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“What to look for in Franchising”
Presentation by:Sachin Marya, Director,
Indian Franchise Association
Fast food chain with highest number ofoutlet in America -
Fast food chain with highest number ofoutlet in the World -
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
BACK TO BASICSfor a WIN-WIN partnership
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Lets define Franchising!“Rights of privilege granted”
Business Format FranchisingBusiness Format Franchising….is a carefully structured programme whereby theowner of the business, the Franchisor, enters into aMid to Long-term Agreement to transfer thebusinesss opportunity and the Total Goodwill andKnow-how to a franchise for use in an ExclusiveTerritory or Location.
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
The FranchisorRights to Brand Name, Location/ Territory and SystemsProvides the know-how and trainingPromotes and develops the BusinessProtects the reputation of the Organisation
The FranchiseeProvides the manpower and equipmentOperates “The Business” in accordance with theOperations Manual and Franchise AgreementDevelops the BusinessPays an on-going Management Service Fee
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
90% of the selfstarted businessesfail to survive in first5 years of operations!!
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
95% of the franchisedbusinesses aresuccessful even after10 years in business!!
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
World’s #1Marketing andDistributionformat!!
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Every third $In America isspent in afranchise.!!
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
2.3 trillion $Industry inAmerica.!!
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Franchise Fees – Shorten The learning curve
Royalty – On going Support
Advertising Fees – Costumers
Administration support – More costumers
Transfer – More good will
Territory rights – Territory protection
Termination - Remove rotten eggs
Performance Standards – Grow together
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
The Advantages to the FranchisorMinimises Capital outlayEnables expansionReduces Head Office administration and expensesOffers an individual service to the CustomerObtains the benefit of highly motivated people
The Disadvantages to the FranchisorReduces direct controlA shares profit marginNeeds for high tolerance level
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Components of a Franchise Brand - Distinctive and Protected
System - Proven and transferable
Support - Initial and Continuing
Agreement - Comprehensive and Fair
Reasons for Success Hard work, effort and commitment
Good product and service
Good marketing and advertising
Good Franchisor/Franchisee relationshipand support
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
- The Franchisor’s obligations
- The Franchisee’s obligations
- Joint responsibility
- Motivation for becoming a Franchisee
The Franchise Relationship
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
-Grow The business- WIN/Win for both parties
- Communicate
- Lead
- Motivate
- Be firm
- Be flexible
Responsibilities of Franchisor
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
- Follow the system
- Grow the Business with local strength
- Reinforce the trade marks
- Commute ideas and recommendations
- Be a team member
Responsibilities of Franchisee
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
The Franchise RelationshipJoint Responsibility
To build a network with defined image andstandards under a recognised Brand Name
Motivation for becoming a FranchiseeLower Risk 54%Marketing/Training 48%Long Term Ambition 41%Using known name 34%Potential Income 26%
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Contributory Factors toContributory Factors to FailuresFailures■ 25% caused by external factorsRegulatory controlsIndustry changesVolatile Market Conditions■ 25% originating from FranchisesMismatched expectationsUnwilling/Unable to keep up with the systems.Unwilling to learnNot maintaining Operating StandardsPoor Location
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Contributory Factors toContributory Factors to FailuresFailures■ 50% originating from FranchisorsPoor SystemsUnder-CapitalizationFailure to keep promisesExploitative mindset or high-handednessNot receptive to franchisee ideasInadequate Marketing ProgrammesNot Keeping up with Market trends.
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Market & Industry AnalysisIs there exclusivity or differentiationIs the concept well adapted in the country?Is the market highly competitive or fragmentedIs it a growth market ?Or is it faddish ?Or toosaturated?Control over sourcing?Is the Franchisor committed to R&D?Are marketing strategies effective?
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
• Local Marketplace
• Local socio – economic condition
• Culture, Religion and Language
• Consumer behavior
• Competition / Strategy
• Legal system
• Penetration
BeBe firmfirm BeBe flexibleflexible
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Global ExpertiseLocal Opportunities(many countries within a country)
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
CommonCommon Areas ofAreas of ConflictConflict Perceived misrepresentation by franchisor. Verbal understandings which are not written into
the formal agreement. Franchise is not profitable soon enough. Inadequate support from franchisor. Misuse of advertising funds. Under Reporting or late payments. Quality Control. Unequal treatment. Not complying with corporate branding guidelines.
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
In ConclusionIn Conclusion Every Business venture has risk & many factors –
controllable or uncontrollable-at work each day ,eachminute, as such…
NO Franchisor can “guarantee” its own continuedsuccess, let alone the success of its franchisees
But good franchises lower risk of failure & shortenlearning curve.
Finally, read the fine print & know what you are gettinginto.
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Popular OpportunitiesPopular Opportunities Education: Pre School, Study Centres, Vocational
academies, High Schools, Retail: Fashion & specialty stores F&B: QSR & specialty restaurants H&B: spa, pharmacy, salon or a cosmetic store Business services: Printing services, Courier & Cargo
Services, financial services, property brokerage. Service: Cleaning Services, bill collection, travel agency.
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Franchise Vs LicensingFranchise Vs LicensingThe basic definition of trademark licensing is ratherstraightforward, if somewhat legalistic.
A license is an agreement through which a licenseeleases the rights to a legally protected piece ofintellectual property from a licensor - the entitywhich owns or represents the property - for use inconjunction with a product or service.
Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit
Thank You
Presented by:Sachin Marya, CEO & Publisher,Franchise India Holdings Limited