Download - FRANCHISING
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FRANCHISING
SREEGURUDASS4 MBA
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You are in a business for yourself, but not by yourself. The franchisor is always there to help.
FRANCHISING:Running your own business by duplicating the success formula of the franchisor
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100
0
50
100
12
34
56
78
910
50
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Franchise90%
TraditionalRetail
25%Years
%%
FRANCHISE SUCCESS RATEFRANCHISE SUCCESS RATEVS TRADITIONAL RETAILVS TRADITIONAL RETAIL
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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.”
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CONT…
• 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
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TYPES OF FRANCHISE
• 3 main types of franchise:
– Product distribution franchise;
– Business format franchise; and– Management franchise.
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Product distribution franchise;
• Examples of famous product distribution franchise:
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Produces the syrup concentrate
Sells the syrup concentrate
FRANCHISEE Produces the final drink
Retail Stores
Restaurants & F&B Outlets
Vending Machine Operators
PRODUCT DISTRIBUTION FRANCHISES
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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.
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Famous Examples
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BUSINESS FORMAT FRANCHISING -
outlet in Sale, Australia
outlet in Marseille, France
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MANAGEMENT FRANCHISE
• A form of service agreement.
• The franchisee provides the management expertise, format and/or procedure for conducting the business.
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Famous Examples
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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
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Common considerations of franchisors
• Developing franchise concept• Market research• Familiarity with local laws and regulations• Providing training and support to
franchisees
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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
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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
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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
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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
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Ratio of Franchisors Food vs. Non-Food
19951995 1996 1997 1998 2000 2001 2003 1996 1997 1998 2000 2001 2003
70%70%
30%30%
47%47%
53%53%
46.8%46.8%
53.2%53.2%
40%40%
60%60%
41%41%
59%59%
46%46%
54%54%
345345
franchisesfranchises
405405
franchisesfranchises48%48%
52%52%
FoodFoodNon foodNon food
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Based on a USAID-funded studyBased on a USAID-funded studyHIGH GROWTH AREAS IN FRANCHISING BUSINESS SERVICESBUSINESS SERVICES SECURITY SERVICESSECURITY SERVICES PRINTING AND PRINTING AND ELECTRONIC ELECTRONIC PUBLISHINGPUBLISHING FOOD AND FOOD AND BEVERAGEBEVERAGE CAR SERVICES & CAR SERVICES & ACCESSORIESACCESSORIES
HEALTH SERVICESHEALTH SERVICESCOSMETICS AND TOILETRIESCOSMETICS AND TOILETRIES MAINTENANCE AND MAINTENANCE AND CLEANING SERVICESCLEANING SERVICES LAUNDRY SERVICESLAUNDRY SERVICES HOTELS AND MOTELSHOTELS AND MOTELS RETAILRETAIL
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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
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Franchising in India • Acceptability growing by the day• Fairly conventional industry spread • Approximately 600 franchisors spread across industries like
education, retailing, professional services, healthcare etc• Over 40,000 franchisees• Annual turnover from Franchising – anywhere between
Rs.8000-Rs.10,000 crores • Total investments made by Franchisees – over Rs.5000
crores• Over 300,000 people directly employed by franchised
businesses• Variety of hybrid formats in practice• Number of International franchises already existing, more
coming in
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Factors Defining the Growth of Franchising in India
• Positive Factors
– Huge consuming class– Fast-growing consumerism– Shift towards Services from Agriculture &
Manufacturing– Franchising has already proven to be successful in
several sectors– Large entrepreneurial pool
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• Negative Factors
– Lack of regulatory framework– Financing mechanisms not in place– Skewed real estate markets
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Franchising Trends in India• The Education sector dominates the Indian franchising
scenario, although Retail is fast catching up• Most of the franchisors are relatively new and small• Several large Indian corporates also going the
franchising way • Newer & innovative concepts being introduced• Substantial interest from international franchisors as
well as Indian business houses for master franchises• Franchising is now spread across the country, thereby
providing opportunities to entrepreneurs everywhere
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Benefits of Franchising
• Franchising allows the franchisor to:
– Have greater access to capital – Expand rapidly – Save operating costs – Capitalise on the abilities of independent
entrepreneurs
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• Franchisees joining a franchise system enjoy the following benefits:
– Backing of a bigger organisation
– Established trade mark or service mark– Economies of scale – Joint advertising and promotion – Transfer of management expertise – Training & support from the franchisor
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Critical Success Factors for a Franchise System
Ranking Factors
1 A Well Established Business Network
2 Constant New Product Development
3 Innovative Products / Services
4 Quality of Franchisees
5 Transparency
6 Return on Investment to Franchisees
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Most Common Causes of Friction between Franchisors & Franchisees
Ranking Causes of Friction
1 Transparency
2 Training and Support
3 Revenue Sharing
4 Product / Service Delivery
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THANK YOU…..!