1. Press clip
Article published in Croatian on “hrb”
2008 06
Franchising a foodservice brand: advantages and disadvantages
Croatia is slowly embracing franchise concepts throughout the different service
industries. Foreign brands are entering the market and this trend is growing as new
commercial centres open around the country. This development is a great opportunity
not only for international chains, but also for Croatian entrepreneurs. As an entrepreneur
the chance is to either take a franchise or master franchise from an established chain, or
to develop an own chain to be franchised.
In the following article I am going to focus on the advantages and disadvantages and
what other aspects are there to consider, in order to select a franchise.
Why to choose to be a franchisee in the first place?
Competition is growing and larger companies have teams capable of analyzing and
improving different aspects of the business with higher precision than independents.
Furthermore, franchise systems have developed operative systems and own a brand
image already in the market. All these aspects take time to build, and this is why every
time more individuals thinking on opening their own business tend towards franchising.
What are the advantages of franchising?
Diminution of the entrepreneurial risk. It takes time to understand the activity in which
one is to work. By acquiring a franchise, the entrepreneurs do not need to be experts in
the field, since they are given this know how from the start. Nonetheless, franchisees
need to be good in managing businesses, since although it is part of the franchisor’s role
to provide management guidelines, the final success depends on how franchisees run
their own business.
Assistance from the franchisor. The fees paid to the franchisor are used to improve
operation systems, reduce costs, investigate new food recipes, identify trends, new
services, etc. All these are issues sometimes difficult for entrepreneurs that in this case
only have to focus on management and on providing the best feedback possible to the
franchisor, so that their experience can enrich the entire system and all can benefit from
it. To be provided with this feedback, the franchisor has to offer some tools to the
franchisees. For example, periodic visits to the franchise units not only to control the
systems’ implementation, but to get their comments on the day to day operations in one
useful tool to apply.
When planning to take a franchise, avoid those brands that charge very little, because
little or no support is to be provided. Merely having a logo does not build a brand in the
long term, nor help to develop and improve the business.
Initial and permanent training. Franchise systems have already established operation
procedures so that an inexperienced individual is capable to understand the business in
a very short time. To do so, initial and permanent training is offered, being this another
advantage of becoming a franchisee.
Benefits from the R+D of the franchisor. Entrepreneurs are usually very busy with the
day to day aspects of the business, so there is not much time to think for example about
new products. Thus, franchisors among other researches, deliver new recipes to
franchisees at costs that are already adequate to the concept and that have been maybe

2. tested in the market at their own premises. These recipes are to substitute those not
performing so well, which help to maintain the offer always fresh, attractive and up to
date.
Taking advantage of economies of scale. Purchase conditions are better thanks to
the fact that the franchisor is buying large amount of products to the same suppliers.
These better prices are also in benefit of the franchisees, who get better prices than if
purchasing products only for their own unit.
Quick business results. The break even point is achieved much faster than when
opening a totally new business with an unknown brand, thus, the probability of success
and economic results are greater.
Brand recognition. Thanks to joining a known brand, attraction of guests is to be much
faster and easier. Nevertheless, franchising is much more than just allocating the same
logo on each new restaurant or bar of the chain. Thus, when choosing a franchise one
should take a look not only at the image, but also to the internal processes and how
these are transmitted to the franchisee.
Marketing and publicity. The franchisor takes care of the marketing of the franchise.
By joining the budget of the entire chain, it allows a much greater exposure in different
channels, as if someone would have its own individual business unit.
What are the disadvantages of franchising?
Additional costs. In opening a new business that is franchised, some additional costs
such as the initial fee, the management fee, etc., that are not applicable in the case of
non franchised businesses apply. Nevertheless, this should not be seen as additional
costs but as a risk reduction factor. In addition, savings such as the cheaper product
purchase commented, or specific new researched procedures that are to allow faster
service or less expensive operation costs should be taken into account.
Operation freedom limitation. Every franchise has an operative system in the form of
SOP’s (standard operating procedures) that the franchisees are to follow. This disables
franchisees to implement their own criteria into the business, thus, reducing the
entrepreneurial spirit.
The key is consistency (specially in the menu). One of the hardest aspects when dealing
with franchising is to convince franchisees that the offer (menu) has to be alike within the
system. Of course there should be room for some regional customization, but without
abandoning the core offer of the franchise. Any customization is to be agreed and
monitored by the franchisor.
Limitations to trespass or sell the business. The franchisor always holds the right to
buy or cancel the contract, according to the contract conditions. The stronger the brand
franchised, the more difficult it is to be for the franchisee to freely trespass or sell the
business in the future.
Risks of mismanagement from the franchisor. There is also a risk concerning the
franchisor’s ability to do business successfully. This is why before selecting a franchise;
one should take a look at the franchise operative standards, their future expansion
strategy, their service philosophy, conditions, etc., in order to select the best possible
franchise.
It is advisable to take a franchise that has been already in the year for some years and
has a few own units in place. This assures greater experience of the concept from the
franchisor side, and therefore a higher security level to the franchisee.
To conclude the correlation between the franchisor and the franchisee, each has certain
obligations towards one another. The franchisor offers a brand and a proved method for

3. success to the franchisee that, in return, has the financial capabilities to extend the chain
of the franchisor by opening another unit.
Source: Guía de Franquicias y oportunidades de negocio. Tormo y Asociados.
Marco Julià-Eggert
HMS International - Croatia
m.julia@hospitalitymsi.com
www.hmsinternational.eu