1. An Introduction to Franchising by Rahul Jain

2. Growth of Franchising
Singer Sewing Machine – first franchise (mid- 19th century)
Automobile (e.g. Ford), petroleum products (e.g. Shell), soft drinks (e.g. Coca Cola)
Food and restaurants (e.g. McDonald’s, Starbucks)

3. Brief Outline What is franchising? Types of franchising Why franchise?
Considerations for franchisor/franchisee
Pitfalls/Be careful

4. What is franchising?
“A franchise operation is a contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format and/or procedure owned or controlled by the franchisor, and in which the franchisee has or will make a substantial capital investment in his business from his own resources.”
- Definition by International Franchise Association

5. 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

6. Franchising is more than distributorship
What is franchising?
Franchising is more than distributorship
Extends to an entire operation or method of business
Greater assistance, control and longer duration
Distributor merely re-sells products to retailers or customers

7. TYPES OF FRANCHISE 3 main types of franchise:
Product distribution franchise;
Business format franchise; and
Management franchise.

8. 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.

9. PRODUCT DISTRIBUTION FRANCHISES
Examples of famous product distribution franchise:

10. PRODUCT DISTRIBUTION FRANCHISES
Produces the syrup concentrate
Sells the syrup concentrate
FRANCHISEE
Produces the final drink
Retail Stores
Restaurants & F&B Outlets
Vending Machine Operators

11. 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.

12. Famous Examples

13. BUSINESS FORMAT FRANCHISING -
outlet in
Sale, Australia
outlet in
Marseille, France

14. MANAGEMENT FRANCHISE A form of service agreement.
The franchisee provides the management expertise, format and/or procedure for conducting the business.

15. Famous Examples

16. Why is franchising important to SMEs?
Leveraging on a recognised brand name
Enhancing business image
Ensuring consistent quality
Attaining higher productivity/better motivated staff
Access to good locations
Economies of scale
Reducing risks of failure

17. WHY FRANCHISE? Franchises offer important pre-opening support:
site selection
design and construction
financing (in some cases)
training
grand-opening program

18. 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

19. Common considerations of franchisors
Developing franchise concept
Market research
Familiarity with local laws and regulations
Providing training and support to franchisees

20. 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

21. Common considerations of franchisees
Demand
Profitability of franchise, and length of time required to recoup investment
Track record of franchisor
Support rendered to other franchisees

22. 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

23. 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

24. BE CAREFUL The franchisee is not completely independent.
In addition to the initial franchise fee, franchisee must pay ongoing royalties and advertising fees.
Franchisee must be able to balance restrictions and support provided by the franchisor with their own ability to manage the business

25. BE CAREFUL
A damaged image or franchise system can result if other franchisees perform poorly or the franchisor has financial problems.
The duration of a franchise is usually limited and the franchisee may have little or no say concerning termination

26. 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

27. Common Mistakes of Prospective Franchisees
Not analyzing the local market in advance
Not analyzing the competition
Not making thorough due diligence of the franchisor
Not choosing the right location

28. Franchising in India
Grown from a questionable format to an admissible mode of business expansion in India
Pioneering companies proved that franchising can work in any market/ country
Brought a graphic change in over-all working culture in the business
Technology and internet are helping at both ends:
To create the awareness about new products & services, and
Enabled high consumer servicing allowing fast proliferation of worthy concepts & products

29. Franchising in India Revolutionary year - 2010,
Booming entrepreneurship: 1800 Home Grown Franchisors & 2,00,000 Franchisees
85% success rate in franchising Vs. 90% failure in self start ups
Franchise industry estimation has towered up to over US$ 7 billion
Highest retail outlet density in the world to up to approx. 12 million
Remains the best entry & expansion strategy
SMEs are the key economy drivers
Employs over 97,00,000 employees directly or indirectly

30. Conclusion Franchising – a great model for SMEs
Proven formula for success
Due diligence
Central role of IPRs
Avoidance of dispute

31. Assignment
Write a one page note on a company who have successfully adapted franchise model. (Both Franchisor and Franchisee perspective)
Provide all references