˝what to look for in franchisingfisme.org.in/indiamsmesummits/2nd_msme_summit/...˝what to look for...

“What to look for in Franchising”

Presentation by:Sachin Marya, Director,

Indian Franchise Association

Fast food chain with highest number ofoutlet in America -

Fast food chain with highest number ofoutlet in the World -

Franchise SelectionFranchise SelectionJuly 22, 2010, FISME Summit

BACK TO BASICSfor a WIN-WIN partnership


Lets define Franchising!“Rights of privilege granted”

Business Format FranchisingBusiness Format Franchising….is a carefully structured programme whereby theowner of the business, the Franchisor, enters into aMid to Long-term Agreement to transfer thebusinesss opportunity and the Total Goodwill andKnow-how to a franchise for use in an ExclusiveTerritory or Location.


The FranchisorRights to Brand Name, Location/ Territory and SystemsProvides the know-how and trainingPromotes and develops the BusinessProtects the reputation of the Organisation

The FranchiseeProvides the manpower and equipmentOperates “The Business” in accordance with theOperations Manual and Franchise AgreementDevelops the BusinessPays an on-going Management Service Fee


90% of the selfstarted businessesfail to survive in first5 years of operations!!


95% of the franchisedbusinesses aresuccessful even after10 years in business!!


World’s #1Marketing andDistributionformat!!


Every third $In America isspent in afranchise.!!


2.3 trillion $Industry inAmerica.!!


Franchise Fees – Shorten The learning curve

Royalty – On going Support

Advertising Fees – Costumers

Administration support – More costumers

Transfer – More good will

Territory rights – Territory protection

Termination - Remove rotten eggs

Performance Standards – Grow together


The Advantages to the FranchisorMinimises Capital outlayEnables expansionReduces Head Office administration and expensesOffers an individual service to the CustomerObtains the benefit of highly motivated people

The Disadvantages to the FranchisorReduces direct controlA shares profit marginNeeds for high tolerance level


Components of a Franchise Brand - Distinctive and Protected

System - Proven and transferable

Support - Initial and Continuing

Agreement - Comprehensive and Fair

Reasons for Success Hard work, effort and commitment

Good product and service

Good marketing and advertising

Good Franchisor/Franchisee relationshipand support


- The Franchisor’s obligations

- The Franchisee’s obligations

- Joint responsibility

- Motivation for becoming a Franchisee

The Franchise Relationship


-Grow The business- WIN/Win for both parties

- Communicate

- Lead

- Motivate

- Be firm

- Be flexible

Responsibilities of Franchisor


- Follow the system

- Grow the Business with local strength

- Reinforce the trade marks

- Commute ideas and recommendations

- Be a team member

Responsibilities of Franchisee


The Franchise RelationshipJoint Responsibility

To build a network with defined image andstandards under a recognised Brand Name

Motivation for becoming a FranchiseeLower Risk 54%Marketing/Training 48%Long Term Ambition 41%Using known name 34%Potential Income 26%


Contributory Factors toContributory Factors to FailuresFailures■ 25% caused by external factorsRegulatory controlsIndustry changesVolatile Market Conditions■ 25% originating from FranchisesMismatched expectationsUnwilling/Unable to keep up with the systems.Unwilling to learnNot maintaining Operating StandardsPoor Location


Contributory Factors toContributory Factors to FailuresFailures■ 50% originating from FranchisorsPoor SystemsUnder-CapitalizationFailure to keep promisesExploitative mindset or high-handednessNot receptive to franchisee ideasInadequate Marketing ProgrammesNot Keeping up with Market trends.


Market & Industry AnalysisIs there exclusivity or differentiationIs the concept well adapted in the country?Is the market highly competitive or fragmentedIs it a growth market ?Or is it faddish ?Or toosaturated?Control over sourcing?Is the Franchisor committed to R&D?Are marketing strategies effective?


• Local Marketplace

• Local socio – economic condition

• Culture, Religion and Language

• Consumer behavior

• Competition / Strategy

• Legal system

• Penetration

BeBe firmfirm BeBe flexibleflexible


Global ExpertiseLocal Opportunities(many countries within a country)


CommonCommon Areas ofAreas of ConflictConflict Perceived misrepresentation by franchisor. Verbal understandings which are not written into

the formal agreement. Franchise is not profitable soon enough. Inadequate support from franchisor. Misuse of advertising funds. Under Reporting or late payments. Quality Control. Unequal treatment. Not complying with corporate branding guidelines.


In ConclusionIn Conclusion Every Business venture has risk & many factors –

controllable or uncontrollable-at work each day ,eachminute, as such…

NO Franchisor can “guarantee” its own continuedsuccess, let alone the success of its franchisees

But good franchises lower risk of failure & shortenlearning curve.

Finally, read the fine print & know what you are gettinginto.


Popular OpportunitiesPopular Opportunities Education: Pre School, Study Centres, Vocational

academies, High Schools, Retail: Fashion & specialty stores F&B: QSR & specialty restaurants H&B: spa, pharmacy, salon or a cosmetic store Business services: Printing services, Courier & Cargo

Services, financial services, property brokerage. Service: Cleaning Services, bill collection, travel agency.


Franchise Vs LicensingFranchise Vs LicensingThe basic definition of trademark licensing is ratherstraightforward, if somewhat legalistic.

A license is an agreement through which a licenseeleases the rights to a legally protected piece ofintellectual property from a licensor - the entitywhich owns or represents the property - for use inconjunction with a product or service.


Thank You

Presented by:Sachin Marya, CEO & Publisher,Franchise India Holdings Limited

[email protected]

˝what to look for in franchisingfisme.org.in/indiamsmesummits/2nd_msme_summit/...˝what to look for...

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