Will Franchising dilute my Brand Equity? A Franchisor seeks answers…
With so many brands opting for the franchising routes to increase market reach and cash in brand image, not all brand owners are convinced that the franchise model is the best route to achieve growth objectives.
Although there are so many online articles promoting the benefits of franchise models and success stories, there are very few which focus specifically on query when to avoid the franchising route.
We at selloverseas.com also receive many queries for franchise consultancy where brand owners are seeking only franchisee models. However after sharing feasibility studies on market entry, logistics planning, explaining pros and cons etc. we have been able to help our clients to decide on the best option to expand channels and create sustainable sales growth through other routes also.
It is better to weigh all options such as own branded stores, appoint distributor, authorized reseller, retail or commission agent for a given product or service.
Please share your thoughts at Marketing@selloverseas.com to alleviate the below doubts of the Franchisor for benefit of our registered members.
Will Franchisee be motivated to maintain the required quality & standard?
Franchisee contracts for fixed period typically three to five years however business being in dynamic environment, external factors may lead to ups and downs. During downturn franchisee may lose initiative or compromise on service standards.
In realistic scenarios people continuously look for their self-interests, this opportunistic behavior may lead them to do what is best for them. This could be an unfortunate situation for the franchisor and franchisee.
A legal expert may suggest build clauses to maintain the agreed standards. But in reality, binding parties have invested time, money, and goodwill to get this relationship going. The answer we seek here to question
What can be done to motivate franchisees during difficult market situations?
Why should I share my trade secret?
The franchise that creates a brand to reckon with normally has some USP for e.g. KFC may have a secret technique to fry chicken; a pharmaceutical franchisor is probably using a formulation on which they have spent years researching.
They always have a fear that trade secret will be lost or may lead to intellectual property issues. Now this is a tricky one; yes we can have IP protection, trademark registration but when you are dealing with local laws in countries like China, Venezuela or Cuba it may not hold much ground.
We look forward to your inputs on how to avoid intellectual property risks?
This is the most common fear while appointing a franchisee; a PR fiasco by one of the franchisee units may bring down the whole BRAND or can have a ripple effect on all other units.
Even the best due diligence cannot foresee such a risk. The best way is to learn how to communicate BRAND strength and manage the issue at hand. It is the primary reason BRAND invests a substantial part of franchise income to hire the best PR professionals.
Please share your experience of how you manage PR communication to preserve brand image?
Huge Cost of retraining and replication
Business cycles are dynamic i.e. product or service evolves, grows, matures and decay. Brands consistently innovate to keep themselves updated with the latest technology, trends and tastes. The cost of re-training, educating, and maintaining uniformity is substantial in a franchise model.
Is this the reason why APPLE operates its own stores?
Once a franchisor understands the risks and has sufficient infrastructure to mitigate them, a franchise model could be the right way to expand your brand. The next step should be to prepare a draft business plan and estimate the initial capital required, working capital requirements, ROI time period, etc. to convince and motivate franchisees to invest.
There are the two basic documents franchisor and franchisee agreement, where legal protections are documented. Secondly, the franchisee manual provides answers to all operational procedures and guidelines on how to successfully run the franchise.
Selloverseas team can guide franchisors from an early stage on how to obtain legal guidance and developing franchisee manual and related documentation?
Frequently Asked Questions for Franchises
The major difference is franchisor directly owns the trade-marks and business model; whereas the franchisee is the person or Corporation that owns and operates the business using the trade-mark and business model system licensed
Mainly two categories Service industry & Consumer Product companies prefer to use franchise models;
Service Industry: F&B Franchise like Ice cream parlour Franchise; Fast Food Franchise etc. Or
Education Franchise- Coaching and tutoring; pre-school franchise, Nursery Schools etc. Or
Health and Wellness Franchise- Gym, weight loss franchise etc.
Consumer product: Gems and Jewellery Franchise, Clothing Franchise, Cosmetics and beauty franchise or nutrition and wellness products and many more.
Amazon or Flipkart is not in Franchisee Business they are in sales process. However some options are available for drop-shipper/ logistics providers.
The business model of Amazon or Flipkart at present is about selling online.
Register at Selloverseas.com as franchisee to receive opportunities as when they arise in your registered business category and targeted geography.
This is also one of the query people leave in our contact form quite often.
Obvious answer- you can’t.
But….we must all start somewhere.
There are a lot of older franchise owners who would love someone hard working and willing to run a store. Build a profile and who knows you may find someone willing to invest in you.
A franchise business is one in which the owners or “franchisors” sell the rights to their business logo, name and model to third party retail outlets owned by independent, third party operators, called “franchisees”. Franchises have emerged to be an extremely common way of doing business and are available across a wide variety of industries.
Many Franchisors do help in arranging finance. It is generally in the range of 60-70% of the total initial investment.
Securing a loan depends on quite a few factors, such as collaterals, credit history etc. you may approach your bank or specialised institution like SIDBI (in India) or take advantage of government schemes like “Green Job Funds or Kickstart scheme ” in UK or various business grant schemes in USA.
To start franchising you need to evaluate the 3 most important aspects.
- Initial Assessment – Does my BRAND have enough PULL?
- Market Entry Plan- Is franchising the best route to expand sales network or I can go through other routes like distribution, licencing or JV route.
- Franchise Development- Is my legal and contract documentation to appoint a franchisee in place?
Once you answer YES to above all, for executing the Franchise plan it is always advisable to seek the services of a professional franchise consultant who can create the right go to market strategy as relevant to your BRAND to avoid costly mistakes.
In India, rising real estate cost and lack of trained staff is the biggest challenge faced by franchisors. Be it beauty or fitness, F&B franchise, education franchise or any other industry, people with the right education and credentials are few and a high attrition rate adds to the woes of the industry.
The franchising industry continues to face real estate challenges. The high real estate prices, coupled with cumbersome paperwork for commercial operations are making it difficult for them to expand their operations.
Product customization and relevance is of utmost importance for the franchisors. Adapting to change in the design or format of the product or service is another major challenge.
Franchise laws and regulations exist at both the federal (nationwide) and state levels, it includes:
- Federal-level pre-sale franchise disclosure regulations.
- State-level pre‑sale franchise registration and disclosure laws.
State-level franchise ‘relationship’ laws govern the ongoing relationships between franchisors and franchisees, as well as between manufacturers and dealers or distributors.
Foreign franchisors are subject to the same laws and regulations as US-based franchisors. One aspect of the US franchise disclosure laws, and one of the requirements of FDDs, that may affect foreign franchisors relates to financial statements. A franchisor must include in its FDD its audited financial statements (for the three most recent fiscal years, with certain adjustments for start-ups), prepared in accordance with US Generally Accepted Accounting Principles (US GAAP). Therefore, if a foreign entity is franchising in the United States, it must prepare its financial statements under US GAAP or include detailed conversions from international standards to US GAAP. An alternative would be to create a new US entity to be the franchisor and start with new financial statements, prepared in accordance with US GAAP.