Retail Chronicles October Edition

Retail

Chronicles

Monthly Newsletter | Volume 6 | Issue 9 | October 2021

Retail

Chronicles

Monthly Newsletter | Volume 6 | Issue 9 | October 2021

CONTENTS 03

THE FRANCHISING FRAMEWORK Franchising business model solves the two most challenging obstacles that entrepreneurs face that are capital and business experience.

Franchising framework includes ownership structure, business structure, contract design etc. of the Franchisor.

07

FREE FRANCHISE VS TRADITIONAL FRANCHISE A new form of business is emerging due to globalization, the internet revolution, higher connectivity, readily available information, better transportation, etc. This new type of business is franchise business

11

IMPACT OF LOCATION ON FRANCHISE BUSINESSES Location plays a vital role in the growth of a franchise business. A similar store at highway and residential area perform differently.

Location includes customer demographics, visibility of stores, accessibility, and competition.

15 T H I N G S

TO KOW BEFORE OWNING A FRANCHISE BUSINESS Highlights wonderful insights one should know before owning a franchise business and in depth analysis of the same.

19 20

PODCASTS TRIVIA QUIZ

WRITERS Aayush Ghildiyal | Harsh Gupta | Akshita Kulshreshtha | Raghav Khandelwal |

JUNIOR DESIGN TEAM Abhishek Jain | Hrishikant Mane | Mansi Vora | Ruttwik Bowlekar | Yash Bhojwani | Yuti Talati |

SENIOR DESIGN TEAM Nilesh Agarwal | Prachi Sharma | Prashant Sihag | Shivani Kunkolienkar | Sneha Patel |

EDITOR Riya Shah

THE FRANCHISING FRAMEWORK

Aayush Ghildiyal - MBA RM Retail Chronicles | Page 03

October, 2021

When starting a business, the two most challenging obstacles that entrepreneurs face are capital and business experience and, these are the problems that are solved under the franchising business model. Although these problems are solved by this business model, to make it highly successful, a systematic framework needs to be followed.

Franchising is a business model involving a contractual agreement between the franchisor and the franchisee. The franchisee buys the right to operate in the name of a brand, intellectual rights, and business knowhow. The consideration is in the form of fees and royalties to the franchisor.

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The framework used for the successful operation of such businesses consists of five main factors acting as building blocks and also impacting the outcomes of a franchise: 1. The ownership structure: Plural vs. Pure franchise: The Plural form of ownership is where both the franchisee and the franchisor own the business units compared to the pure model, where the franchisor has total ownership of the unit. The Plural model has shown to be more effective as the franchisee has a greater incentive to perform well, as he acts as an independent entrepreneur. Plural form outperforms Pure franchise with regards to franchise survival and also regarding financial performance. An example of a Plural Franchise being Starbucks and, Mc Donald’s is an example of a Pure form of franchise.

Single unit versus multi-unit ownership: Owning multiple units is more advantageous for the franchisee. It results in better survival rates and lower production costs, as the production layout is the same across all the business units owned by the franchisee.

October, 2021

Also, it is easier for the franchisor to implement changes in different units if the same franchisee owns them.

Passive vs. active ownership: Passive ownership, where the owner is not involved in the day-to-day activities of the business unit, is disadvantageous for the survival of the business unit.

Especially when the operations are not well defined, and local knowledge is essential for day-to-day work.

The use of standardised operating instructions for the franchisee has a positive effect and improves the quality and financial performance of the franchise.

3. The influence of contract design: The level of initial and ongoing payment does not affect the business outcome.

The critical factor here is the franchisee's satisfaction with the contract; it should be clear and not exclusively benefit the franchisor's interests.

2. The business structure influence: Brand name: A strong and recognisable brand name positively affects profit, sales, and growth.

Support: The type, the extent, and the quality of support are factors that contribute to the positive outcomes for franchises.

Franchises perform well financially when provided with a large amount of support.

Support includes: Assistance in seeking a suitable location Product development A ready-made concept Training Marketing and branding support.

Control: Studies show that decentralised decision-making yields better outcomes in terms of finance and satisfaction.

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4. The influence of behaviour and interaction: Relationship: Several studies have shown that a positive relationship between the franchisor and the franchisee ensures positive outcomes. Higher levels of trust, commitment, and communication between the two parties lead to superior business performance.

Attitude: The attitude of the franchisor and October, 2021

franchisee is equally crucial for the success of the business. High motivation and the willingness to work hard and make sacrifices generally lead to better financial performance and tremendous success.

Communication: High quality and frequent communication between the franchisor and the franchisee leads to a better understanding of operations and avoids the franchisee's negative exit.

effect on financial performance. The size of the franchisee firm, the more the number of business units owned by a single person more is the financial output.

Age effect: There are no harmful effects if the franchisor waits longer to start a franchising chain. Higher survival rates are seen for chains that are older at the start of a franchise.

5. The influence of size and age: Size of the system and franchisee firm: The size of an existing franchise chain does not significantly impact the output.

An extensive system may have a positive Retail Chronicles | Page 06

The diversity and complexity of franchising make it challenging to develop a single, overarching framework that would guarantee success. Although, the framework mentioned above provides valuable insights into the best practices.

October, 2021

FREE FRANCHISE VS TRADITIONAL FRANCHISE

Harsh Gupta - MBA IB Retail Chronicles | Page 07

October, 2021

Free Franchise Franchise:

vs.

Traditional

There was a time when an individual had just two options to earn money. One, to work in a well-established company and provide their service. Another option was to come up with new idea and creativity to develop a product or a service and start a new business. However, a new form of business is emerging due to globalization, the internet revolution, higher connectivity, readily available information, better transportation, etc.

This new type of business is franchise business.

A franchise business is a business model in which a private company sells the rights to use the concept of product or service, trademarks, Retail Chronicles | Page 08

Logo of the company, name of the company, etc., to someone to run the business at a different location. The one who sells the rights is called the franchisor, who enjoys benefits like lifetime royalty in this business model.

The private operator (who buys the rights) is reached the franchisee, and this system is called the franchise business model. To summarize, it is an extensive process of an existing and successful business. The franchisor and the franchisee have a contractual relationship. Examples of the franchise business are Subway, Lipton, Café Coffee Day, Dominos, McDonald’s, Pizza Hut, and many more.

The business model, which is expanded in different areas or countries, requires a well-structured and excellent management and many other inputs like product development, strategies, policies, marketing, etc., to run smoothly.

Based on such factors, the franchise business model can be divided into two types: Traditional Franchise Business Free Franchise Business October, 2021

Traditional vs.

Free Franchise Business Model: Now, let's understand the difference between traditional and accessible franchise businesses and try to understand which model is better, the names of companies following these models etc.

Let's consider the following parameters: Product Development: In the case of both traditional and free franchise models, the product or service is created by the franchisor or the owner of the company and their team. However, if we talk about the innovation in product and service, there is a considerable difference between the traditional business and the free franchise.

In the case of the traditional business, only the parent company or the franchisor and their team can innovate the product. They have a dedicated research and development team who understands the demand and make innovations in the product. The input of franchisees in the development and innovation in the product can be limited or null. Hence the product is the same for everyone living in a different city, village, or country. Example: Companies and brands such as HP, Oppo, Vivo, Samsung, Apple, L’Oréal, Patanjali, Dettol, IMS, TIME Institute, etc.

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In such a case, the investment in research and development can be very costly for the franchise. On the other hand, in the free franchise business model, the base product is the same.

The franchisee has the right to make some innovations in the development according to the local demand—for example, McDonald’s, Subway, Pizza Hut, etc. Here, in this case, the products can be different based on their locations.

Example: Maharaja Burger of Burger King is available only in India, not in other countries. Their burgers vary from region to region based on the culture, taste, etc., in that area, but the essentials remain the same for the standardization of the product. Moreover, the product name also varies according to the local language and culture, etc.

·Policies and Marketing Strategies: In the case of the classic franchises, all of the thinking work, policymaking, marketing strategy making, etc., is done by the headquarter. The franchisee has to execute those policies, strategies, etc.

It is like plug and play type of business model.

Marketing strategies are standard, the expenditure and budget are defined, banners and other stuff for promotion are provided by the headquarter, the area is limited, etc.

However, in the free franchise, some October, 2021

policies, strategies, etc., are standard for the smooth functioning of the business across the franchises. Still, the franchise enjoys the freedom to make their policies, marketing strategies, etc., at the local level, which does not impact the guidelines made by headquarter. The owner of the franchise can sponsor local events, and he can target customers across cities. The owner can develop new schemes, which may not be available in other franchises, to attract more customers, etc.

Hiring: In most traditional franchises, the hiring process is standard and is done by the headquarter. The headquarter have the right to decide the extent of involvement of the franchisee in the process.

According to the need of different franchises, the hired employees are transferred to varying franchisees after their training. For example, tech companies like Vivo, Asus, Hp, etc., train the sales employees and then share them to different franchises.

In the case of free franchises, the owner has the right to design the hiring policies. He can hire whomever he wants according to different skillset requirements or asks the headquarter for the employee.

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Conclusion: To conclude, traditional franchises are plug and play type business model, where the involvement of franchisees in product development, strategy making, policy making, etc., is limited or nil. The franchises follow a relatively more standard approach. Talking about the freedom franchise model, with there is no 100% free franchise business model.

Free franchises are those that enjoy relatively more freedom. The degree of freedom and the aspects (innovation, strategy, policy, etc.) the franchises want is different from company to company.

CIn the current world, we cannot follow the 0 or 1 approach. Traditional and freedom franchise models are essential and relevant, depending on the product type and other factors. Like we saw in the case of Burger King earlier, traditional model may not work. They require a relatively higher degree of freedom in various aspects. However, some products like Mobile, Laptop, Car, etc. standardization across the globe is expected.

October, 2021

IMPACT OF LOCATION ON FRANCHISE BUSINESSES

Akshita Kulshreshtha- MBA RM Retail Chronicles | Page 11

October, 2021

A franchise is a type of retail business wherein an individual, or a group of individuals is granted a right to market and sell a company’s goods or services within a territory or location. Most of the fast-food chains work on the Franchise Business format There are a lot of factors that determine the success of a Franchise business. The prime factor is whether or not the franchise store provides the standard services offered by the Retail chain.

Next comes the accessibility of the store.

To ensure that the store is accessible by one and all, it is essential to put in Retail Chronicles | Page 12

strategic thought towards determining the location of the Franchise store.

E.g., a Mcdonald's store on the MumbaiPune highway is a great idea, as people will take pit stops and want to eat munchies on the way. Similarly, a gas station or a diesel refill station would work very well on the highway.

On the contrary, a full-fledged medical store may not be as profitable on a highway. A salon is bound to fail if opened in such a location.

If we look at a residential area, the same medical store and the same salon will flourish.

So, what is it that goes into determining the location for a Franchise Business?

October, 2021

LET US TAKE A THOROUGH LOOK:

1. Customer Demographics: When opening a Franchise, it is essential to know what a ‘typical’ customer would be like. So, if the food chain franchise is opened near a metro station, you would know that your typical customers would be the daily commuters, primarily found in the office-going crowd.

A luxury store franchise can only be opened in areas that have enough highincome households.

A franchise of a traditional apparel store is less likely to make profits in an area where most residents are office-going bachelors.

Things like age, income, gender, education, and family type of the potential customer make a lot of difference in determining a franchise's location.

2. Visibility of the store: The visual appeal of a retail store is its most valuable asset. A beauty salon hidden in the corners of the street is less likely to be found by its target customers and, hence, less likely to make profits.

It can be a problem for your store if your potential customer finds it challenging to find your store.

However, if you own a franchise of a Motor repairing store, you wouldn’t want it to be located in a residential area as it will call for trouble in cases of prolonged repairs that would create noise pollution.

A motor repairing store is something that a customer will be seeking if they are near locations like a petrol pump or on a highway. Hence, a store in such an area would be profitable.

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October, 2021

3. Accessibility: Being considerate towards your customers goes a long way in any business. Opening the franchise store while keeping in mind the needs of specially-abled customers will fetch some brownie points for the store owners.

While these considerations might not determine the profitability of your store, they will be a determining factor in how your customers interact with your business.

chains have some criteria that are to be fulfilled when opening a franchise.

Often, these criteria would include the basic requirements of the location of a store.

And once you start, there’s no looking back. As research suggests, multi-unit franchisees do fair comparatively well than single-unit operators.

So, conduct your thorough research and get ready to taste the success with Franchise Businesses.

4. Competition: Here comes one of the most critical factors that would determine the success of your franchise. The threat of competition is often seen in malls and supermarkets.

These formats often work for places that are expected to be crowded at all times.

However, you need to make sure that your brand stands out from the other brands in such cases.

Being located near your competitor can affect your business both negatively and positively.

This phenomenon is seen quite often in the case of food chains. You would often see brands like KFC, McDonald's, Burger King placed closely in food courts. By doing this, brands are giving their customers the choice to go with their preferred brand. The plus side is that if McDonald's is too crowded, you can go to Burger King where your meal would be just as happy.

This applies to all kinds of stores that we see in malls and supermarkets.

Owning a franchise involves a lot of market research. Above are some factors that the franchisor can keep in mind while opening a store. A lot of retail Retail Chronicles | Page 14

October, 2021

THINGS TO KNOW BEFORE OWNING A FRANCHISE BUSINESS

Raghav Khandelwal - MBA RM Retail Chronicles | Page 15

October, 2021

Introduction Upon visiting one of the most famous Sweets Shop in Prayagraj with my friends, we discussed the success of the outlet and the expansion strategy they have adopted over the years.

We got to know that the business used franchising as a mode to expand its footprint all across the country. We even thought of opening an outlet given the record of profitability of the store. But, this is not as easy as we believe.

What are your Market Requirements?

Before moving any further, understanding the market requirements should be the first step for one to understand the needs and demands of consumers. Here, one needs to see the current and future trends in the marketplace and leverage them. Rushing into a business without proper research may threaten the person looking for owning the franchise.Some of the key factors for the analysis are: Geographic Market Demographics Competitors Key Trends in the Industry

Running a franchise comes with advantages as well as disadvantages to the franchisor. To know whether he should be opting for a specific franchise or not, there are some essential prerequisites he must learn. In this article, some of the crucial factors to know before owning a franchise have been discussed.

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October, 2021

For instance, a person looking to own an outlet of a QSR should know what kind of foods the consumers like and whatnot. Opening a KFC outlet in a place occupied mainly by the Jain community is not a good idea in any way!

For instance, one does not have to be a fast-food lover to open an outlet of McDonald's, given the substantial market requirements for the place. Being successful in business means how much one person is thriving on the business, not only in the business.

Estimated Cost of the Franchise After knowing the market requirements, a person should know the total investment he has to make for setting up an investment. Knowing these costs is essential, as one does not want to be running out of cash when one knows you are on the path to success.

The costs which are required to estimate the total cost of the franchise are: Legal and Accounting Fees Franchise Fee Build-Out Costs Inventory Costs Travel and Living Expenses Cost of Working Capital

Time-Investment It is not only how much a person is willing to invest in a franchise but also the time investment for it. Running a Franchise is different from a business.

But, the Franchise is still operating as a business and there are points of parity which needs to be understand by a person looking for owning an outlet.

Know your passion & strengths Knowing your strengths and passion for a specific type of business is essential.

This ensures longevity as well as one's interest in the industry.

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October, 2021

For some businesses, the time investment can be even more than 24 hours during festivals, and the passion drives one to run it. This is, in particular, true for franchises running sweets shops and restaurants, home furnishings, etc., in the season of Diwali.

Franchisor’s Past record and Internal Support Researching about the Franchisor is significant for the success of a business because not every Franchisor is the same.

Following factors should be evaluated before deciding to opt for the franchise: History of the Company The average rate of success of a franchise Franchise's Life Cycle and the period up to maturity Many retailers using the franchising model offer extended support to the franchisee in terms of technical know-how, equipment, flexible payment schemes, and many more.

Domino's Pizza is one such example of a company that offers long-term support to franchisees.

Franchisor makes these guidelines to ensure the brand value and the quality standards of the goods and services offered by them.

Rules and regulations of the franchise Last but not least, it is essential to know about the rules and guidelines one has to follow after taking up a franchise. The Franchisor makes these guidelines to ensure the brand value and the quality standards of the goods and services offered by them.

Conclusion Through the points discussed above, we can understand how a franchise is much different than it looks from the outside.

The things which are prerequisite for a person to know before operating an outlet and becoming franchisee, have been taken in consideration and it helps to increase the success rate of the Franchise.

Rules and regulations of the franchise Last but not least, it is essential to know about the rules and guidelines one has to follow after taking up a franchise. The

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October, 2021

PODCAST

THE FRANCHISING FRAMEWORK

-AAYUSH GHILDIYAL

IMPACT OF LOCATION ON FRANCHISE BUSINESSES -AKSHITA KULSHRESHTHA

Retail Chronicles | Page 19

FREE FRANCHISE VS TRADITIONAL FRANCHISIE

-HARSH GUPTA

THINGS TO KNOW BEFORE OWNING A FRANCHISE BUSINESS

-RAGHAV KHANDELWAL

October, 2021

TRIVIA

QUIZ

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October, 2021

Q1. Find the odd one out, in reference to the Franchising Framework: a) The Influence of Behaviour & Interaction b) The Influence of Environment c) The Influence of Size & Age d) The Ownership Structure

Q5. The Most important factor critical to the success of a franchise as considered by experts is: a) Investment b) Good-will of Franchisee c) Location d) Internal Support by the Franchisor

Q2. When talking about the Business Structure Influence, which is the area, where no support is required: a) Training b) A Ready-made concept c) Product Development d) Employee management

Q6. Identify the odd one out: a) Starbucks b) Subway c) D-Mart d) Café Coffee Day

Q3. Which of the following factors goes into the determining of the store location: a) Store aesthetics b) Store size c) Customer demographics d) Environmental Factors

Q7. In the traditional franchise model, the product development and strategy is mainly done by: a) Franchisor b) Franchisee c) Both Franchisor and Franchisee d) None of the above

Q4. Which of these Brands are not located close to their competitive brands: a) KFC b) McDonald’s c) Burger king d) Naturals

Q8. The degree of freedom to improvise product is relatively higher in: a) Vivo b) Hp c) Pizza Hut d) L’Oreal

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October, 2021

REFERENCES https://www.investopedia.com/terms/f/franchise.asp https://explore.openaire.eu/search/publication? articleId=doajarticles::924428c0c6b70cdaa4b9d9a77559d9e9 https://www.profitbooks.net/franchise-business/ https://blog.greatharvest.com/the-bread-businessblog/why-the-freedom-franchise-is-a-better-model-forfranchising https://www.forbes.com/sites/forbescoachescouncil/2018/0 8/02/yes-franchising-has-its-freedoms/?sh=70f192a23382

/retaillabsimsr @Retail_Lab @Retail_Lab