FRANCHISING

Evolution of Franchising

The concept of Franchising as we know today 1st started in Germany in 1840.

In 1851, Singer Sewing Machine Co. began granting distribution franchises for its sewing machines. Thus began the modern concept of franchising.

The root word “Franchise” comes from old French meaning privilege/ freedom. In middle ages a franchise was a privilege/ a right.

Essentially a marketing concept, Franchising is an innovative method of distributing goods and services.

What is Franchising?

Legal definition of Franchise:

Black’s Law Dictionary 7th edition 1999 defines Franchise as, “the sole right granted by the owner of a trademark or trade name to engage in business or to sell a good or service in certain area.”

oA franchise is a license granted by a business to another business to make and sell goods/services.

oA franchisor is the owner of the business who grants the license.

oA franchisee is the person who purchases the business name.

Normally referred to as“Business Format Franchising”

A contractual long-term relationship Grant of a licence to franchisee Franchisee gets:

Tried and tested product/service Profitable proven business model to follow Experience and know-how of the franchisor Entitlement to use the trade name / mark Entire package

Franchisee Rules

•You must use the franchisor’s suppliers

•You must use the franchisor’s equipment

•You must follow the franchisor’s rules and regulations

•You must give a share of your profit or sales to the franchisor

EXAMPLES

EXAMPLES

TOP Rated Franchise ( 2009 )

Advantages OF FRANCHISING Your business is based on a proven idea. You can check how

successful other franchises are before committing yourself.

You can use a recognized brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.

The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.

You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.

Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.

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You benefit from communicating and sharing ideas with and receiving support from other franchisees in the network

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Relationships with suppliers have already been established.

Disadvantages OF FRANCHISING

Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.

The franchise agreement usually includes restrictions on how you run the business. You might not be able to make changes to suit your local market.

The franchisor might go out of business.

Other franchisees could give the brand a bad reputation.

You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.

All profits are shared with the franchisor