See How a Franchise is More than Just a Restaurant Branch
Franchises, we have all heard the term, we know restaurants do it but do we know what does it actually mean and how does it work?
What is a franchise ? Franchises have existed in the world for a long time in some form or other, but the kind of franchises that we know of started around the turn of the nineteenth century. A franchise is an authorization offered to a party by the parent company, wherein the party represents the parent company and carries out its commercial activities on behalf of the company while sharing profits for the same. In other words, a franchise is an agreement made between the parent company and the franchise partner, where the franchise partner pays a sum of royalty to the company in exchange for using their brand name and for duplicating their business model
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to run a successful business unit for the company. The profit is shared by the parent company and the franchise partner.
Why do companies franchise ? A franchise is like a joint partnership between the franchisor and the franchise agent. The franchisor or the parent company wants to expand and create a foothold in a region or area and might be wanting to do it in more than one region in quick succession. Something like opening multiple retail units would require an insane amount of investment and resources. By giving out franchises for these units, the company manages to reach its goals without the investment by partnering with franchise agents, who will serve as their representatives and will invest and take care of the units on a profit-sharing basis.
Why do individuals buy franchises ? For any entrepreneur, buying a franchise is a safe investment and helps them attain their goals of running their business with the safety net of an established brand and also with the support of an established company. A franchise helps the individuals acting as agents by making it easier to break the barriers to entry. As it is an already known brand, loyal customers start providing revenue to the franchise from the start and that is one major advantage of a franchise and one of the reasons why an individual would choose a franchise.
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How does a franchise work ? As mentioned earlier, a franchise works as a unique partnership agreement between the two parties. But why and how does it work? The parent company has created a successful business and has created a successful brand in whatever may be its line of product or service. But the growth of any company will only be limited if it does not grow geographically and capture different markets from more regions. While some companies may have the financial capability and the resources needed to expand their business on other lands and create multiple units, most companies lack this ability. Such situations are not new, from the time of the kings, leaders who wanted to grow their empires have had the need to reach other regions and in order to do this, they started giving out franchises as units to look after for the company. The franchise partners act as agents or representatives for the company working on behalf of the company as it does use the company’s name. For this, they are taken as part owners, who own the unit but pay a royalty sum to the partner company for using the brand name and share their profits with the company. The company along with their brand name also provides full support to the franchise partner in planning, starting, procuring, training and actual execution and operations of the business. This is a great boost for any business owner, to get the help of an experienced business in setting up their own. Let’s look at some salient features of a franchise.
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1.It is a profit-sharing partnership between the two parties. 2. The parent company’s contribution includes:
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A. The company’s brand name to be used by the agent, who will benefit from the brand’s familiarity and customer base. B. Assistance in all matters of starting the business, wherever the agent needs help for example, in choosing a research-backed location for the unit or in procuring equipment or supplies. C. Providing complete training in all operation exercises like manufacturing processes or sales processes. D.A meticulously created business model detailing all processes and reducing room for error or failure. E. Quality standards, which are demonstrated to the franchise and the franchise gets trained in and is expected to follow. F. Marketing assistance along with running nationwide marketing and advertising campaigns, which the company does for the brand. 3. The franchise partner’s contribution includes: A. Investing in the unit as an owner. B. Day to day operations held at the unit, for example, procuring, training of staff, manufacturing, sales, maintenance of the unit, etc. C. Hiring and management of the staff at the unit. D. Regional marketing and advertising campaigns to increase sales.
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E. The expenses, which are borne by the unit.
Franchises in India Today, India is the second largest franchise market in the world with close to two lacs franchises in the country. India has a high number of urban and small-town inhabitants, who provide the customer base, which allows the franchise market to grow. India really came into the franchising model of business in the 1990s during the era of liberalization and privatization. Since then there has been no looking back and the franchise market has been booming. The last decade has seen a drastic increase in the rate of growth of the franchise business with an annual growth rate of 30%. The Indian franchise business is currently worth over 50 billion US Dollars and is expected to 150 billion USD in the next five years. So now you know why the franchise market in India is booming and why everyone is taking a franchise. It is a win-win-win situation for all, that is for the parent company, the franchise agent and the final customers because they are the ones who enjoy the fruits of the franchise in the form of its different products and services and pay for them. Their demand is what has lead to the growth of the franchise industry in India and is the reason why franchises have become so common. This would have shown you a little more about the glorious franchising business and now you will know a franchise as more than just a restaurant branch.
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