What is franchising?
Legal and commercial arrangement concerning the
successful business of a franchisor
Use of franchisor’s trade name, format, system and/or
procedure under licence
Means to raise capital and expand quickly
Assistance to franchisee
Marketing, management, advertising, store design, standards
specifications
Payment by franchisee by way of royalty, licensee fee or
other means
TYPES OF FRANCHISE
3 main types of franchise:
Product distribution franchise;
Business format franchise; and
Management franchise.
PRODUCT DISTRIBUTION
FRANCHISES
A product distribution franchise model is
very much like a supplier-dealer relationship.
Typically, the franchisee merely sells the
franchisor’s products. However, this type of
franchise will also include some form of
integration of the business activities.
PRODUCT DISTRIBUTION
FRANCHISES
Examples of famous product distribution franchise:
PRODUCT DISTRIBUTION
FRANCHISES
Produces the syrup
concentrate
Sells the syrup
concentrate
Produces the final
FRANCHISEE drink
Retail Stores
Restaurants & Vending
F&B Outlets Machine
Operators
BUSINESS FORMAT
FRANCHISING
In a business format franchise, the integration of
the business is more complete.
The franchisee not only distributes the
franchisor’s products and services under the
franchisor’s trade mark, but also implements the
franchisor’s format and procedure of conducting
the business.
Famous Examples
BUSINESS FORMAT
FRANCHISING -
outlet in outlet in
Sale, Australia Marseille, France
MANAGEMENT
FRANCHISE
A form of service agreement.
The franchisee provides the management
expertise, format and/or procedure for
conducting the business.
Famous Examples
WHY FRANCHISE?
Franchises offer important pre-opening
support:
site selection
design and construction
financing (in some cases)
training
grand-opening program
WHY FRANCHISE?
Franchises offer ongoing support
training
national and regional advertising
operating procedures and operational
assistance
supervision and management support
increased spending power, access to bulk
purchasing and economies of scale
Common considerations of franchisors
Developing franchise concept
Market research
Familiarity with local laws and regulations
Providing training and support to franchisees
Common considerations of franchisors
Criteria for choosing franchisees
Control over franchisees
Supply of products/materials to franchisees
Intellectual property rights issues, e.g. trade mark
registration
Common considerations of franchisees
Experience and profitability of other franchisees
Existence of competition
Capital required
Demands of franchisor, e.g. income projections,
deadline to open more franchise outlets
Franchisor–Franchisee relationship
Regulated by contract which usually covers:
Initial fee
Royalty fee/Management fee
Capital required from franchisee
Territory/Area of operation
Duration of license and renewal
IPRs
Termination
Common Mistakes of Prospective
Franchisees
Not reading, understanding and/or asking
questions about the franchisee agreement
and other legal documents
Not understanding the responsibilities of a
franchisee and the rights and obligations of a
franchisor
Not seeking sound legal and financial advice
Not verifying oral representations of franchisor
