity–High cost or corrective training–High turn around–Risk of breach of agreement
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise
Strategic Legal
Operational
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Step 5:Franchise
marketing and sales
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchise marketing–Selling clothing vs selling boutiques–Franchise marketing is highly sophisticated
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• The only goal of a franchise marketing program is to generate :
ready, willing and able candidates
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Provide all the information needed to allow the interested parties to decide to continue (or not) with the intention to acquire the franchise (become a RWA)
• “I have the money and I want to invest it with you”
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Marketing formula– Product = franchise–Market = franchise market– Competition = other franchises*
• Motivations• Existing• Induced
*Competition will be any other investment opportunities in the open market
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
•Marketing materials–Brochures, FAQ’s, Model P&L’s–Ads–Videos–Seminars / trade shows–Direct mail–Internet
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Advantages of a professional marketing plan–Consistence between goals and
actions–Optimize marketing
investments–Measure results–Optimize the use of time–Focus on RWA candidates
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Franchise sales program–Purpose:•To turn RWA candidates into franchisees
–Requires effective strategy and execution
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• The franchise sales process–Reffer to the Strategic Planning–Ensure operational profile–Determine motivations–Consider influences• Operator• Spouse• Others
–Determine psychological profile
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Process–Customize presentations–Ensure step by step understanding–Visits to operational units–Visits to headquarters–Empathy with the organization
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Process–Franchises are not sold pounding on the table…–Your job is to help the candidate to achieve his goal of buying the franchise
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Absence of a professional sales program–Lack or organized activities–Disorient the candidate–Unstable process–Sell to non- qualified prospects–Lose RWA candidates
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Franchise structure
Franchise
Strategic Legal
Marketing Operational
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Conclusions
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Professional planning of your franchise program will increase the chances of success
• Professional planning of your franchise program will protect your interests at all times
• Professional planning of your franchise program will allow for a healthy, constructive, litigation-free relationship
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
Questions?
FRANCHISE KNOW-HOW AND THE ART OF REPRODUCTIONFRANCHISE KNOW-HOW AND THE ART OF REPRODUCTION
• Thank you very much for your time, your attention and your patience.