1. ALL ABOUT FRANCHISING PAN DE PIDRO FRANCHISE

2. WHAT IS FRANCHISING? Franchising is a business model wherein the owner of the business gives another entity the right to distribute his products, implement his business techniques and use his brand or trademark in exchange for a fixed franchise fee or a portion of the gross income. The job of the Franchisor is not to make a Franchisee successful, as the Franchisee must actively work on his franchise. Being part of the franchise system does not guarantee success. Like any business, it takes hard work, long hours and sacrifice to make the business work.

3. Franchisors provide a working operating system and assist the Franchisee in getting efficient, effective and profitable support services throughout the relationship. The business format of franchising does not only include the use of a logo or a trademark but a complete system of doing business. The word “system” is the key concept to franchising. In franchising, the Franchisee purchases someone else’s expertise, experience and method of doing business. It saves the Franchisee from going through the “labor pains” of a start- up company.

4. FRANCHISING BASICS  Franchising is a method of distributing goods and services  Franchise is a legal agreement between two parties and a privilege granted to an individual or entity  The entity granting the privilege is the Franchisor and the entity or individual granted the privilege is the Franchisee  The system under which the two parties operate is known as FRANCHISING

5. WHY FRANCHISING? If properly executed, Franchising is a win-win situation even for customers. The system provides a way to receive goods and services in a reliable and predictable manner. Companies choose to grow by granting to others a license to sell their product or services. And for the Franchisee, they do not have to come up with a new idea – the Franchisor has already tested it and continuously working on new ones.

6. BIGGEST ADVANTAGE OF FRANCHISING The biggest advantage of franchising is this statistic: 75% of all independently-owned businesses don’t survive the first 5 years. In franchising, only 5%. (2006 data)

7. FEATURES OF FRANCHISING EFFECTIVE STRUCTURE Franchising is contractual. Commitments made by both the Franchisor and the Franchisee serve as the structure of the franchise system and must be protected at all times to ensure the effectiveness of an expanding franchise network. CONTROL OF PRODUCTS & SERVICES FOR SALE To control quality of goods and services, Franchisors control those goods and services that Franchisees are allowed to sell. From time to time, Franchisors may allow Franchisees to experiment as a source of possible innovation or as regional variation or different customer base may require such deviation.

8. CONTROL OF OPERATING ASSETS, GOODS & SERVICES UTILIZED BY FRANCHISEE CONTROL OF OPERATING ASSETS, GOODS & SERVICES UTILIZED BY FRANCHISEE Franchisors control the sources from which their Franchisees purchase operating assets (equipment, fixture, furnishings & signages) and goods and services required to run the franchised business: 1. To control quality and uniformity 2.To assure uniformity of prices 3.To protect confidential information

9. Franchisors relying primarily on product sales to its Franchisees have less secure revenue base. It is less dependent on monitoring its Franchisees to ensure proper royalty calculation and payment. Therefore, the Franchisees have the burden to proper monitor their sales. Franchisors relying primarily on product sales to its Franchisees have less secure revenue base. It is less dependent on monitoring its Franchisees to ensure proper royalty calculation and payment. Therefore, the Franchisees have the burden to proper monitor their sales.

10. GRANT OF EXCLUSIVITY OR PROTECTION To facilitate sales of franchises and to motivate effective market development by the Franchisee, Franchisees are more inclined to invest in the development of his business if he has no competition of the same brand in his area. A right granted to the Franchisee is the control of the geographical area to force a Franchisee to fully exploit his assigned territory and to maintain product quality.

11. EXCLUSIVITY Franchisors generally prohibit Franchisees from having investments in or performing services for a competitive business to protect the confidentiality nature of the franchised business. TRANSFERABILITY Franchisor reserves the right to accept or deny the transfer of the franchise to a third party in order to maintain that buyer does not overpay for it which could affect his ability to run the business and if the reputation, morals and credit standing of the new Franchisee is acceptable to the Franchisor. Franchisor reserves the right to accept or deny the transfer of the franchise to a third party in order to maintain that buyer does not overpay for it which could affect his ability to run the business and if the reputation, morals and credit standing of the new Franchisee is acceptable to the Franchisor.

12. EXPIRATION Franchises are granted for a definite term. If a franchise is not renewed, the restrictions on the business activities of the owners and his family become an issue. Franchise agreements provide for post-expiration covenant of non-competition. Franchisors reserve an option to buy the Franchisee’s business upon termination or expiration of the franchise. The purchase price may be determined by a formula or may be the fair market value of the business.

13. CONTROL OVER FRANCHISED OUTLETS Franchisor, generally, has less control over franchised outlets than it would have over company-owned outlets. Therefore, it is important that a relatively uniform standards throughout the network is maintained. Franchisor implements policies, systems and procedures to ensure compliance of these standards. Non-compliance may damage the reputation of the franchised network.

14. THE 4Ps OF PRODUCT MARKETING Four elements play an important role in a customer’s decision to a buy a product: PRODUCT o What is the physical product? o How is it packaged? o What is the brand of the product? PRICE o What is the price to make a profit? o What price are customers willing to pay? o Should credit be extended? o How should business respond to competitor’s price?

15. PLACE o How will product reach the customer? o How will products be handled, stored, displayed and controlled? o How will orders be processed? o Who will be responsible for damaged or unsold products? o What kind of traffic pattern fit the buying patterns of the target customers? PROMOTION o What information do customers need? o Should promotions be persuasive or informational? o What combination of advertising, personal sales, promo sales and publicity are needed? o What media to use?

16. PAN DE PIDRO FRANCHISE BUSINESS NAME The Franchisor is Pan de Pidro Inc. And all PdP outlets shall bear the name “PAN DE PIDRO”. The said brand name, together with its tag line “atin ito” is a registered trademark. TARGET MARKET Pan de Pidro’s target market is generally CD. Ideal locations are commercial areas where foot traffic is heavy, accessible to public transportation, visible from the street view with potential operating hours of at least 12 hours.

17. OPERATING SYSTEM A Pan de Pidro outlet operates under a trading concept – selling is the means to distribute products. Most products are delivered to the outlets baked from the company’s commissary. Two commissaries are operating at present – 1 in Mandaluyong, which services Makati to the North of Metro Manila outlets and 1 in Paranaque, which services Pasay and the South of Metro Manila outlets. Pandesal, however, are delivered raw but moulded and ready for baking in the outlet’s oven. This will guarantee that Pandesal, a filipino bread staple, especially in the morning is sold HOT! Products are sold on consignment with payment expected within 3 days from billing.

18. PROPRIETARY MARKS The Franchisee is granted the right to use the logo, signages, slogans and trademark of Pan de Pidro. Pan de Pidro Inc is registered with the Securities and Exchange Commission and a registered trademark. TRAINING Initial training shall be provided to the Franchisee and his employees in actual store condition in one of the company- owned outlets. This will allow the Franchisee and his employee to experience first hand how it is to operate and run a Pan de Pidro outlet.

19. SITE SELECTION AND APPROVAL Pan de Pidro, generally does not provide locations to prospective franchisees. Franchisees will have to find them by themselves. Pan de Pidro shall approve of such location prior to the lease and start of construction of the proposed site to ensure that such location fit into the company’s location profile. Franchisee shall conduct preliminary research on potential site. He may need to spend some time at a location to do traffic or pedestrian count and study the flow of traffic and people.

20. OUTLET EVALUATION CHECKLIST ACCESSIBILITY & TRAFFIC PATTERNSYES/NO Is it easy to exit & enter into traffic? Are intersections difficult or are there major road construction or other impediments? Are people shopping, commuting to other other commercial centers or just passing through? ZONING /PARKING LAYOUT/OPERATING HOURSYES/NO Does municipality allow bakery in that location? Is parking available? Do operating hours match customer needs?

21. VISIBILITY / PUBLIC TRANSPORT / SIZEYES/NO Is it visible from street level? Is it in front of public transportation? Is size within the minimum required space of PdP? NEIGHBORHOOD DEVELOPMENTYES/NO Is neighborhood safe and stable? Are there any major developments in the area? Is it within the commercial area?

22. LEASE TERM & UTILITIESYES/NO Is the lease term within the term of the franchise? Is there water supply? Is there electricity? COMPETING OUTLETSYES/NO Are competing bakeries located in the immediate vicinity? What bakeries are there? What other eateries are there?

23. SAMPLE STORE LAY OUT Standard colors – greenwich green and orange (swatch to be approved) Paint style – half orange and half green Equipment & Fixtures: 1 – Oven Display Cabinet 1 - Cooling Rack 1 – Chiller 1 – Creamline Ice Cream (optional)

24. BODEGA SPACE LAVATORY WORKING TABLE

25. OPENING ASSISTANCE TRAINING Franchisee will be given a franchise kit where he can study and evaluate the business. Franchisee will be briefed as to the operating system. Franchisee’s employees will undergo on-the-job training at any of the company-owned outlets.

26. PRE-OPENING ASSISTANCE Franchisor can process licenses and other documents for the Franchisee for a minimal fee. Flyers and tarpaulins will be provided to the Franchisee for distribution in the vicinity of the site. Lay-out assistance.

27. OPENING ASSISTANCE Blessing assistance will be provided – from candles, balloons ribbons and other decors. 15 boxed goodies for special guests will be provided. A total of 1000 pcs of free products will be distributed during the opening week. PdP will send crew assistance during opening day. Publicity may be provided free of charge during opening day.

28. ORDERING, DELIVERIES & BILLING SYSTEM ORDERING Refer to your ROI template for your minimum amount of orders. Call 5312682 up to 3 pm only daily for orders. Fixed weekly orders may also be accepted. Special orders must be placed at least 1 day in advance. Special orders refer to orders of products not part of our daily deliveries. DELIVERIES Product deliveries are arranged in advance with the Franchisee. Deliveries start from 12mn onwards. Second delivery is allowed for orders not less than P1000.00.

29. UNSOLD PRODUCTS A list of products and their corresponding shelf life will be furnished to Franchisees. Products unsold after the expiry dates may be returned but up to 20% of the cost of the total order only. The amount of returns will be deducted from the weekly billings. There are products, however, where returns are not allowed. Special orders fall under this classification.

30. BILLING Billing cycle is generated for every 7 days of the week. COLLECTION Payments are expected 3 days after the date of the receipt of the billing. Delayed payments will be subjected to penalty charges.

31. FRANCHISE FEE ONE TIME FRANCHISE FEE Upon signing of Franchise Agreement P150,000.00 1-week prior to scheduled opening 150,000.00 P300,000.00 P300,000.00 ROYALTY ……………………………NONE

32. SAMPLE ROI COMPUTATION COMPUTATION OF BREAK-EVEN SALES BREAD SALES ONLY SAMPLE COMPUTATION EST. GROSS MONTHLY EXPENSES EST. GROSS MONTHLY SALES EST. DAILY AMT. OF ORDERS* Rental* 12,000.00 *assumption is only 70% Salaries 12,000.00 of products sold daily Utilities 3,000.00 LPG 1,400.00 Packaging Materials 500.00 Misc 1,000.00 EST. MONTHLY BREAK- EVEN 29,900.00 99,666.67 EST. DAILY BREAK EVEN 3,322.22 4,318.89 TARGET SALES 4,000.00 5,200.00

33. COMPUTATION FOR ROI BASED ON TARGET VOLUME TARGET 1 (LOW) EST. AMT OF ORDERS TARGET 2 (HIGH) EST. AMT OF ORDERS TARGET DAILY SALES 4,000.00 5,200.00 4,500.00 5,850.00 LESS: DAILY BREAK-EVEN SALES 3,322.22 EST. DAILY PROFIT 677.78 1,177.78 EST. DAILY PROFIT-OTHERS 500.00 3,000.00 EST. TOTAL PROFIT 1,177.78 4,177.78 NO. OF DAYS PER MONTH30 EST. MONTHLY PROFIT 20,333.33 35,333.33 AMOUNT OF INVESTMENT 300,000.00 EST. MO. PROFIT 20,333.33 35,333.33 NO. OF MONTHS ROI 14.75 8.49

34. ESTIMATING PEDESTRIAN TRAFFIC & SALES POTENTIAL As a retail outlet, sales is largely dependent on volume, therefore, prospective franchisee must be very careful in selecting potential outlets As a retail outlet, sales is largely dependent on volume, therefore, prospective franchisee must be very careful in selecting potential outlets As a rule of thumb, potential franchisee must observe the site on at least 3 different days at different times to understand the actual volume of people that pass by as well as the potential highs and lows of the area As a rule of thumb, potential franchisee must observe the site on at least 3 different days at different times to understand the actual volume of people that pass by as well as the potential highs and lows of the area Make an actual physical count using a counter Make an actual physical count using a counter Add them up to get the estimated daily number of pedestrian Add them up to get the estimated daily number of pedestrian Make the following assumptions : Make the following assumptions : Only 50% of passersby will actually stop by your store Only 50% of passersby will actually stop by your store Only 50% of those who stopped will actually buy Only 50% of those who stopped will actually buy Average sales is P20.00 per pax Average sales is P20.00 per pax Multiply estimated buyers by the ave. sales amt will give you a potential daily sales figure Multiply estimated buyers by the ave. sales amt will give you a potential daily sales figure

35. SAMPLE COMPUTATION DAYTIME# OF PEDESTRIAN Monday5:00 - 8:00 a.m.200 Wednesday10:00 a.m. - 1:00 p.m300 Thursday2:00 - 5:00 p.m.400 Est. daily pedestrians 900 assume 1 : only 50% of pedestrians actually stop at your store450 assume 2 : only 50% actually buy225 assume 3 : ave. sales amount P20 20.00 Estimated sales/ day 4,500.00 Evaluate if the estimated sales support the target sales in your ROI estimate, IF NOT, THEN LOOK FOR ANOTHER SITE!

36. DO YOU HAVE WHAT IT TAKES TO BE A FRANCHISEE? MOTIVATION This is commonly found in people who have worked hard before on a job before but was never fulfilled. MATURITY Maturity helps you persist despite the long hours, get along with your people, handle money responsibly and deal with crises with patience and good judgment. You need to set goals and plans on how to achieve them. Goals must be realistic and plans must be attainable, accepting your limitations and exploiting your advantages.

37. MONEY Starting a business takes money. Look into your financial situation honestly and determine how much money you can put into your business. You need to determine whether the business you are considering can provide enough income especially if you are accustomed to a high income. KNOWLEDGE AND EXPERIENCE Know your business well. Strategize how to achieve your sales targets.

38. EVEN TEMPER A Franchisee must be able to make decisions logically and with good judgment. That means he must know how to handle pressure calmly and thoughtfully. If you are impulsive, you are bound to make bad decisions. If you are hot tempered, you may alienate customers and employees, alike, putting your business at risk. TENACITY “Stick to the business” is a must for every Franchisee. In case of drawbacks, feel free to consult with the Franchisor or handle the problem with maturity to make the best possible business decision.

39. FAMILY SUPPORT You must have the support of your family so they will understand the long hours that you may need to put into the business. FRANCHISOR’S PLAN Franchising follows the game plan of the Franchisor. Follow it. If you need to make improvements, consult with your Franchisor, make a recommendation but accept that not all your recommendations may be implemented. Remember that the Franchisor thinks for the entire franchise network and not only on your business. So if your suggestion may not work for the others, it may not be implemented at all. Learn to accept consensus.

40. TRUST To succeed in franchising, you must believe and support the Franchisor’s system and policies. Since Franchisors rely on your business, it will constantly find ways on how to improve the overall business condition of the entire franchise network. COMMUNICATION Communicate openly with the Franchisor. The more Franchisee forwards complaints and share experiences, the more the Franchisor can use these complaints and services to improve the business’ operating system.

41. IF YOUR ANSWER IS YES TO THE ABOVE, THEN WELCOME TO THE PAN DE PIDRO FAMILY!