Evolution of Franchising The concept of Franchising as we know today 1st started in Germany in 1840. In 1851, Singer Sewing Machine Co. began granting distribution franchises for its sewing machines. Thus began the modern concept of franchising. The root word “Franchise” comes from old French meaning privilege/ freedom. In middle ages a franchise was a privilege/ a right. Essentially a marketing concept, Franchising is an innovative method of distributing goods and services.
Legal definition of Franchise: Black’s Law Dictionary 7th edition 1999 defines Franchise as, “the sole right granted by the owner of a trademark or trade name to engage in business or to sell a good or service in certain area.”
RELATIONSHIP BETWEEN FRANCHISER AND FRANCHISEE Element The Franchiser The FranchiseeSide Selection Overseas and approves, Choose side with may choose side Franchiser’s approvalDesign Provides prototype Hires, manages, and fires design employeesProducts & Services Determines product Modifies with only or service line Franchiser’s approval Price Can only recommend Sets final price priceAdvertising Develops & Coordinates Pays for national ad national ad campaign campaign
Element The Franchiser The FranchiseeQuality Control Sets quality standards Maintain quality and enforces them with standard ; trains Inspection employees to implement quality systemsSupport Provides support & Operates business on a through an established day-to-day basis with business system franchiser’s support
FRANCHISING BOOM IN INDIA.There are approximately 1150 national and international businessformat franchise systems in India in 2012.Around 8 to 10 per cent Indian franchise systems have enteredinternational markets.There are an estimated 70, 000 units operating in business formatfranchises.The growth rate in franchised units from 2010-11 to 2011-12 was 30 to35 per cent for the last 4-5 years.Some 500000 persons are employed in business format franchiseorganizations.Franchising contributed less than 4 per cent to India’s Gross DomesticProduct (GDP) in 2012.Annual turnover is approximately us$ 4 billion
Franchising and the law Uniform Franchise Offering Circular (UFOC)• Requires franchisers to disclose to potential franchises information on 23 important topics• Idea is to give franchises the information they need to protect themselves from dishonest franchisers and to make good investment decision
CAREFUL THINGS IN FRANCHISING 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 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
ADVANTAGES OF FRANCHISINGYour business is based on a proven idea. You can check how successful other franchises are before committing yourself.You can use a recognized brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise - the franchisor.The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.You usually have exclusive rights in your territory. The franchisor wont sell any other franchises in the same territory.Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
DISADVANTAGES OF FRANCHISING Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor. The franchise agreement usually includes restrictions on how you run the business. You might not be able to make changes to suit your local market. The franchisor might go out of business. Other franchisees could give the brand a bad reputation. You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor. All profits are shared with the franchiser
The Right Way to Buy a Franchise Evaluate yourself – What do you like and dislike? Research your market. Consider your franchise your options. Get a copy of the franchiser’s Uniform Franchise Offering Circular (UFOC) and read it. Talk to existing franchisees. Ask the franchiser some tou8gh questions. Make your choice.