Background Reading Franchising & Pizzas Background Reading Franchising & Pizzas

Franchises are everywhere!

The basic idea Franchisor grants a licence (franchise) to another business (franchisee) to allow it trade using the brand / business format

Quick stat attack on UK franchises Annual sales £12.4 billion Franchise formats 800+ Average turnover per outlet £360,000 Profitable? 90% are Average age – 47 66% male 86% married Average borrowings £70,000 Source: 2008 NatWest / BFA Survey

Example – Cartridge World  Launched in Australia  Over 1300 franchises worldwide, in 36 countries  280 stores in UK since 2001  Proposition: don’t buy new; refill and save up to 60% + environmental benefits A classic use of franchising to grow a service sector business idea

Advantages of setting up as a franchise Still your own business Tested & developed format & brand Advice, support, training Easier to raise finance No industry expertise required Buying power of franchisor Lower risk method of market entry + lower failure rate

Disadvantages for the franchisee Not cheap! Initial fees + royalties & commission Restrictions on actions, including selling Problems selling business on Long-term rewards for hard work c/w going it alone? What happens if franchisor fails?

Franchise Costs In addition to the usual operating costs (e.g. staff, rent, gas & electricity) Initial fee: £5k – 200k Service fee: % of sales (5-20%) Advertising levy: joint pot to fund brand promotion Mark-ups: may have to buy stocks from franchisor O2 is expanding in the UK via franchised shops

Advantages for Franchisor A classic growth strategy for a proven service business format Enables rapid geographical growth for a minimum investment Still have an option to open solus branches Cream-off the “above normal” profits

What Makes a Successful Franchise? Proven format, with the operational wrinkles ironed out Distinctive image & brand Possible to pass on the business format Potential for enough profit for both franchisor and franchisee

A choice - Franchise v Go-it-alone? Buy a FranchiseGo-it-alone Trusted and well-known brands – easier to find customers Keep all the profits rather than sharing with franchisor Easier to raise bank financeControl over all aspects of business decision-making Focus on a specific geographical area Not restricted to one geographical area Support of franchisor back-up services, including training Easier to sell the business

Concluding thoughts A popular method of low- risk, service-sector start-up There are some good franchises, and many poor ones Still need to do market research before opening a franchise A half-way house for the budding entrepreneur? Thorntons offers other retailers a franchised chocolate product range

Example – Dominos Pizza

Example – Pizza Hut Franchises

Example – Perfect Pizza

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