Franchising

What is it?  Franchising is a system for distributing goods or services through outlets owned by the franchisee.

Franchisee has rights to:  to market goods or services under a trademark/brand according to prearranged terms or conditions  Use the “system” or method or providing the product/service

All outlets have same: Merchandise/services Same common name Distinctive appearance Standard ways of doing business as outlined in agreements

Terms  Franchising provides a source of capital to the person with the original idea(FRANCHISOR)

Franchisee

What do you get?  Provides a turn-key operation with a great deal of help to the person purchasing the franchise ( FRANCHISEE)

History  Rapid growth since the 1950s  Many organisations with a proven idea/product were able to expand very rapidly to meet demand  By 1960s, legislation was created to protect the rights of franchisors and franchisees

 In the last decade, 40% of all retail sales resulted from franchising (North America)  Expected to be 60% of all retail sales by 2007  Franchises exist in all industries

Canada’s Leading Franchising Companies(2003)  Canadian Tire owner : Billes Familyowner : Billes Family Retail hardwareRetail hardware Gross revenue : over $6 billionGross revenue : over $6 billion

Canada’s Leading Franchising Companies(2003)  Metro-Richelieu Inc Owners: widely held Owners: widely held Convenience food Convenience food Gross revenues: over $5 billion Gross revenues: over $5 billion

Canada’s Leading Franchising Companies  McDonald’s Restaurants Owner: McDonald’s Corporation Owner: McDonald’s Corporation Fast food Fast food Gross revenues: over $4 billion Gross revenues: over $4 billion

Canada’s Leading Franchising Companies  A&P Co. Owner: A&P U.S. Owner: A&P U.S. Food retailer Food retailer Gross revenues: over $3 billion Gross revenues: over $3 billion

How much?  Want to be an owner of a Tim Hortons? $210,000 $210,000 $360,000 $360,000 $480,000 $480,000 $650,000 $650,000  How about Subway $110,000$110,000 $285,000$285,000 $430,000$430,000 $630,000$630,000

 McDonalds? $310,000 $310,000 $420,000 $420,000 $1,300,000 $1,300,000 $1,900,000 $1,900,000

 You are the owner of Starbucks and you want to eventually have a Starbucks on every block in North America. What rules would you put in place for franchisees to allow you to maximize profit and prevent them from discrediting your company ?

 The franchiser and franchisee are independent businesses affiliated for the agreement only.  A franchisee must pay a franchise fee in addition to a monthly fee (ex. 5% of sales)  A franchisee must also pay local and national advertising costs (ex. 1% of sales)  All supplies must be purchased through the franchise